By Randall Osborne

West Coast Editor

SAN FRANCISCO ¿ In a tightened market, the prospect of venture capital is alive and well, but investors across the board are clamoring more than ever for drug products ¿ even if the genomics ¿tool¿ companies are far from exhausting their potential.

That¿s the word from the opening panel Wednesday of the International Business Forum¿s Biotech Investing Conference here.

¿You¿ve probably heard a lot of folks bemoaning the fact that somewhere around $35 billion is sitting around in venture capital funds, and why don¿t they give it to us?¿ asked Cynthia Robbins-Roth, founder of BioVenture Consultants in San Mateo, Calif., and moderator of the panel, titled ¿Biotech Investing 2001: Where Do Investors See the Opportunities Today?¿

She noted, ¿Over the last several years, many of the private funds made it clear they were pulling out of the therapeutic world, [and now] we¿re starting to see them coming back into that sector again. We¿ll see how serious they are.¿

Venture capital firms, Robbins-Roth said, ¿appear to be moving back into the biotech world, [but] when we talk to the folks at the companies, they¿re telling us that the due diligence process is taking much longer, [and] the terms that are being put into the agreements are much more onerous.¿

Valuations are ¿getting cut to the bone in a lot of cases, and investors are looking for reassurance ¿ not only from the companies they¿re investing in, but also from venture funds that are trying to raise new money,¿ she said. ¿They want to see a team that¿s done it before, they want to see a team that¿s worked together. The focus is on product revenues.¿

Rodney Ferguson, general partner at J.P. Morgan Partners in San Francisco, said the steady shift in demographics means biotechnology is well positioned to get money, especially for particular aspects of its efforts.

¿I would posit that as the Baby Boomers age, we¿re going to care less about a new Palm Pilot and more about a new pulmonary system,¿ he said, adding that issues that go beyond health are becoming more important all the time, too.

¿You¿re seeing that on the medical device side as well as the drug side, with all kinds of drugs like stents for maintaining lifestyle,¿ Ferguson said, adding that miniaturized processes and information technology will play major roles.

¿If you ask most heads of research at major pharmaceutical [firms] what their real concern is, besides having the next billion-dollar drug, it¿s simply managing the data they¿re accumulating in an exponential fashion through all their experiments,¿ he said.

Microarrays have brought blessings and problems. The ¿single biggest¿ of the latter is that companies can hardly calculate and analyze all the data they¿ve amassed, ¿let alone make predictions from that,¿ Ferguson said. He called more computational power ¿a screaming need¿ for the industry.

Sam Colella, co-founder and managing director of Versant Ventures in San Francisco, which focuses on device firms and biotechnology companies, as well as ¿e-health¿ concerns, said that, ¿as an operating guy, what¿s always been frustrating to me in this business is that we were living on dreams. As one of my partners said, it was the price-to-dreams¿ ratio. Now we¿re back to basics, where we have real products and real companies and real earnings.¿

Silver-haired Colella, who has worked for decades in high-tech industries, said ¿a lot of us have been through these wars, and what I¿m excited about is that, when we started doing this stuff, management had never been in a biotech company [before]. Now, we¿re investing in people who¿ve been around the second, the third time ¿ real, proven vets.¿

Everything is in place, he said, echoing Ferguson.

¿We¿ve got management, we¿ve got the pipeline, we¿ve got technology and we¿ve got a lot of capital,¿ Colella said. ¿We¿ve got more capital sitting in these companies than we ever did.¿

Colella, who amused the crowd with his reference to ¿using all the stuff that my companies invent¿ and his mentions of ¿impotence, incontinence and Alzheimer¿s [disease],¿ cautioned against ¿over-hyping, and setting expectations in our industry that are unrealistic,¿ but added that he was ¿very bullish on the business.¿

The demise of many Bay Area-based Internet firms is still fresh in the minds of many, and Colella drew another laugh when he looked down the panel and remarked, ¿I¿m the only guy here wearing a suit and tie. The dot-com guys all got rid of their ties, so I¿m a little nervous about that.¿

With over 300 registrants, the IBF conference continues through today.