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12:00 AM
Jul 22, 2002
 |  BioCentury  |  Finance

Ebb & Flow

With bushel baskets of VC money chasing product companies, it's not surprising that some valuations are getting overcooked. Now some VCs are putting their money to work in select toolkit companies, because their valuations are more sensible.

Abingworth is in that camp, having just co-led a $22 million round for liquid handling technology company PicoLiter. The post-money valuation was not disclosed, but Jonathan MacQuitty, president and director of the firm's U.S. operations, noted that it was at a level that would support stepups at later rounds, which is unlike what he's seeing in the product area.

"There are ridiculously overvalued deals on the product side," said MacQuitty. "We've seen series A valuations that are 80% of Pharmion's last deal," a $65 million round that was rumored to value the company at $120 million, and brought the total raised by the in-licensing company to $90 million. "Everyone's saying that we'll be the next big in-licensing company, but guess what? There aren't enough Phase III compounds out there to do that," he said.

Pharmion is notable because it's one of the few private companies that is close to marketing a product. It has European rights to Thalomid thalidomide from Celgene (CELG), which is under review in Europe to treat both multiple myeloma and erythema nodosum leprosum (ENL), an inflammatory condition associated with leprosy. Last week it in-licensed U.S. rights to Innohep tinzaparin once-daily low molecular weight heparin from Leo Pharma, and plans to re-launch the product in the U.S. on Oct 1.

MacQuitty said his fund is mildly contrarian: "We do deals that aren't flavor of the month." Abingworth also has a history of funding both discovery tools and product companies. The firm was an investor in Aurora, an ultra-high throughput screening company that was bought by Vertex (VRTX) in 2001 for $592 million in stock (see BioCentury, May 7, 2001). More recent investments include Guava, a developer of cell analysis technology; bioinformatics company Inpharmatica; and Solexa, which is working in microarrays, chemistry and genomics.

The PicoLiter round was co-led by the Sprout Group. Other investors in the B round included Delphi Ventures; Alloy Ventures; and Palo Alto Investors.

In Europe the situation in the private equity space appears somewhat different, with valuations for both toolkit and product companies in a funk. It is an accepted fact that since the top in 2000, private company valuations have reduced by well over 50%.

"I am not seeing a value diversification between product and toolkit plays," said Denise Pollard-Knight of Nomura Healthcare.

A little fresh air

The BioCentury 100 advanced 1.8% on the week - a yeoman-like performance compared to the key equity indexes. The Dow Jones Industrials stumbled 390 points (4.6%) on Friday, putting it down 7.7% on the week. The bellwether index dipped below the 8000 mark briefly on Friday afternoon. The S&P 500 was down 8% on the week, and the NASDAQ Composite slipped 4%.

In fact, the drug group led the decline. The AMEX Pharmaceutical Index tumbled 9.3% on a particularly newsy week that included M&A, manufacturing snafus and regulatory setbacks.

In Europe, there was a hint of enthusiasm as the BioCentury London Index rose each day to Thursday before falling on Friday to 408.4, still up 3.8% on the week. The BioCentury Europe Index closed Friday at 346, down 1.7% on the week after an initial fall of 2.7% on Monday.

Meanwhile, London's benchmark FTSE fell below the 4000 level on Monday to close at 3994.5, but rebounded to finish at 4098.3. The techMark 100 dropped to a record low of 747.7, but recovered to 773.4 on Friday.

Shrinking premium

The poor performance of the pharma group took some sheen off transaction values. Thanks to a good snipping in the barber chair following the announcement of its stock deal to acquire Pharmacia (PHA), the 38.3% premium Pfizer was paying for PHA shrank to 16.6% by week's end. The numbers are based on PHA's prior Friday...

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