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Biotech investing grows healthier Interest shifting from Web firms

By Terence CheaThe Washington PostPublished October 8, 2001

WASHINGTON -- Not so long ago, Ivan Stangel andhis colleagues at BioMat Sciences Inc. would jokeabout adding .com to the Rockville, Md., start-up's name to draw investorschasing Internet riches.

Not any more.

While dot-com and other high-tech firms struggle to survive, the biotechnologyfirms they once overshadowed are still attracting investors. That leavesentrepreneurs such as Stangel feeling upbeat.

"We're feeling much more optimist ic than we did a year ago about raising f unds,"said Stangel, BioMat's act ing chief executive and scientific director. Stangelfounded the company, which develops biological materials f or dental care, threeyears ago. "We've gotten more response. We're feeling much more confidentabout our ability to attract institutional investors."

Stangel's optimism reflects the biotech sector's relative strength as venturecapitalists and entrepreneurs began gathering in Washington last week for amajor industry investment conference.

Despite a weakening economy, venture capital dollars continue to flow to privatebiotech firms. To be sure, venture capitalists are investing less than they did lastyear, but they say there is still plenty of money for companies with strongtechnology, management and potential products. They war n, however, thatentrepreneurs should not expect the kind of deals they cut during more robusttimes.

"If you've got really good technology, the climate is good," said Linda Powers,managing dir ector at Toucan Capital, a Bethesda, Md., venture capital firm. But,she adds, "the valuation has to be much more realistic, and the technology hasto have home-run potential."

 About 90 private biotech firms pitched their business plans to investors at the

BIO Venture Forum, the industry's largest money-raising get-together. The eventwas hosted by the Washington-based Biotechnology Industry Organization.

Many start-ups attending the event expressed confidence they could achievetheir funding goals, even in today's economy. Functional Genetics Inc., aRockville, Md., start-up that raised $8 million in its first round of funding inDecember, hopes to raise $20 million more by early next year.

"I'm pretty optimistic," said Sharon Mates, the company's chairman and chief executive. "It's a cautious market now, but the private market is certainly notclosed. There's still a lot of money going into private companies."

 

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for China

Weller's bill would

give high-tech push

E-mini hog futures

headed for delisting

,the sector is capturing a larger percentage of overall venture capital investment,said Mark Heesen, president of the National Venture Capital Association. Thebiotech industry raised $3 billion in venture capital last year, about 3 percent of the total $100 billion, Heesen said. This year, the sector is expected to raiseabout $2 billion, or about 4 percent of a forecasted $50 billion.

"Percentagewise, biotechnology is getting a bigger chunk of it," Heesen said."What we're seeing is an increasing interest by venture capitalists inbiotechnology."

 As the prospects of Internet-inspired businesses fizzle, more venture capitalistsare shifting their attention and resources to the biotech industry. For example,Toucan Capital, which invested all of its first $60 million fund in informationtechnology firms, plans to invest about 60 percent of its second $120 million fundin life-science ventures, Powers said.

New Enterprise Associates is returning to the biotech sector after the techcollapse. Until five years ago, the Baltimore firm invested about half of its funds inhealth-care ventures, but that percentage shrank to 15 percent during the techboom. Now NEA plans to pour more money into biotech start-ups.

"New money is going into good old reliable health care," said James Barrett, ageneral partner at NEA. "Many venture funds have decided to rebalance their 

portfolios toward health care and biotechnology."

Meanwhile, many of the nation's largest high-tech and drug companies have setaside funds for biotech investments. For example, drugmaker Eli Lilly and Co.and tech giants IBM Corp. and Compaq Computer Corp. recently announcedplans to make significant investments in biotech-related ventures.

Despite the slumping economy, industry watchers say the biotech industry hasmade significant progress over the past year toward commercializing itsresearch. Companies are launching more trials of experimental drugs, productsare moving closer to market, and the number of profitable firms, while still small,is growing.

Bristol-Myers Squibb Co.'s decision last month to invest $1 billion in New Yorkbiotech firm ImClone Systems further underscores the value of the sector to thedrug industry, said Nelson Campbell, head of biotech investment at Arlington,Va.-based Friedman, Billings, Ramsey & Co.

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