Investors shy from biotech firms

At D.C. conference, caution prevents potential matches

October 04, 2001|By Julie Bell | Julie Bell,SUN STAFF

WASHINGTON - Ninety-two biotechnology companies at a matchmaking conference here with venture capitalists are finding that, while plenty of financial suitors express interest, the sluggish economy means investors are more discerning about actually tying the knot.

"I think investments are being scrutinized much more closely than in the past," said L. William McIntosh, chief business officer for Baltimore-based startup FASgen Inc., just after finishing a breathless 10-minute presentation designed to get venture capitalists interested in his drug-development company.

McIntosh was one of 50 biotech executives yesterday who took on the task of introducing their companies to venture capitalists attending BIO VentureForum, a two-day conference at the Hilton Washington & Towers. The event, along with the Technology Council of Maryland's Bioscience Forum at the same hotel, attracted more than 800 people yesterday. About 140 venture capitalists were registered.

But, while two small meeting rooms set aside for the 10-minute presentations featured standing-room crowds, hallway conversations showed the economy and the terrorist attacks of Sept. 11 have tempered the enthusiasm that made last year a record-breaker for venture capital investments.

Venture capitalists said they're being more careful about where they put their dollars. Biotechnology company executives said they're being pressured to give up a bigger share of their companies' stock to investors - for less money than similar deals commanded just months ago. Also, investment bankers, hired by biotech companies to find financing for them, said it's hard to even get the attention of some venture capitalists, because they are so preoccupied with the struggling technology firms in their portfolios.

"We have to be opportunistic," said Doug Eplett, managing director of Essex Woodlands Health Ventures of Irvine, Calif. "However, the consensus of our partners is we should raise the bar" of expectations on investments made.

Venture capital firms invested a total of $94 billion last year, said industry newsletter VentureWire. But venture investing had begun to level off this year before the terrorist attacks that destroyed the World Trade Center's twin towers and damaged the Pentagon. The attacks hit an already slowing industry hard, pushing third-quarter venture investments down 72 percent to $6.7 billion, compared with $23.9 billion a year ago, the newsletter said. It projected that total venture investment would hit $35 billion by year's end.

It isn't that money is unavailable for investment. Eplett, for example, said Woodlands' latest fund - totaling $300 million - remains 80 percent uninvested as the firm scouts for deals. Yesterday, Eplett studied an agenda on which he had highlighted several companies worth taking a look at, including MacroGenics Inc., a Rockville-based developer of cancer therapies that has raised its first round of financing through other venture capital firms.

MacroGenics is an example of how Woodlands is looking at doing more deals that don't represent initial rounds of financing. The firm is shying from crowded fields such as bioinformatics, in which companies make software that helps scientists conduct experiments. Eplett said companies focused on making therapies are more attractive.

"We're tending not to look at `tool' companies," said Michael D. Kaswan, vice president of KBL Healthcare Ventures, echoing Eplett's remarks. Those companies have pharmaceutical companies as their customers, and "there are only so many pharmaceutical companies." Drugs, he said, might take longer to develop but will make more money.

Niko Lahanas, an investment banker with Friedman, Billings, Ramsey & Co. in Arlington, Va., represents young biotechnology firms as they try to acquire money from venture capitalists.

"They're really not looking at a lot of deals right now," he said of venture firms, noting many have troubled tech firms in their portfolios that are distracting them. "They have to make tough decisions about what companies they are going to continue to support and what companies they are going to cut loose."

Still, FASgen's McIntosh was encouraged by midafternoon at the number of potential investors who had stopped by his table in a small exhibit hall after his presentation. He believes that the company, which is developing anti-obesity and anti-tuberculosis drugs using a technology that could yield dozens more therapies, is the kind that might interest venture capitalists the most.

"I think it'll be harder to raise money than in boom times," said McIntosh, whose company has raised $3 million in an initial round that closed in December. "But the quality of our technology will put us in good standing."

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