Biopharmaceutical companies saw the biggest amount of venture capital investments
through a single quarter during early 2004 as overall investment was up for
a fifth consecutive quarter, according to a recent report by Ernst & Young
and a Dow Jones research group.
Released in late April, the Quarterly Venture Capital Report showed a quiet first three months for Rhode Island, with a single deal for $9 million (the state completed six deals in all of 2003). Massachusetts’ tally was at 58 deals for its first quarter, raising nearly $600 million (the state completed 241 deals last year).
Through the rest of the country, the numbers continued to indicate a stabilization of the venture capital process. Even while total dollars invested rose to $5.1 billion, the number of deals compared with the last quarter of 2003 dropped, a decline consistent with annual cycles when venture capital groups often focus on administrative details.
Richard Horan, executive director of the Slater Center for Biomedical Technology, said the interest in biotechnology has likely been driven by a couple of large acquisitions in the past several months. He said deals by huge pharmaceutical companies, such as Amgen, tend to “reawaken the public markets” while lending confidence to early-stage investors that they’ll eventually see some kind of return on their initial investment.
According to the report, eight of the 10 venture-backed initial public offerings in the first quarter were biopharmaceutical companies, as were almost half of the nearly 30 companies that filed registration papers for a public offering in the quarter.
Meanwhile, investment in other health care segments declined.
“We’ve been through sort of a nuclear winter for the last two, three years,” Horan said. “That had extended to include the biotech field. … I think the thaw is well under way.”
Broken down by the amount of dollars invested, New England saw the biggest investments in drug discovery ($136.5 million) and biotech ($73 million) companies. Those were followed by deals funding wireless communication equipment, drug delivery and connectivity/communications tools – all receiving under $50 million. Dollar figures aside, the highest number of deals, with six, was actually in companies honing software for business applications.
As usual, the report found that the San Francisco Bay area was the most active region of the country, followed by New England, which is a hub for biopharmaceutical companies. The largest deals of the quarter, dollar-wise, were spread widely throughout the country.
“Our proximity to that Boston-based venture capital is certainly an advantage,” Horan said. “I just think it’s going to take a little longer to turn the corner. … I don’t think we’re ever going to see the unrealistic valuations that drove things in the late 1990s, but we should see a more reliable flow of funding for the next several years.”
Reaching a total of $1.5 billion with nearly 60 deals around the country, the biopharmaceutical segment attracted its largest infusion of venture capital spending ever.
“The biopharmaceuticals segment is really the bellwether for the venture capital industry as a whole,” said John Gabbert, vice president of Worldwide Research for VentureOne, Dow Jones Financial Information Services, in a release. “This segment attracted 29 percent of all investments this quarter, even though deals were slightly reduced from the fourth quarter of 2003. Still, the biopharmaceutical deal-flow is up 84 percent from a year ago.”
Early-stage investments, accounting for nearly one-third of deals, remained relatively unchanged compared to previous quarters while the dollars brought in during the early rounds grew slightly. By development stage, the number of financing rounds by profitable companies remained the same, while deal activity in all other development stages declined, with the report suggesting that “more mature companies are still attractive to investors.”
The investment numbers the study is based on is based on data collected from
surveying professional venture capital firms, including interviews with company
CEOs and CFOs and from secondary sources. The venture capital statistics are
for equity investments into early-stage, innovative companies and do not include
companies receiving funding solely from corporate, individual or government
investors.
