ATLANTA - With a challenging market receiving recent initial public offerings, firms - especially those in early stage product development - might have to look at other alternatives in order to draw VC interest, a group of investors said during a panel discussion at the BIO VentureForum East conference here.

Many of the about 400 registered attendees at the Intercontintenal Hotel Buckhead packed a ballroom for the breakfast session on venture capital investing trends.

Although there have been a handful of completed IPOs in recent months, John Borer, president of New York-based investment firm Rodman & Renshaw, said he's "heard very little enthusiasm" from the market. In today's climate, the "biggest fear of entrepreneurs and private investors is that [biotech firms] will go out and try to raise $60 million" and end up with only $38 million, prompting a return to the market in six to nine months.

IPOs priced on U.S. markets so far this year have ranged from $91.1 million by Victoria, British Columbia-based Aspreva Pharmaceuticals Corp. to a $17.25 million IPO from Henderson, Nev.-based CardioVascular BioTherapeutics Inc. BioWorld's figures show 12 initial public offerings in 2005 through April, with an average take of about $52.4 million.

For comparison, 16 companies went public in the first four months of 2004, raising an average of $76.2 million.

Because of those lower pricings, Mark Strobeck, a principal with West Conshohocken, Pa.-based SR One, said his firm has tried to "strongly discourage our companies" from going public.

Firms shying away from the IPO market will consider merger or acquisition opportunities; however, Deepa Pakianathan, a general partner with Menlo Park, Calif.-based Delphi Ventures, cautioned that, for biotech firms, those routes have "never been as feasible" as they have for the technology or medical device industries, citing "wild cultural issues and return-expectation issues," along with the fact that there are few biotech companies in a position to acquire.

Genzyme Corp., of Cambridge, Mass., is in that position, though, having recently signed an agreement to purchase Madison, Wis.-based Bone Care International Inc. for $600 million. (See BioWorld Today, May 5, 2005.)

But pharma has been buying in 2005, too: Cambridge, Mass.-based Transkaryotic Therapeutics Inc. is being bought by Shire Pharmaceuticals Group plc, of Basingstoke, UK, for $1.6 billion; Alameda, Calif.-based Peninsula Inc. is being acquired by a subsidiary of New Brunswick, N.J.-based Johnson & Johnson for $245 million; and ESP Pharma Inc. was acquired by Fremont, Calif.-based Protein Design Labs Inc. in a $486 million transaction.

Investing In A Buyer's Market

If the IPO window is closed and an acquisition doesn't seem likely, then companies have to find their own angles for attracting investors, said Garheng Kong, a general partner with Intersouth Partners, of Durham, N.C.

"I think you get paid for being different," he said. "You have to have an edge."

Companies need to boast unique science and chemistry platforms, robust targets and a management team that includes experience.

But, these days, venture capitalists have been "likened to lemmings," Pakianathan said, with many taking a conservative approach. Investors want clinical data, experienced management and a broad technology base, and that is "asking a lot of an early stage company."

Kong and Strobeck, however, said the current market provides good opportunities for investing in young firms, though the potential return likely would be further down the road.

Either way, investors definitely have the advantage, said Kelly Holman, managing director of Toronto-based Genesys Capital, "because this is a buyer's market and is going to continue to be a buyer's market."

There are success stories, of course. Holman said one of his firm's companies recently raised $40 million in a Series B round, despite planning for only $25 million.

"It took a while, but as soon they had one significant investor, then others started biting," he said.

Some companies also have started conducting financing rounds in tranches, relying on discovery and development milestones to boost subsequent tranches.

"As long as you're patient and persistent," Kong said, "when you get that lead investor, capital does flow in pretty freely."

And, while there is competition among companies for capital, there also is competition among investors.

"Every investor wants to do the deal they can't get into," he added.

The conference ends today.