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7-Business: Despite growth, industry can't pull in venture capital
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- Subject: 7-Business: Despite growth, industry can't pull in venture capital
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- Date: Tue, 26 Nov 2002 09:07:32 +0100
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PART I
-------------------------------- GENET-news --------------------------------
TITLE: Despite growth, industry can't pull in venture capital
SOURCE: The San Diego Union - Tribune, USA, by Penni Crabtree
http://www.signonsandiego.com/news/business/biotech/20021121-9999
_1b21biotech.html
DATE: Nov 21, 2002
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Despite growth, industry can't pull in venture capital
Button up the overcoat for a long biotech winter.
That was the mood yesterday as the local life-sciences industry assessed
the first Ernst & Young report on the state of San Diego's biotechnology
and medical device companies.
The verdict? The life-sciences industry is a growing, innovative sector
that has taken deep root in the region, spawning an estimated 400 biotech,
diagnostic and medical device companies that generate more than $1 billion
in annual revenue.
Yet despite the promise, a financial frost that descended this year
promises to linger well into 2003, blighting some cash-hungry companies.
"The challenges in 2003 will be more significant than we'd have projected
nine months ago," said Christian Nolet, a partner in Ernst & Young who
helped present the survey to a gathering of 350 local biotech executives.
"We had guarded optimism at the first of the year; we thought the surf was
up here in California.
"Now we're wondering if there isn't a little bit of a tsunami going on as
we weather another trough in the industry."
With the market for initial public offerings almost nonexistent, venture
funding in San Diego's life-sciences industry, which looked promising at
the beginning of the year, fell to only $28 million in the third quarter.
That contrasts with $294 million in the second quarter and $63 million in
the third quarter of 2001, according to a recent venture capital survey.
Nationally, more than 30 public biotech companies have restructured in the
third quarter alone, many of them laying off employees and cutting back on
research programs to conserve cash. Among those companies was San Diego's
Corvas, which laid off 42 of 109 staff members in July.
More than 60 public biotech companies nationwide have less than one year of
cash, based on operating losses over the past 12 months, according to some
industry surveys. In San Diego, biotechs Epimmune, Hollis-Eden
Pharmaceuticals and Genetronics Biomedical have warned in recent regulatory
filings that their cash is dwindling and that they need to raise more money
within a year.
And San Diego suffered the first loss of a major biotechnology company to
bankruptcy when Advanced Tissue Sciences filed for Chapter 11 in October
and, last week, liquidated its business.
More casualties may follow. On Tuesday, Carlsbad's Immune Response Corp.
warned of bankruptcy "within days" if it can't find financing, and Alliance
Pharmaceuticals is in such precarious financial shape that it hasn't paid
its employees in almost a month, according to Alliance employees who
contacted The San Diego Union-Tribune.
Gwen Rosenberg, a spokeswoman for Alliance, said yesterday she couldn't
confirm or deny that the company hasn't paid employee salaries. The
company, which recently took out a $3 million loan at an annual interest
rate of 100 percent to keep its doors open, can't discuss finances because
it is "working on a transaction," she said.
G. Steven Burrill, chief executive of San Francisco life sciences
investment bank Burrill & Co., predicts there will be more "retrenchment,
reorganization, restructuring, and refinancing in the next 12 months Ð not
to mention a few delistings."
"Many in the industry are expecting the current bear market to continue for
the next several quarters, and it's going to be a matter of survival of the
fittest," said Burrill.
The fate of some private, startup biotech and medical device companies is
also uncertain. While venture capital firms have hundreds of millions of
dollars to invest, most of that money remains cautiously on the sidelines,
said Nolet.
Mid-stage venture capital financings, as well as biotech company
valuations, are down 50 percent from last year, he estimates.
"Right now there are very deep pockets Ð and very short arms," said Nolet.
"Access to capital will get worse before it gets better."
Yet despite a general financial gloom over much of the life-sciences
industry, the sector remains fundamentally sound and full of potential,
said some industry observers. That strength was underscored by some results
of an Ernst & Young survey of 111 San Diego biotech and medical device
companies.
Among other things, the survey found that:
- 32 percent of San Diego biotech and medical device companies are more
than 10 years old, providing the local industry with a seasoned set of
executives who've led firms through previous down cycles. And 25 percent of
the companies are 3 years old or less, ensuring a new generation of
companies to follow.
- San Diego companies raised $1.5 billion in venture capital, private
placements, debt offerings and other financings in the first half of 2002,
more than in the entire previous year. So while some companies are
suffering, others remain well-financed and better able to weather the
current financial drought.
- About 13 percent of the companies had products in final, Phase 3 clinical
studies, the last stage of testing before a company can seek regulatory
approval to sell a drug or device. Another 13 percent have products in mid-
stage Phase 2 trials, and 11 percent have products in the first Phase 1
stage.
There are at least a dozen local biotech companies with products in Phase 3
studies, and some of them, including La Jolla Pharmaceuticals, Isis
Pharmaceuticals, Ligand Pharmaceuticals, Amylin Pharmaceuticals and
Neurocrine BioSciences, expect to know within the next several whether
their drugs work.
Many in the life-sciences industry are banking on product approvals to
renew Wall Street's interest in initial public offerings.
"There is a great pipeline of products in late-stage clinicals, and a
number of global leaders think 2003 and 2004 will see a dramatic increase
in product approvals," said Nolet. "That will be one of the catalysts to
set the industry in a more favorable light and direction."
PART II
-------------------------------- GENET-news --------------------------------
TITLE: Venture capital plentiful for life sciences industry, VCs say
SOURCE: Pacific Business News, USA
http://pacific.bizjournals.com/pacific/stories/2002/11/18/
daily44.html
DATE: Nov 20, 2002
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Venture capital plentiful for life sciences industry, VCs say
Biotech specialists in the international venture capitalist community have
told a Honolulu audience that Hawaii is on track to have a thriving biotech
industry, but cautioned not to expect it to become a huge sector of the
economy overnight.
"Have patience and it will happen," Samuel Colella told the University of
Hawaii's Kipapa lecture Tuesday.
Colella, cofounder of Versant Ventures, who spoke with director Robin
Bellas of the Stanford Business School Trust and British biotech expert
Roger Quy, took an optimistic long-term view for Hawaii biotechnology
companies.
The panel said legislation creating tax incentives for companies employing
new technologies sent a welcoming message to biotech investors, as have
plans for a new medical school. Also cited was the election of a Republican
governor, seen in some quarters on the mainland as a shorthand message that
the mood of the electorate in Hawaii may be more pro-business than formerly.
--
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