Staff Writer

There seems to be no shortage of venture capital available for biotechs.

This week, InterWest Partners closed a $650 million fund, and last month brought the close of a $500 million fund from Versant Ventures and a $325 million fund from Longitude Capital, not to mention a $500 million fund from Cowen Healthcare Royalty Partners for the later-stage, product-based companies.

"This is the busiest summer I've ever had in this business," Versant Managing Director Brian Atwood told BioWorld Today.

Atwood attributed the strong supply of venture dollars to the fact that acquisitions are keeping investors "fairly positive" about the health care space. Additionally, institutional investors have rotated out of troubled hedge funds and into early-stage venture opportunities, he said.

But despite the availability of capital, private biotech companies have raised just $2.58 billion so far this year, down significantly from $4.17 billion raised in the same period last year, according to BioWorld Financial Watch data.

Atwood said he believes the decrease "has a lot to do with people really sharpening their pencils and figuring out how to . . . become more capital efficient."

Gregory Brown, managing director with Cowen Healthcare Royalty Partners, maintained that, despite the lower fundraising numbers, there are still "plenty of opportunities to deploy" the capital being raised. He noted that although a lot of funds are closing, biotech companies need "more time and more dollars to get to liquidity" than ever before.

The $650 million InterWest fund will be split between life science and IT companies.

On the life science side, the fund will back 25 to 30 U.S. companies, making average investments of between $10 million and $15 million over the life of a company. Most investments will be early stage, which InterWest defines as including both preclinical companies and new companies formed around later-stage assets. InterWest also may use the fund to back portfolio companies founded in-house.

Core therapeutic areas include cardiology, oncology, infectious diseases, ophthalmology, neurology, pain and orthopedics. InterWest also is looking to make a play in companies focused on consumer-driven health care, drug-device convergence and personalized medicine.

Versant's $500 million fund will invest in 30 to 35 U.S. biotech and medical device companies. The average investment will be $10 million to $12 million over the life of the company, which Atwood noted is slightly higher than the $10 million average investment the firm has made in the past.

Versant also focuses on early stage companies, which Atwood defined as "a couple of entrepreneurs and no business plan." However, while the investment stage of the company must be early stage (Seed or Series A), the stage of the technology can include preclinical, platform or clinical-stage opportunities.

Longitude Capital, which spun out from Pequot Capital, raised $325 million in its inaugural fund. The money will go to earlier-stage medical device companies and later-stage biotechs and will be used for PIPEs, recapitalizations and spinouts as well as traditional venture capital.

Cowen Healthcare Royalty Partners' $500 million fund was also an inaugural raise, although as with Longitude, the team had been around the block a few times before. Many of Cowen's executives hail from royalty investor Paul Capital Partners.

Cowen's fund invests in both passive and synthetic royalties, which may be accompanied by equity or debt financing. Through passive royalties, Cowen purchases a revenue stream that a biotech company has secured through product or technology out-licensing. In the case of synthetic royalties, Cowen directly purchases the royalty stream from the biotech that developed and maintains the rights to the product.

Brown said Cowen originally had planned to raise $350 million, but its fund was significantly oversubscribed. The robust institutional investor interest stemmed from the fact that royalty investments are "not correlated to the capital markets," he explained, adding that Cowen gets paid quarterly based on product sales rather than having to depend on the IPO window or an acquisition to make money.

"Institutional investors look at us as an internal hedge against the capital market exposure in venture funds," he said.

Fundraising activity isn't showing any signs of slowing. Private Equity Week reported that several other health care venture capital firms are in fundraising mode, including Foundation Medical Partners and Essex Woodlands Health Ventures.

The paper also reported that Google is planning a venture arm.