12:00 AM
 | 
Mar 08, 2004
 |  BioCentury  |  Finance

Ebb & Flow

With two months of the year already gone, the trends are saying that the IPO window is helping to open venture purse strings. In the U.S., private companies raised $641 million to the end of February, beating the $470 million raised in the first two months of 2002, which was the previous best start of the last five years.

Helping matters is the widening valuation gap between public tech and biotech plays. Last week, the BioCentury 100 added 5.6%, putting the index up 13.3% on the year. By comparison the NASDAQ Composite added only 0.9% last week and is now up just 2.2% in 2004. The BioCentury London Index is up 9% on the year, after a 3.8% gain last week.

Despite London's updraft, the pace of VC activity in Europe is more languid. To the end of last month, VCs had invested $164 million in biotech. Although it is up considerably on the $53 million raised in the first two months of last year, this year's tally is way off the $206 million raised in the 2002 period (see "U.S. vs EU Venture").

The average amount raised per investment is $18.8 million in the U.S. and $14.9 million in Europe, a difference of $3.9 million per round - better than last year's $10.4 million gap. In the benchmark 2002 year, the average raised per round in the first two months was $13.8 million in the U.S. and $13.7 million in Europe.

Not all is tough in Europe. At the end of February, two companies raised $66.4 million between them. U.K. preclinical company Domantis raised £17.5 million ($33 million) in a series B round and Austria's igeneon raised E26.7 million ($33.4 million) in a series C round (see Ebb & Flow, March 1).

Both companies attracted money from the U.S., which is a fairly new phenomenon, especially for a company like Domantis with no products in the clinic. Domantis is focused on inflammatory diseases and oncology, while igeneon's IGN101 cancer vaccine is in Phase III trials for breast, colorectal and non-small cell lung cancer (NSCLC).

According to Domantis CEO Robert Connelly, the draw for investors has been the company's ability to quickly build a pipeline partnering stream based on its Domain antibodies. These are the smallest functional binding fragments of an antibody.

Domantis also has offices in Cambridge, Mass., which could raise the comfort level of U.S. investors.

More generally, several high-profile acquisitions of European companies by U.S. companies in 2003 means that VCs are seeing potential exits via M&A. "We are definitely seeing more interest from the U.S. venture investors," Michelle Doig of Abingworth told Ebb & Flow. "Many U.S. biotech companies are looking at potential European M&A, and in turn investors are seeing a growing potential for exits in Europe."

In terms of valuation, Doig considers EU & U.S. companies to be correctly valued. "I think about 12-18 months ago European companies had high valuation expectations. In the private space today, I think Europe is pretty much in line with U.S. valuations," she said.

Of a similar mind is David Brister, director of venture firm MVM in London. "Private equity markets are becoming more global," he said, which makes it less likely that there will be separate valuation metrics in the U.S. versus Europe. Brister also feels there is a trend in Europe to larger financing rounds.

New research order

SG Cowen last week announced sweeping changes to the way it conducts research. The firm said the changes - which jettison the "buy," "sell" and "hold" rating system - were made to focus its research team on value-added research and move away from earnings and press release regurgitation.

"There was an era when conveyance of information was value-added, but conveying information isn't going to cut it in a post-Reg FD world," said Barry Tarasoff, the firm's director of research. "We wanted to divorce ourselves from the belief that coverage has come to mean 'I report on it.'"

"'Buy,' 'sell' and 'hold', are code words and they aren't very communicative," he added. "We'll still have an investment opinion - we'll just choose to communicate them in more informative ways, using the full richness of the English language."

Other changes include abolishing the "post-earnings" research note, unless the firm is making...

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