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Biotech/Health Wrap: VCs Finicky in Health Financing

There are few industries that require investors to have the expertise and insight needed to succeed in the health-care and biotechnology sectors. Though they are are often grouped as one, each flourishes in its own setting and that distinctiveness has rarely been clearer than during this year.

All tolled, 185 fewer health-care and biotechnology companies have received less capital — $551.1 million — so far this year than in the same period last year. However, the average invested per company in 2000 has increased to $11.02 million from $8.53 million last year.

Of course, such a comparison is a bit like apples and oranges.

Biotech Blows Up

Companies seeking financing in the biotechnology sector, which includes life sciences and pharmaceuticals companies, are finding the red carpet rolled out for them this year. According to our VentureXpert database, 143 biotech companies received $1.71 billion in venture capital this year as compared to the 183 companies that received $1.66 billion in the same period of 1999. The average invested per company jumped to $11.96 million in 2000 from $9.09 million in 1999.

In the third quarter 2000, Sunesis Pharmaceuticals Inc., a company focused on small molecule discovery, raked in the most capital with $60 million in financing. Also at the top of the list, FibroGen Inc., which focuses on repair and regeneration of tissue, completed a $56.5 million round of financing and Third Wave Technologies Inc., which develops enzymes and systems for manipulating DNA and RNA, brought in $48 million.

Overall, 13 biotech companies total received financing in the third quarter.

Standish Fleming, a managing member with Forward Ventures, which concentrates on early-stage and seed-stage investments in the health-care and biotechnology sectors, has noticed the increased attention in biotechnology and life sciences since December and expects the trend to continue through the remainder of 2000.

“The assumption [is] that by the time anything in the ground today, even mezzanine rounds, [goes public], the public enthusiasm for platform technologies is probably going to be less than it is today — it’s hard to imagine it being higher,” Fleming explained. “So the private money is rotating toward products today.”

Health Care Hot As Well

On the health-care side, which includes medical devices, services and Internet companies among others, the numbers look a little different. To date, 270 health-care companies received capital in 2000 as compared to 415 in the same period of 1999 — a decline of 65% from last year. Additionally the total amount of capital invested in these companies has fallen this year to $2.84 billion from $3.44 billion last year.

On the upside, the average investment per health-care company has jumped to $10.52 million this year from $8.29 million in 1999.

But, while the number of companies are diminishing, capital is flowing into the venture market and that should eventually be reflected in even the slower sectors.

13 medical and health companies pulled in investments in the third quarter. Leading the pack was General Healthcare Group, which operates private hospitals, bringing in $1.86 billion in financing. In a distant second, Physiome Sciences Inc., a company that uses computer technology to develop 3-D physiological models to evaluate drugs and medical devices, received $50 million.

“A year ago, the dotcom world was red hot,” Fleming said. “It was one stop shopping for entrepreneurs in the venture business in the dotcom world and the bio world was just lying there. Today reality has taken a big bite out of the dotcom world. So I’m sure a big chunk of that cutback is in the Internet area. It’s just the result of market trend responses.”

Indeed if health-related companies are suffering at the hand of the public markets, the biotechnology sector?s day in the sun may be coming to a close in the shadow of a bear market. “Life sciences is holding up very nicely now,” Fleming said. “We’re getting IPOs out, we’re getting companies doing well and all the rest, but I don’t think we can sustain that program in the face of a major bear market.”

Christa Fanelli can be contacted at Story Feedback