By Karen Bernstein

The equity markets defrosted slightly in April, as public companies raised more money in one month ($152 million) than they did in the entire first quarter ($119 million). But all things being relative, this warming trend looks good mostly in comparison to the ice age that came before it. The total raised by public companies for the first four months of the year doesn't come close to matching the $772 million raised in the first four months of 1994.

Part of the renewed interest has to do with the performance of the sector in comparison to other parts of the stock market. According the Dennis Purcell, an investment banker at Hambrecht & Quist, the group has significantly outperformed the S&P 400 to date. "So if a growth investor has ignored the sector this year, it has negatively impacted their return," he said.

Motivated investors

No one who has braved the fundraising circuit is finding it a cakewalk, and the majority of companies raising money are looking to do quick, small, bridge financings to get them enough money for a few more quarters or until their next milestone.

The most interesting phenomenon is the emergence of new investors, alongside some long-time biotech investors, who are going directly to the companies and asking if they can buy blocks of shares. As a result, a number of the small financings of late have been investor-initiated, rather than company-initiated - another small sign of hope for those looking for indicators that the sector has bottomed.

One beneficiary of this phenomenon is CytoTherapeutics Inc., which went through the rollercoaster of trying to do a follow-on offering under dismal market conditions last fall, and again in January, and ended up being approached by an eager suitor last month.

In October, CTII felt that it had a good shot at doing a public offering, with a partnership for its pain program in the works, and two clinical trials about to start - a pain trial in the U.S. and an investigator-sponsored trial for encapsulated delivery of CNTF in Switzerland. The Providence, R.I., company's stock had run up to $8.25 last summer.

But as the market went south, CTII's book got softer and rather than sell 2 million shares at $4.50, the company pulled the deal. It tried again in January, but when the stock went to $3.50, said CFO Daniel Geffken, the board said "enough was enough."

In the course of trying to do the offerings, CTII attracted the interest of an open-end U.S. mutual fund that isn't a biotech player. "The premise was that the fund wanted to make some biotech investments, and it wanted a company that looked like it had a chance to go from $6 to $100," said Geffken. "But if it goes from $6 to $0, the fund is large enough that it's just a rounding error."

The investor initially wanted a million shares, and ended up taking 1.7 million at $6 (the bid price of the stock at filing was $6.375). The company also elicited interest from about six funds that had been lined up to buy on the public offering, and CTII could have ended up selling 2.5 million shares at that price. But the company decided to keep things simple and limited the deal to the single investor, which has an option to raise its stake to 15 percent. The company now has 2.5 years of cash.