Jun. 13–Think of it as a beauty pageant for biotechnology companies, where executives dangle promising genes in lieu of twirling batons and everyone gets just eight minutes to strut their stuff.
At yesterday’s annual financing forum sponsored by the University of California San Diego’s Connect program, executives of 23 new and established privately held biotechs vied for the attention of more than 100 venture capitalists.
For the 23 finalist companies that made the cut from 74 applicants, the stakes couldn’t be higher because the financial climate couldn’t be grimmer.
While publicly traded biotech stocks are warming up on Wall Street, winter still reigns in the realm of venture-capital financing, biotech observers agree.
That’s because venture capitalists, who nurture startups through years of early development, can only make their money when the fledglings go public or are sold to another public company.
Wall Street’s appetite for biotech IPOs, after a binge in 2000 that later turned sour, remains nonexistent. So venture capitalists are nursing their funds to bankroll companies already in their portfolios, with a limited amount to spare for others.
“At the end of the day there is only a finite amount of capital, and it can’t feed an infinite number of early-stage companies,” said Peter Ulrich, president and CEO of TargeGen, one of the companies that presented at the UCSD Connect Life Sciences Financial Forum. “There are a lot of hungry mouths to feed, so you have to distinguish yourself from the rest of the pack.”
After undergoing an extensive practice run with a panel of industry experts, executives yesterday pitched their companies and experimental products to venture capitalists throughout the day.
Some companies, such as TargeGen, were seeking new capital to bring a drug candidate into the first phase of human testing. TargeGen hopes early next year to begin testing a drug designed to reduce heart damage in patients who have suffered a heart attack, and is looking for $8 to $10 million to begin.
NovaRx Corp., another privately held San Diego company, is trying to raise up to $50 million over the next five years to advance a brain cancer therapy and colorectal drug into Phase 2 studies.
Daniel Shawler, vice president of the 10-employee biotech, said he senses the beginning of a thaw in venture-capital spending in recent weeks.
“When we started looking a year ago for money, venture capitalists were calling it nuclear winter,” Shawler said. “But now you hear through the grapevine of people getting money. Now we are at least getting our phone calls returned, which is more than I could say was happening last year.”
Last year, venture-capital investment in San Diego County hit its worst slump in six years, with only $121 million making its way to startup companies in the first quarter, according to the latest venture-capital survey by PricewaterhouseCoopers.
Locally, the biotech and medical-device industries combined raised only $53 million in the first quarter, compared with $78 million in the previous quarter and $173 million in the first quarter of 2002.
Dr. Fred Cutler, executive director of UCSD Connect, the university-linked entrepreneurship program, said the tone and the mix of participants have changed this year to reflect challenging times.
The companies chosen to give presentations yesterday had products in more advanced development, with Phase 1 or Phase 2 data, when in past years companies with products still in the test tube or on the drawing board were more the norm.
The new mix is both a reflection of the demand by venture capitalists for companies with real products and the need for venture capitalists to attract other venture investors to their companies, forming syndicates that will spread the risk and keep companies afloat until the IPO window opens, Cutler said.
And while no one is wildly optimistic that the IPO market will return soon, most believe that “things have definitely bottomed out,” Cutler said.
“Venture capitalists are identifying the highest-quality deals and aggressively getting involved because they know things are going to open up, and they don’t want to get left behind,” he said.
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