Ebb & Flow

Just when it was beginning to look like the biotech financing window was nearing the end of its natural lifespan, an inflow of money into the sector is driving up the indices and fueling a spate of follow-ons and other financings.

Already this quarter, nine companies have priced follow-ons, including seven U.S. companies, raising a total of $685.4 million. The entire second quarter totaled seven follow-ons by six companies (four U.S. companies), raising $497.8 million (see "Following Follow-Ons").

Three follow-ons priced last week: Anadys (ANDS), Ariad (ARIA) and ZymoGenetics (ZGEN). In all three cases, the number of shares was bumped up. Moreover, ANDS closed its deal above the price prior to filing and then closed the week above the deal price.

In addition, two public companies closed sizable private financings, whileHuman Genome Sciences (HGSI) did a $230 million convertible note deal on Thursday and Nuvelo (NUVO) entered a $75 million financing facility.

The new enthusiasm is being driven by the fact that more money has moved into healthcare and biotech funds in the past few months than at any time in the last five years, according to Kurt von Emster, portfolio manager at MPM BioEquities. Year to date, he said, healthcare and biotech funds have received about $2 billion compared to $1 billion last year and an outflow of $1 billion in 2003. In 2002, the outflow was $3 billion, while in 2001 it was $500 million.

Nick Draeger, research analyst at Adamant Biomedical Investments, noted that the big mutual funds are looking for high growth places to park their money. "The bond yield curve has flattened so that spreads are very small and big pharmas aren't doing anything," he said.

"The HMO stocks have had their run. Generalists had been looking around at sectors like energy and oil, but that seems to have run its course," he added. "Maybe

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