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Venture Capital Lured By San Diego Biotechs

Venture capital investment in San Diego’s life sciences arena is on the upswing, boosted by the lingering positive effects of a bullish biotech market, according to area VCs and a new report from PriceWaterhouseCoopers LLP.

The venture investment climate has been challenging of late, but the startups and midstage companies receiving funding are generally receiving larger amounts, according to the report’s analysis of life sciences venture deals during first quarter 2014.

“It’s easier today, but still, everything’s relative,” said Douglas Downs, managing partner and chief financial officer of Avalon Ventures in San Diego. “It’s still difficult to get financings done, but there are more getting done, it would seem.”

Fourteen San Diego life sciences companies received a total of $156 million in venture funding, with the largest deal made with Lumena Pharmaceuticals Inc. However, the region’s life sciences companies are enormously outpaced by the Bay Area and the Boston regions; in first quarter 2014, those areas raised $478 million and $335 million, respectively.

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The San Diego region the fourth-highest recipient of venture dollars for the quarter, also trailing the New York metro region, which raised $189 million.

Overall, when compared quarter over quarter, 2014 is shaping up to be a good one for San Diego. During first quarter 2013, $122 million in venture funding was distributed among San Diego life sciences companies, which was a marked dip from first quarter 2012, when $180 million was raised.

These numbers are more trend-related than exact, however. For example, the $70 million Series A round raised by Human Longevity Inc. was excluded from the PwC tallying. That figure, however, includes nonventure funds, as many wealthy individuals invested in the high-profile startup that aims to study and elongate the human aging process.

Nationally, venture capitalists invested $1.7 billion in 173 life science deals during the quarter ended March 31, compared with $1.4 billion in the same number of deals during the same period in 2013. However, the category still underperformed the $9.5 billion in total venture capital investments made during the first quarter, and is now at the lowest proportion of total investments since 2001, PwC said.

“There’s just a finite number of venture dollars going into companies, and we’re seeing the lion’s share going into the tech sector,” said Greg Vlahos, a partner focusing on the venture capital and life sciences industries at PriceWaterhouseCoopers. “We’re seeing the VCs are placing dollars in disruptive tech companies because they require less up-front capital than life sciences companies and have a shorter path to liquidity.”

But the boom period biotech sector that peaked between the latter half of 2013 to the early part of 2014 has shifted the investment patterns for many venture capital firms.

With many biotechs filing for and completing IPOs, VC firms that wouldn’t traditionally venture into the life sciences space are investing in mid- to late-stage companies that could be close to going public. This appears to be the case with Lumena, which received a substantial $45 million Series B round in March; the company filed shortly after to go public but wound up getting acquired by Irish drugmaker Shire PLC for $260 million in early May.

Either way, an exit strategy for the pool of venture capitalists was close at hand.

“Even in a volatile market, we’re seeing very good IPO results and filings,” Vlahos said. “Venture funds track the market, so if you see a strong IPO market in a sector, you see dollars to continue to flow into those spaces.”

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