Brian O'Connell
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The dotcom bubble is back and with it comes a new wave of venture capitalists (VCs) that are pouring money, not just into
Internet companies, but into life sciences companies as well—and in increasingly larger numbers.
According to an article in The New York Times in October: "Internet companies with funny names, little revenue, and few customers are commanding high prices. And investors,
having seemingly forgotten the pain of the first dot-com bust, are displaying symptoms of the disorder known as irrational
exuberance."
While The Times focuses more on information technology companies like Facebook, Yahoo, and Google, the evidence points to a burgeoning number
of VCs snapping open their checkbooks and waving them in the direction of biopharmaceutical companies.
Table 1. Healthcare venture capital investments (third quarter ended June 30, 2007)
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According to Healthcare Corporate Finance News, healthcare firms garnered roughly $2.5 billion of venture capital funding during the third quarter of 2007. That's a 10%
increase in new venture deals over the same period last year, and a 14% gain in dollars pouring into healthcare companies.
The life sciences sector comprises the lion's share of the new deals (Table 1).
In a study of venture fund activity throughout the first three quarters of 2007, Healthcare Corporate Finance reports that the medical device sector topped the list of life sciences companies gaining the most venture funding, with
25% of the quarterly dollar total for all sectors combined. "The second-largest deal of the quarter, a $110-million Series
E financing for Globus Medical, a developer of spinal implant systems and biomaterials, was led by Clarus Ventures. Neuromed
Pharmaceuticals, a biopharmaceutical company developing drugs for chronic pain, announced the largest deal among pharmaceutical,
biopharmaceutical, and biotech companies, with a $53.3-million Series E financing led by MPM Capital," says the report.
Table 2. The most active healthcare venture capital firms (third quarter 2007)
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In the entire healthcare field, the busiest companies were not attracting single venture investors, but sometimes four or
five of them. That's a telling sign. A rule of thumb on Wall Street is that if more than one venture firm is knocking on your
door, then the investment purse strings are really loosening. That has to be considered good news in the biopharmaceutical
sector, particularly for startup companies who should most benefit from a pumped-up venture funding climate. The evidence
backs that theory. Seed money going to smaller companies accounted for 29% of all venture investments in the first quarter
of 2007, up from 26% during the same quarter in 2006. Table 2 lists the most active healthcare venture capital firms.
WHY ALL THE FUSS?
The life sciences sector hasn't seen this big a pipeline since 2001, when venture firms turned away from Internet companies
and toward biopharmaceutical companies in a desperate bid to stem the losses incurred when vast armies of dotcom dinosaurs
went belly-up. The fact that, as The Times points out, the rise in venture funding in the life sciences market this year coincides with the rise in venture funding
in the Internet market, is somewhat worrisome. After all, it was only six or seven years ago when an estimated $1.5 billion
was lost by venture capital firms. Shouldn't they be worried about history repeating itself?
