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The Color of Money on the Cote d Azur: At Industry Conference, Players Search for the Right Deals

CANNES, France, Sept. 10 – Some two-dozen genomic and pharmaceutical companies, 20 private start-up life sciences firms, one bioethicist, and a gaggle of venture capitalists, financiers, institutional funds, and banks descended on this Mediterranean city on Sunday to learn what the future of life sciences may look like and, hopefully, to do deals.

They are meeting on this stretch of the Cote d’Azur to participate in the ninth annual Atlas Ventures life sciences conference. For the next three days, between panel discussions and plenary sessions, companies like Akceli, EntoMed, Genomics Collaborative, Integrative Proteomics, and Zyomyx will present to companies like Celera, Eli Lilly, Geron, and Novartis, as well as to financial firms Banexi Venture Partners, JP Morgan, Lehman Brothers, Robertson Stephens, and UBS Warburg. While analysts concede it is difficult to predict just what kinds of research collaborations this forum might bear, some have said they’ve detected rumblings from the financial side that they believe may portend a change in the way investment in life sciences is carried out.

Industry watchers point to a recent study that shows that a handful of mutual funds and investment management firms have been quietly outpacing venture capital firms as backers of some publicly held life science start-ups.

The study, performed by industry newsletter Genomic Investing and released at the end of August, found that “institutional investors replaced venture firms or executives as the largest shareholders of at least three companies”—Gene Logic, Caliper Technologies, and Invitrogen. None of these companies is presenting at the Atlas Venture conference. Genomic Investing also found that six investment firms own at least $1 billion in some 67 public genomic companies; FMR, based in Boston, holds $4.6 billion in shares, while Putnam Investments owns $2.4 billion.

The Vanguard Group and Janus Capital are tied with $2.2 billion apiece. Although these findings may only be relevant to public companies—indeed, an analyst at UBS Warburg attending the forum here said he believes that venture capitalists remain the primary source of funding for private firms—a small sampling of genomic groups interviewed by GenomeWeb admitted they won’t be limiting their pitches to the venture capitalists.

“Most of us intend to go public, and we certainly want the institutional investors to recognize us even when we’re at this stage of the game,” said one who asked not to be named.

Analysts also point to negative events, including creeping unemployment in Europe and, especially, in the US; unemployment in the US jumped .4 percent between July and August to 4.9 percent, the biggest one-month rise since 1995, according to a government report released last Friday.

Sources within the genomic sector also refer to receding international economies and the continuing repercussions of the dot-com collapse. Results of a recent survey by Deloitte & Touche, for example, showed that the tech implosion would eventually lead to the demise of as many as one out of every three venture capital firm in the US.

Indeed, around 75 percent of 2,000 venture capital firms surveyed said they believe that between 10 percent and 33 percent of their kind will be out of business soon. Still, nine out of 10 of them said they believe it is a good time to invest, and findings from separate research showed that the biotech sector—and especially genomics—remains a safe long-term haven.

None of the venture capital representatives at the Atlas forum would comment on the Deloitte & Touche findings, but one financial analyst at a large US firm conceded that the flow of cash to this sector will be slower than many companies expect “until at least the second quarter of next year.”

Do companies presenting here have a job ahead of them? “Many of them do, but some do not,” the analyst said, who asked to remain anonymous because his firm is set to release research findings of its own on Monday. “Theses companies will find that the (investment) window that has been open for a while now will be somewhat smaller,” he said.

Are there particular companies that will have it easier these next few days? “There are two options,” he said. Investors will have a choice to either to put their money into companies that are farther along the pipeline—those involved with drug- or target-discovery—or they can pump much more cash into more early-stage companies. “Either way,” he said, “the overall amounts are going to be smaller than the sector has become accustomed to.”

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