Biotech Wrap: SoCal Keeps Raking In The VC Dollars

Biotechnology companies based in Southern California received more funding in the first quarter than biotech companies in any other region, according to preliminary data from our VentureXpert database. Despite general downturns in the market, the $100 million invested in SoCal biotech companies represented a 14% increase over the $87.5 million invested in the first quarter of 2000.

Investments in SoCal biotechs have increased every year since 1995, and investments in 2001 appear to be on track to top 2000?s total investment of $360.9 million. Since the beginning of 2000, 80% of SoCal biotech funding has been funneled to companies in the San Diego area, which evolved into a biotech and health care hub.

“San Diego is an incredible hotbed of academic research,” said David Higgins, director of business development for IDUN Pharmaceuticals Inc. In early 2000, VCs invested $43 million in Idun.

Higgins said local research institutions ? such as the Salk Institute for Biological Studies;University of California, San Diego; the Burnham Institute and the Scripps Research Institute ? support the scientific community. He said all of those research facilities all fall within about a mile radius of each other, and that most start-ups have opened in the same general area.

The academic environment attracts and retains scientists and researchers, and the atmospheric climate leads most people to consider San Diego itself to be a desirable place to live. Besides the companies spun out of local institutions, the environment also entices companies to relocate to the area. For example, Idun was originally founded in Northern California.

“San Diego did have some greater capacity for growth [compared to the biotech environment in other areas],” said Linda Grais, executive vice president and founder of Structural GeNomiX Inc. Regionally, Structural Genomix received the most funding in 2000, between a $45 million round in September and a $32 million round in March.

Jay Knowles, vice president of business development for Structural Genomix, recently transplanted to the area from Boston, which has mirroed San Francisco in becoming quite crowded and expensive for biotech start-ups. He said San Diego feels like a developing community, compared to a corporate feeling in Boston.

Regional entrepreneurs pointed to organizations like UCSD CONNECT and BIOCOM / San Diego as groups which build community interaction by organizing professional seminars.

Elitra Pharmaceuticals Inc., which received $31.9 million over three rounds in 2000, grew out of another area research institution, San Diego State University, where company founder Judith Zyskind is still a professor.

Grais said she has heard of a few biotech startups finding cold shoulders in their latest quest for funding, but that most entrepreneurs in the area are still very positive.

In mid-February 2001, VCs invested $33.2 million in Santarus Inc., a specialty pharmaceutical company that was spun off of a diagnostics company, Prometheus Inc.

Gerald Proehl, Santarus?s president, said most VCs are investing in current portfolio companies, but new investing has shifted from genomics companies to companies like Santarus, which develops products from the clinical trial stage to the marketplace.

He said that the current negative market environment has caused VCs to want the faster and clearer path to revenue potential offered by later-stage companies.

Contact Charles Fellers.