Since December, at least 21 biotech companies have filed for public offerings, and everyone knows there are more coming. Just how fund managers wade through those competing demands for money will play an important role in determining over the next few years which biotech companies will have adequate capital to develop their products and which will not.

BioCentury talked to fund managers and analysts, ranging from healthcare and smallcap funds to private money managers. We asked them how they cope with the onslaught of offerings and what kinds of screens they use to narrow their choices and make investment picks.

Some back-of-the-envelope calculations of the industry's capital needs give a feel for the size of the challenge facing investors.

$10 billion to $30 billion

Cheryl Alexander, who manages the Putnam Health Sciences Trust, figures $250 million for each of the 60 or so companies that went public in 1991-92, plus an additional $150 million each for another 60 public companies, for a total of $24 billion.

Stelios Papadopoulos, managing director of investment banking at PaineWebber Inc., estimates that each of the Class of 1991-92 needs to raise $200 million to $500 million to reach break even over the next five to 10 years. That yields $10 billion to $32 billion for the newly public companies alone.

A third calculation by Garo Armen of Armen Partners assumes that 150 biotech companies each have two or three lead compounds, which will cost $50 million apiece to develop. That comes to between $20 billion and $25 billion.

To hit those kinds of numbers over the rest of the 90s, biotech companies will have to raise more than $3 billion annually. Though some of that will come from corporate partnerships, such capital consumption projects to 75 or 100 offerings per year for the next seven years, assuming an average offering of $30 million to $40 million - and that's not counting IPOs.

Capital competition

In comparison, according to Denise Gilbert, a sell-side analyst at Smith Barney, the drug-related biotech companies raised $2.2 billion between 1981-90, an additional $3.2 billion in 1991, and about $1.1 billion in 1992.

"My point is all of them won't be able to raise money - they're competing against each other," she said. "The No. 1 issue for a lot of these young companies is the competition for capital. They don't even get to compete over products for years."

Investors have learned something from the past financing rounds and are going to be pickier this time, said Robert Uhl, a healthcare analyst at Curran Capital. "The

institutions that bought the first or second time around and got out won't be as eager to step in this time," he said. "I'll still selectively choose. One out of 10 is probably good."

Stephen Lurito, who manages the Emerging Growth Fund at Warburg Pincus