Most of the private companies that raised money in the first half of 2000 - when the genomics "revolution" was driving super-high octane valuations - bought about a year-and-a-half of cash, which would put them in money-raising mode right about now. But with valuations falling, many could end up doing down rounds unless they can get existing investors to cooperate.

Michael Steinmetz, general partner at MPM Capital, already is detecting the squeeze. "We're seeing some companies who raised money in the first half of last year who are having some difficulty supporting their valuations, so we've seen some flat rounds and some down rounds," he said.

He suggested that companies "might want to do an internal round where you go back to your existing investors and do a small stepup - maybe 20%. But if the existing investors aren't willing to put in more money, you may have to accept a lower valuation because new investors will squeeze as much as they can."

Steinmetz suggested that most VCs would support the internal round concept because they are sitting on fresh capital.

Jonathan Leff, managing director at Warburg Pincus, also expects to see more down rounds and more M&A. On the latter front, he expects more public-to-private activity than private-to-private because many public companies have the resources to support two burn rates.

Leff pointed to the Pharmacopeia (PCOP) merger with privately held Eos as a model for future M&A for the biotech space (see Noteworthy, A6).

CIBC World Markets banker Peter Crowley noted that some of the 1H00 venture group bought themselves a little time by raising significant capital in their last round. These companies pulled in "a little more than the traditional 12-18 months of financing a typical venture round gets you," he said. "You won't start seeing the valuation resets on those deals until these guys come back to the market, which will start happening later in the fall and early next year."

While Crowley doesn't envision the market picking up in the near future, things could look rosier six months from now. "By that point, the market could be screaming and these guys could get bailed out," he said.

In the meantime, Crowley expects the less-starved companies to buy some time by closely minding their pennies and perhaps squeezing some extra dollars from pharma partners.

By Ebb & Flow's tally, 46 of the 76 companies that closed venture financings in the first half of 2000 have not subsequently raised money (see "Money Hunters", A10). Of the 46, four have already withdrawn an IPO attempt, and five have filed to go public (although none have actually kicked off their marketing campaign). Of the 30 that raised money, 16 did it through an IPO, and 14 did another venture round.

Venture tracks

Still, big venture deals continue to get done. In the U.S., in-licensor Discovery Therapeutics raised $45 million through Schroder Ventures and International Biotechnology Trust, among others. The company has four compounds in clinical development for renal and cardiac diseases.