Staff Writer

Privately-held biotechs raised $2.45 billion in the first half of 2010, up from $2.06 billion in the same period last year, according to data from BioWorld Insight.

That increase, while welcome, is not exactly reason to celebrate, considering just how bad 2009 was. Private biotechs managed to raise just $4.3 billion in total last year – slightly better than the $4.1 billion raised in 2008, but still a far cry from the $6.2 billion raised in 2007.

Yet several signs indicate the 2010 biotech venture funding environment may be poised to get better.

First, while last June was the second worst month of the year for biotech venture fundraising, with just $251.7 million raised, this June was the single best month so far this year, with $557.5 million raised. The largest chunk of that money went into Pacific Biosciences Inc.'s Series F round, the total of which was undisclosed but included a $50 million investment by Gen-Probe Inc. Following close behind were $45 million rounds from contraceptive maker Agile Therapeutics Inc. and antibiotics company Tetraphase Pharmaceuticals Inc.

Only time will tell if the momentum keeps up, but here's another good sign: Although it's still difficult to get money from limited partners, it is apparently possible. SV Life Sciences attracted both old and new LPs to its fifth fund, which was oversubscribed at $523 million.

Closing the fund took more than a year and "wasn't a trivial process," said SVLS managing partner Michael Ross. "It's certainly the hardest environment I've seen," he added.

But with the money in hand, SVLS can continue to invest in life science companies in the U.S. and Europe. Ross said roughly half of the firm's investments are in biotech, with the other half split between medical devices and healthcare services. About half of the money goes into first rounds, but Ross noted that first round doesn't necessarily mean early stage: While SVLS does early stage investing, it also does buyouts and in-licensing deals.

Each investment out of the fund will likely be between $5 million and $35 million. SVLS is already putting the money to work, having invested in peptide platform firm Bicycle Therapeutics Ltd. and inflammatory disease specialist Catabasis Pharmaceuticals Inc., among others.

Other life science venture funds are working on raising new money, too. A few months ago, Third Rock Ventures LLC filed an SEC statement revealing its plan to raise $400 million in a new fund. (See BioWorld Today, April 19, 2010.)

One more encouraging sign: A new report from the National Venture Capital Association showed that venture capital exits are on the rise.

According to the NVCA's report, there were 17 venture-backed initial public offerings during the second quarter, the best total since 2007. Unfortunately, only one of the 17 was a biotech: Alimera Sciences Inc., which raised $72 million in its April debut, but has since suffered in the aftermarket. (See BioWorld Today, April 23, 2010.)

The IPO window hasn't materialized the way many biotech backers had hoped. Ross said there's an appetite for commercial-stage biotechs, but public investors have lost interest in midstage firms, quite possibly for good.

Ross added that SVLS hasn't looked at IPOs as a viable exit for its early stage biotech investments in more than a decade. Instead, the firm focuses on acquisitions. And with big pharma cutting internal research and incapable of filling its own pipelines, there's a niche for biotech to provide the innovation, Ross said.

The NVCA reported 92 mergers and acquisitions of U.S. venture-backed companies in the second quarter, of which two were biotech. BioWorld Snapshots shows 17 M&A deals globally, but the biggest involved public companies, like Astellas Pharma Inc.'s $4 billion acquisition of OSI Pharmaceuticals Inc. and Agilent Technologies Inc.'s $1.5 billion buyout of Varian Inc.