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Private Biotechs Raised More Money in Early '09 than '08
(BioWorld Today Via Acquire Media NewsEdge) VCs Remain Pessimistic
Despite the sorry state of the economy, private biotech companies raised more money in the first two months of 2009 than in the same period last year, according to data from BioWorld Financial Watch.
In January and February of this year, private biotechs raised $789 million, compared to $582 million raised in the same period last year. The number of deals also increased to 49 rounds in 2009 from 38 rounds in 2008, and the average funding raised per round edged up to $16.8 million this year from $16.2 million last year. (See editor's note at the end of this article.)
The same trend doesn't hold true for public biotech companies. Their fundraising efforts in January and February garnered just $833 million, less than half of the $2 billion they had raised by this time last year.
And despite the initially encouraging numbers on the private side, venture capitalists remain pessimistic.
"I can absolutely guarantee VCs are spending more time sitting on their hands and not making investments they would have made a year ago," said Bob More, general partner with Frazier Healthcare Ventures.
Several factors may be tinting the early 2009 numbers with a rosier hue than warranted, according to the VCs.
James Datin, executive vice president and managing director of life sciences at Safeguard Scientifics Inc., suggested that some of the rounds to close in early 2009 may have been initiated before October 2008, when the markets melted down. The subsequent slowdown in financing activity may not be reflected until later this year, he said.
Of the 49 deals to close so far, 29 closed in January, while 20 closed in February. In the first two weeks of March, just five additional rounds closed.
Another factor at play may be an increase in fundraising activity by later-stage private biotechs forced back to the venture well after the market collapse dashed their hopes of completing an initial public offering. Matthew Rieke, partner with Quaker Bioventures, said such companies may have recovered from their valuation shock by the end of the year and decided to complete a down round and move on.
Indeed, in early 2009, 57 percent of the private biotech funding, or $448.2 million, came from Series C or later rounds - as well as an increasing number of rounds for which the stage was not disclosed. In early 2008, 41 percent of the funding, or $237 million, came from such rounds.
The largest round to close so far this year was Sopherion Therapeutics LLC's $55 million Series C. Although it wasn't announced until February, the first tranche of the round actually closed last year. (See BioWorld Today, Feb. 20, 2009.)
More said the 2009 financing numbers may continue to be skewed as "legacy money" that was committed in 2008 is drawn down in 2009.
Behind Sopherion was a $50 million round from Anacor Pharmaceuticals Inc., which had withdrawn its IPO bid just weeks before. Although the stage of the round wasn't specified in the company's press release, Anacor's previous venture round was a Series C. (See BioWorld Today, Jan. 7, 2009.)
Rieke predicted 2009 will bring additional $40 million to $50 million rounds by later-stage private biotechs, although he added that some companies "won't be financed and will have to close down."
More noted that the larger rounds are necessary as portfolio companies advance through the clinical trial process, since "Phase III is more expensive than Phase II." Venture capitalists used to count on taking a company public to fund Phase III, he said, adding that VC money alone cannot bring all of these drugs to market, and "there are tough decisions being made."
A recent survey by the National Venture Capital Association found that 93 percent of VCs believe it will be harder to sustain their existing portfolio companies in 2009. But at the same time, 96 percent of VCs predict it will be harder for new companies to get funded this year.
The initial numbers point to increased funding for new companies. In early 2009, 16 companies raised a total of $272.7 million in Seed or Series A rounds, compared to 10 new companies that raised $155.4 million in early 2008.
But numbers can be deceiving. The largest Series A round, $36 million, came from Genyous Biomed International Inc., which was founded in 2000, while another $24 million A round came from Genyous's spinout Omnitura Therapeutics Inc., founded in 2001.
Neither are true start-ups, and both rounds came from private investors rather than venture capitalists. (See BioWorld Today, Jan. 30, 2009.)
That doesn't mean financing for start-ups is dead. Several biotechs founded within the last two years closed Series A rounds in January and February, including cancer companies Kolltan Pharmaceuticals Inc. and Forma Therapeutics Inc., trimeric protein player Anaphore Inc., flu vaccine maker Vivaldi Biosciences Inc. and Alzheimer's company Satori Pharmaceuticals Inc., among others.
Rieke noted that one factor in favor of young companies is that even though VCs need to sustain their portfolios, they usually can't invest money from a new fund into an existing portfolio company. He added that a lot of funds closed in 2007 and 2008 and have money to invest.
And for funds with capital, Datin predicted that the record number of down rounds in 2009 will yield "one of the greatest vintage years for producing returns" over the following three to six years.
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Editor's note: The average funding raised per round excludes two rounds in 2009 and two rounds in 2008 for which the total amount raised was not disclosed. n
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Copyright ? 2009 Thomson BioWorld, All Rights Reserved.
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