ATLANTA, Georgia — There’s plenty of money available for biotech researchers with big ideas, but that funding is harder to get than ever before, and some of it may come from strange places.
Stem cell companies could be running on bailout money, and gene therapy firms may be fueled by cash from the Russian government. Only the strongest startups will pry funds out of American investment firms.
“I think that there is money available for new companies, but they have to come with a perfect business plan, perfect area to innovate in and a very strong management team,” says Karl Handelsman, a managing director at CMEA Capital.
Long gone is the golden age of biotech research, when venture capital firms would give any biologist with a business plan carte blanche in exchange for a small stake in their company. In 2007, venture investors poured more than $5 billion into the sector, according to PricewaterhouseCoopers, including $1.5 billion in the first quarter of that year. Nowadays, investors are clinging to their money. Over the first three months of 2009, biotech firms only grabbed $576 million, the worst quarter since fall 2001, after the September 11 terrorist attacks. But even in the midst of a recession, some emerging technologies shine so bright that investors can’t resist. You can do a lot of research with $576 million.
Handelsman is cautiously optimistic about next-generation vaccines and is thrilled about the long-range potential of synthetic biology. He gushed over Intellikine, a San Diego startup that is taking advantage of some very intense biological research to find new drugs for cancer, autoimmune disorders and inflammation.
That sort of enthusiasm may be rare right now. Even the most promising businesses will find that venture capital is coming at a remarkably high price.
“I’ll get 90 percent of your company for $5 million,” said Steven Burrill, an investor who has started countless biotech companies. “I used to be able to get 10 or 20 percent of your company for $5 million. So power is clearly on the side of the people with capital, against the side of people without it.”
In a packed auditorium at the Biotech Industry Association convention in Atlanta, he explained that entrepreneurs can’t do things the way they’ve been doing them for the past 30 years. If someone tried to start a company today, using the same tactics that made Genentech a drug-discovery powerhouse, they would fail.
Burrill added that it’s much easier to commercialize drugs outside the United States, so his home country will be getting new medical technology far later than other parts of the world.
“I think a lot of people, today, are writing the obituary for our industry, talking about how tough it is” said Burrill, before explaining why he has a brighter outlook.
Smart companies will adapt to the dark financial climate, he says. They will find unusual sources of funding, like government money and foreign investors, and eventually the biotech industry will be stronger than ever.
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