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Biotech faces investment downturn

Venture capital investment in the linkurl:biotechnology;http://www.the-scientist.com/article/display/15304/ sector appears to be one bright spot in an otherwise gloomy snapshot of the financial climate, according to recent data. But a strong third quarter belies a likely downtrend in biotech investment over the next couple quarters. According to PricewaterhouseCoopers' quarterly linkurl:MoneyTree Report,;https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=notice&iden=B which was released earl

By | October 29, 2008

Venture capital investment in the linkurl:biotechnology;http://www.the-scientist.com/article/display/15304/ sector appears to be one bright spot in an otherwise gloomy snapshot of the financial climate, according to recent data. But a strong third quarter belies a likely downtrend in biotech investment over the next couple quarters. According to PricewaterhouseCoopers' quarterly linkurl:MoneyTree Report,;https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=notice&iden=B which was released earlier this month, $2.2 billion in venture capital (VC) investments flowed into the biotechnology and medical device industries in the third quarter of 2008 - a 10% increase over 2008's second quarter numbers and a 21% increase in investments from the third quarter of 2007. linkurl:Michael Borrus,;http://www.ncwit.org/about.team.board.php?action=detail&biosID=24 founding general partner of Silicon Valley seed-stage venture fund X/Seed Capital, told __The Scientist__ that positive third quarter numbers represent deals that were started before the recent financial tailspin currently gripping US and world markets. Borrus said that the future would likely be less cheery. "I think it's predictable that anything that takes a lot of capital is going to have to be judged more severely in the current market climate," he said, "and that includes biotech." Borrus said that his firm's general investment strategy for providing seed money is not changing much, but firms that normally invest across different stages of company development may scale back on startups, instead focusing on existing companies and pulling away from making new deals. "The vast bulk of time and energy is being invested in existing portfolios," Borrus said. linkurl:Emily Mendell,;http://www.tapsns.com/newyork/2006/participants.php?galleryid=3837&clientid=43 vice president of strategic affairs at the National Venture Capital Association, agreed. "The [Initial Public Offering] window right now is totally shut," she told __The Scientist__. With existing companies needing more capital to ride out the rough market, "venture capitalists have to fund them for an additional quarter or two that they didn't expect." This, said Mendell, takes money from new investments. Looking toward future quarters, Borrus said he expects VC investments in the biotech industry to be "severely curtailed" in the fourth quarter of this year and likely into the first quarter of 2009. But would the slide in investment last any longer than that? With governmental economic tinkering still taking shape and efforts to unfreeze the credit market still ongoing, "It's too hard to predict at this point in time," Borrus said. "It depends on how the next six months are managed." Mendell noted that biotech may be well positioned to stay afloat on troubled financial waters, due to the protracted timelines going from startup to a liquidity event. "[Biotech investing] is longer term and consequently you don't have to turn biotech companies around quite as fast," she said. In addition to longer time horizons required to clear regulatory hurdles, the biotechnology industry is somewhat shielded from economic downturns in the short term because many biotechs are not to the stage where they're relying on revenue, according to linkurl:Brenda Gavin,;http://www.quakerbio.com/team/BrendaDGavin.html a founding partner at Philadelphia-based venture capital firm Quaker Bioventures. "Everything about our industry is just slower," Gavin told __The Scientist__. She added that she doesn't expect many biotechs to go belly up anytime soon, but "you may see a little slowing on investment, particularly in early stage companies." __The Wall Street Journal__, however, is linkurl:reporting;http://online.wsj.com/article/SB122523819921178005.html?mod=dist_smartbrief today (Oct. 29) that we may see a spate of layoffs, bankruptcies and canceled drug trials at small biotech companies in the US. According to the __WSJ__, the Biotechnology Industry Organization says that 38% of the US's 370 small biotech companies are currently operating with less than a year's worth of cash. The picture may be slightly brighter for larger biotechs. California-based linkurl:Celera;http://www.the-scientist.com/article/display/19457/ linkurl:reported;https://www.celera.com/pdf/ERQ3FY08FnlFrmted102808.pdf yesterday (Oct. 28) that its total revenue nearly tripled at the end of the third quarter; the company pulled in more than $45 million in 2008's third quarter compared to just over $16 in the third quarter of 2007.
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