Brian O'Connell
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Hey, this investing game is easy. Consider Nebraska's Warren Buffet, the billionaire financier who recently made billions
betting against the US dollar. He once famously said that successful investing was based on two rules: The first rule is not
to lose money. The second rule is not to forget Rule #1.
So it goes with the venture capital industry. VC firms have gone to great lengths to follow the Buffet Rules. Some might say
that venture capital companies have spent the first years of the new century clinging to those rules like a barnacle to the
hull of a boat.
Can't blame them for not wanting to lose money. Venture capital firms were annihilated in the early 2000s by poor performing
investments. Not just in the biopharm sector, but in others like technology and telecommunications too. Many VC firms lost
so much money they went belly up. Others merged just to survive. But now, scores of venture funding companies are lining up
and waving their checkbooks at promising life sciences firms.
According to BioCentury's Financial Center, the biotech industry has raised $112 billion since 2000. A separate report from
PricewaterhouseCoopers Health Research Institute shows venture capital groups poured a record $6.33 billion into life sciences
companies in 2004. The IPO industry is heating up as a result. The biopharm industry has launched 56 new IPOs since January
2004, at a collected value of $2.8 billion. Sixteen more biotech firms are lined up on Wall Street for IPOs in 2005. "Money
typically follows strong fundamentals, and there's good reason why the biotech industry continues to draw new investment,"
says Dennis Purcell, senior managing partner with Perseus-Soros Management, LLC.
Clearly, something very positive is happening here. "VC investment in the health sector has steadily increased, even through
the post-Bubble hangover as investors have, on one hand, sought to diversify their IT-heavy portfolios, and on the other come
to recognize the long-term potential of the sector," explains Tracy Lefteroff, global managing partner for Life Sciences Industry
Services at PricewaterhouseCoopers. "We believe the aging population in the developed world and recent commercial successes
of life sciences companies will continue to fuel investment in this sector to a point where investment in health-related industries
will rival or surpass IT investments." Among the most heated sub-sectors of the biopharm market, adds Lefteroff, were cancer
drug development, new types of stents, pain management therapies, insulin delivery systems, respiratory disease therapies,
elder-care services, and physician-owned specialty hospitals.
BULLISH ENTHUSIASM
For their part, biopharm companies are growing downright giddy about the renewed interest from venture capitalists.
Fresh off from deals involving Aska Research and Syrion ($1.1 million), Inimex Pharmaceuticals ($8 million), Burnaby's Xenon
Pharmaceuticals ($200 million), and ID Biomedical ($2.5 billion), a British Columbia-based biotech fund recently sent me a
press release touting "The Top Ten Reasons to Invest in B.C.'s Biotech Sector." You know when industry capital providers start
mimicking David Letterman, the good times are indeed a-rollin' again.
A "PERFECT STORM"?
Why the surge in vendor funding for the life sciences industry? And what does it all mean in the long run?
Well, for starters, the venture capital folks look at the biopharm industry and once again see home run potential.
"Large pharma is now dependent on biotechnology; the proximity to large pharma is now a major advantage to industry development;
and clinical-development and commercial-development talent pools are in high demand," explains Sherill Neff of Quaker Bioventures
and manager of the Garden State Life Sciences Venture Fund, in touting the growth in biopharm funding in the Mid-Atlantic
states. He says, "There is a core of experienced serial entrepreneurs emerging; the flow of federal funds into academic medical
research is stronger than ever; technology transfer efforts are improving; and venture capital resources are growing."
Neff adds that with biotech valuations at the lowest point in years, the resulting investment opportunities are multiplying
— seemingly by the hour.
