By Karen Pihl-Carey

The financial water table for biotech companies has dipped far below sea level, at least compared to last year, and the drought has caused several companies to withdraw or postpone initial public offerings or follow-on offerings in recent months. Now, an oasis has appeared to the private sector granting hope to biotechnology's nomads, thirsting for something green.

Atlas Venture, an early-stage venture capital firm, said it has $950 million, some of which will be invested in biotechnology companies through its sixth venture capital fund, Atlas Venture VI. The money comes from institutional investors who want to dole it out to American and European technology companies. The fund may grow even larger, said Jean-Francois Formela, senior principal in the life sciences group of Atlas Venture.

"We're in the process of running up some numbers with other additional investors some entrepreneurs," he told BioWorld Financial Watch. "We're going to end up between $950 million and $1 billion."

That's good news for companies like San Diego-based Structural GenomiX Inc., originally funded by Atlas Venture as a seed proteomics project in 1999, or UK-based Prolifix Ltd., which is focused on novel drugs to treat proliferative diseases. The companies represent only two of the 31 listed on Atlas Venture's life sciences portfolio.

Money this year has been just as abundant in the private sector as last year, with about $1.1 billion raised in both 2000 and 2001 by the end of April. The same can't be said for the public sector. Last year, biotechnology companies had raised $9.2 billion in public offerings by the end of April, compared to the $1.3 billion raised this year. In other public offerings, companies raised $6.3 billion by this time last year, compared to $800 million raised so far this year.

"With it more difficult for biotech firms who are private to do an [initial public offering] right now, if they have financing requirements, they probably are going to have to go back to existing investors," said Rich Shea, chief financial officer of Variagenics Inc., based in Cambridge, Mass. "Sometimes that can be difficult, because the valuations that were being placed on these companies a year ago probably reflect what the public markets are doing. And now, with the public markets being down 30 [percent], 40 [percent], and in some cases as much as 70 percent, from a year ago, it's going to be painful for investors."

Variagenics went public in July 2000, raising $80.5 million in its IPO. Prior to that, Atlas Venture participated in four financing rounds investing about $8 million in the company.

Atlas, with offices in Boston, London and a slew of other places on both sides of the Atlantic, introduced its sixth fund in late April. Historically, the fund is divided three ways between the communications, information and life sciences industries.

"The plan at this point in time would be one-third of our assets to go to life sciences," Formela said. "Up to about $300 million will be invested in life sciences. The period we're looking at, at this time, is up to two years."

Atlas is known for its diversified funds in which money is invested in equal amounts in both Europe and North America. Biotech companies on each continent can expect about $150 million in investment funds. Of the 31 biotech companies who have received Atlas Venture investments, 19 are located in Europe and 12 are located in North America.

MorphoSys AG, of Martinsried, Germany, received a total of $5.6 million from the investment group. "Atlas Venture are a class act," said Simon Moroney, the company's CEO. "If you look at their success in the biotechnology sector, you realize that they are experts in identifying very promising new opportunities."

Moroney's company, for example, went public in March 1999, raising $28 million, following investments from Atlas. MorphoSys, which trades on Neuer Markt under the symbol MOR, is a company focused on new technologies for discovering drugs and disease-related targets.

Atlas raises its investment money through endowments, large insurance companies and other investors who are "looking at exposure to Europe, early stage venture capital and balanced returns with a fair amount of diversifications," Formela said.

Given the size of the fund, Atlas most likely will not make small investments. "We would essentially invest over the life of the company as needed," Formela said. "Historically, the average investment has been somewhere around $15 million."

Eleven of the 31 life science companies in Atlas' portfolio went public in 2000, raising in excess of $1 billion. DeCode Genetics Inc., of Iceland, raised $198.7 million when it went public on the Nasdaq National Market in July under the symbol DCGN. Other company IPOs that raised over $100 million were Actelion AG (SWX:ATLN), of Switzerland, with $139.7 million; Exelixis Pharmaceuticals Inc. (NASDAQ:EXEL), of San Francisco, with $136 million; Crucell NV (NASDAQ:CRXL), of the Netherlands, with $119.1 million; MediGene AG (Neuer Markt:MDG), of Germany, with $103.6 million; and Ciphergen Biosystems Inc. (NASDAQ:CIPH), of Palo Alto, Calif., with $101.2 million.

Among the other biotech companies in which Atlas invested that completed IPOs last year were Modex Therapeutics SA (SWX:MDXN), of Switzerland; Neurochem Inc. (TSE:NRM), of Quebec; Variagenics (NASDAQ:VGNX); IstoTis NV (Euronext Amsterdam:ISO), of the Netherlands; and Novuspharma SpA (Nuovo Mercato:NOV.MIL), of Italy.

Formela said he doesn't expect too many IPOs from Atlas companies this year, since most took advantage of last year's open window. A number of biotech investors have turned to private funds because of the condition of the markets. "It's very difficult to predict when the next window might open," he said.

That puts private companies in a place where they are dependent on private investments, until the markets improve.

"Biotech is a capital-intensive business," Shea said. "Venture capital is really the only financing vehicle available to most biotech companies."

When choosing a company in which to invest, Atlas looks for potential to become a leader in its home markets, as well as its ability to scale-up its technology and achieve international market penetration. Following investments, senior principals typically gain a seat on the company's board of directors.

Compared to specialized funds, Formela believes Atlas has the advantage. "When you look at the allocations a billion-dollar-plus diversified fund can have, it turns out the diversified fund is the largest ranking fund to life sciences," he said. The investment period of diversified funds, however, tends to be shorter than specialized funds.

Formela joined Atlas in 1993 and has since worked toward building the company's activities in biotechnology. Atlas started in Europe in 1980 and currently manages more than $2.5 billion in committed capital. Aside from Boston and London, it has offices in Amsterdam, the Netherlands, Munich, Germany, Paris, Seattle and Menlo Park, N.J.

Atlas is still investing with its fifth fund, but Formela said investments with the sixth fund could begin very soon depending on the potential of up-and-coming biotech companies.

"It's always difficult to predict when the next opportunity will arise," he said.