Staff Writer

NAPA, Calif. - Rain and gambling metaphors abounded at the 12th annual C21 BioVentures conference, as El Nino dumped water on Northern California and cash-strapped companies gathered to try their luck at deal-making.

"It's possible in this place to hit the jackpot," said Robert L. Kilpatrick, co-founder and partner of Technology Vision Group LLC, which produced the event, comparing biotech to local weather: Every seven years comes a downpour, otherwise a drought. Kilpatrick called C21 an "intimate, repeatable and sustainable environment" for discussions.

"I consider myself to be an optimist realist and, frankly, I thought - given the state of the economy - this meeting would be down a little bit," as others have been, he said, but the number of companies attending C21 and the number of delegates rose over last year.

Other numbers, depending on how they are viewed, proved somewhat less heartening. Eric Walczykowski, in venture capital services at Deloitte & Touche LLP, provided a rundown, based on interviews with 25 venture capitalists that started "back in the February and March time frame" and "had started to frame a view of where we were going. Is the new dawn upon us?"

But recent developments in the markets caused Walczykowski to re-poll a subset of the group. Comments that came back the first time around included words such as "stable" and "predictable." Some respondents even sounded optimistic. When he went to them again in recent weeks, the adjectives included more words such as "concerned" and "pessimistic."

The number of financings is "actually trending in a positive direction," Walczykowski noted, with first-quarter 2010 numbers on track with the same period last year. Five venture-backed initial public offerings are on file, with six more lined up behind them. "That said, in light of the capital markets the last couple of weeks, it's going to be interesting to see if these folks get out," he said.

A glance backward to the second half of dreadful 2009 showed that the "slew of fire sales and exits" that many expected did not materialize, Walczykowski said. "Through partnerships, companies were able to cobble along through 2009 and make it into 2010," and now the industry has "a backlog of exits that have to happen before we get to normal levels of biotech companies."

Members of a panel on the "new dawn" thesis saw little sunshine. "Right at the moment, I'm not feeling terribly good about the market," said Ilan Zipkin, partner with Prospect Venture Partners. "We have a number of companies that are struggling with public securities, even those who have managed to get out in the recent window."

Alison Kiley, director at Alta Partners, was far from sanguine as well. "Med-tech investments have done well," she conceded, "but those are companies that are approaching profitability." Like others grasping for upbeat straws, she mentioned Seattle-based Dendreon Corp., which scored a recent victory with the approval of its prostate cancer drug Provenge (sipuleucel-T). (See BioWorld Today, April 30, 2010.)

"You can pick any number of companies with strong Phase III assets that have done reasonably well and held up," she said. "Across our own portfolio, we've had some huge wins with the FDA. But for every one of those interactions, there's another one that makes no sense at all to us." Kiley is "not a believer that there's going to be an IPO window of any magnitude this year," she said, and her firm is "operating as if there will not be any liquidity on the public markets" in the near term.

Even a panelist who had pledged to avoid negativity found himself in that camp. Chris Ehrlich, general partner with InterWest, pointed out the recent ill fates of Santa Clara, Calif.-based XenoPort Inc. and InterMune Corp., of Brisbane, Calif. In February, shares of XenoPort Inc. lost two-thirds of their value after the firm revealed partner GlaxoSmithKline plc, of London, got a complete response letter from the FDA for its application for Horizant (gabapentin enacarbil) against restless legs syndrome. Regulators in May rejected InterMune's Esbriet (pirfenidone) as a treatment for idiopathic pulmonary fibrosis. The combination of a fickle FDA and risk-averse investors "makes approaching the capital markets sort of impossible," Ehrlich said. (See BioWorld Today, Feb. 19, 2010, and May 5, 2010.)

Ehrlich said "the industry and the people in it feel worse about themselves" for two other reasons as well. While some had predicted a resurgence of venture capital, "the numbers are not there, and it's pretty frightening," and limited partners are backing away from VC, too. "Without [LP] money, we don't have anything to do," he said, adding that "Washington has not helped out much at all."

The C21 BioVentures meeting continues through Thursday.