Private financing in the biotech sector showed a slight decline in 2005, but for the most part, held steady at the record venture capital levels seen a year earlier.

Full-year figures from the 2005 MoneyTree venture capital survey showed a slight increase in venture financing over 2004, with the entire life sciences segment - including the biotechnology and medical device industries - capturing roughly 30 percent of all VC money. The survey was conducted by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association (NVCA).

VC money in biotech dipped about 7 percent, said Tracy Lefteroff, global managing partner of venture capital and private equity practice at PWC. But figures still "are way up from where they've been, historically, over the last 10 to 15 years."

MoneyTree's survey showed that nearly $3.9 billion was invested in biotechnology in the U.S. last year, down from about $4.1 billion in 2004. According to BioWorld's figures, which include financings from around the globe, private companies raised a total of $4.8 billion in 2005, compared to $4.9 billion in 2004.

"This year might have seemed a little flat, but it's flattened out at the top of a curve," Lefteroff added.

The survey indicated that in 2005, information technology and life sciences garnered the majority of the private investment dollars throughout the year, and in the fourth quarter, those two sectors combined to capture 85 percent of private funding.

For the fourth straight year, the amount of money going to late-stage companies in all sectors increased. Mary MacDonald, vice president of investment banking at Thomson Venture Economics, reported that investors placed $9.7 billion into more established firms, up from $8 billion in 2004.

"Forty-five percent of the total amount invested went to later-stage companies," MacDonald said during a conference call, "which is the highest share ever in MoneyTree history."

That trend is due to perceived lower risk in late-stage companies, so for biotech, the larger financing rounds are done for firms that already have generated trial data and boast a pipeline that has more than a single product.

"There's always an exception here and there, but most VCs demand to see that clinical data before they're going to take the bet and put money in," Lefteroff said.

A difficult public market also is forcing later-stage companies that normally would have gone public to rely on private investments longer than originally anticipated.

John Taylor, vice president of research for NVCA, compared these companies to "an entire generation of college seniors deciding all at once, at the end of their senior year, that in order to get a good job, they really should stay around for a fifth year of college.

"So they tell their parents, I need a fifth year so I can see what the market conditions are like a year from now, and, by the way, tuition has gone up, and I'm bigger and my expenses are a bit bigger,'" he added.

More than a dozen biotech companies withdrew their initial public offerings in 2005, although a few - such as AlgoRx Pharmaceuticals Inc., of Secaucus, N.J. - withdrew their filings after finding merger partners. AlgoRx reached a deal with South San Francisco-based Corgentech Inc. in September. (See BioWorld Today, Sept. 27, 2005.)

According to BioWorld Snapshots, 11 companies had pending IPOs at the end of 2005, though one of those, Glycotex Inc., of Stamford, Conn., started 2006 by withdrawing its registration, originally filed in September with the expectation of raising $39 million. (See BioWorld Today, Sept. 13, 2005.)

A total of 33 biotech companies did go public in 2005, only four fewer than in 2004, even though the offerings generally drew significantly less money than expected. Altogether, biotech raised $1.5 billion in initial offerings, which averaged about $45.5 million each. The 37 IPOs priced in 2004 brought in a total of $2 billion, with an average of $55.25 million apiece.

Investment To Continue Apace In 2006

Lefteroff said he expects plenty of VC investment in biotech this year.

"The pharma sector continues to lose blockbuster drugs to expiring patents and to generics that are eating away market share," he told BioWorld Today. "It's driving them to look to biotech to provide products to fill their drug pipelines back up."

Plus, the aging population keeps growing, and "people are looking at the demographics and realizing there's going to be a tremendous demand for these medical products," Lefteroff added. "That bodes very well for the sector, and I continue to believe you'll see investments at these levels in the foreseeable future."

Some of the largest VC biotech rounds in 2005 included East Brunswick, N.J.-based Esprit Pharma Inc., which brought in $109 million during the year, followed by Fibrogen Inc., of South San Francisco, which placed about $100 million in convertible preferred stock in February. Jazz Pharmaceuticals Inc., of Palo Alto, Calif., added $80 million in its third financing round in June, and Mountain View, Calif.-based Perlegen Sciences Inc., brought in $74 million through a private placement of its Series D stock in March. (See BioWorld Today, Feb. 17, 2005, and March 2, 2005.)

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