San Diego Business Journal

Bright Ideas Win Race For Cash

FINANCE: Local Biotech Leads Investment Pack Despite VC Challenges By Kelly Quigley Monday, February 20, 2012
Although biotech and medical device firms find it challenging to attract early stage venture capital investments, Biocom CEO Joseph Panetta remains confident that funding is available for companies with unique technologies.

Although biotech and medical device firms find it challenging to attract early stage venture capital investments, Biocom CEO Joseph Panetta remains confident that funding is available for companies with unique technologies. Photo by Stephen Whalen.

Even amid a risk-averse investing environment, there’s always money available for the most innovative drug and medical device ideas, said Joseph Panetta, CEO of the San Diego-based life sciences trade group Biocom.

That was one of the core messages Panetta took away from his organization’s second annual Global Life Sciences Partnering Conference, held in Torrey Pines earlier this month. “The funding is there for companies with unique technology,” Panetta said.

Data from various economic reports released in February provide evidence that the local biotechnology industry, while not as brimming with venture capital as it once was, is still a bright spot nationally and within California when it comes to dollars and deals.

San Diego’s life sciences sector ended the year maintaining its lead position as the No. 1 sector for investment in the region, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association.

Capturing Their Attention

The sector accounted for 74 percent of total venture capital deals in San Diego in the fourth quarter, with $193 million — or 72 percent of total dollars invested — going into 69 deals, according to PricewaterhouseCoopers Partner Bill Molloie.

For all of 2011, the life sciences industry also managed to capture the largest share — 64 percent — of locally invested venture capital dollars, with a total of $534 million invested, the report said. That’s much better than the industry did nationally, garnering 27 percent of total dollars.

While the industry can’t complain about winning over the software, telecommunications and other industries, the total dollars invested in local life science companies did fall 3 percent from 2010. On the bright side: Average deal size increased slightly in 2011 to $7.7 million compared with $7.2 million the year earlier, the report said.

Domain Associates LLC was the most active venture capital firm in San Diego, with 20 local deals covering an array of industries in 2011, PricewaterhouseCoopers said in the report.

Early Stage Suffers Most

Still, local industry observers agree that early-stage funding for San Diego biotech companies continues to be a serious challenge, especially since the national appetite for initial public offerings also is down across the board — with the exception, perhaps, of social media companies such as Facebook, said David Gollaher, founder and CEO of the La Jolla-based California Healthcare Institute, a nonprofit organization for the biomedical industry.

“Our industry is constrained by the cutbacks in venture capital,” said Gollaher. “Nationally, there’s a shift of venture toward later stage products and away from early-stage investments.”

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