SANTA CLARA, Calif. Feb. 25 - Life sciences may still be the darling of venture capitalists, but the trend may be skewed towards therapeutics companies and away from genomic, proteomic, and bioinformatics firms, according to industry watchers.
"Overall, biotech's a hot area, but most of the interest is funneled into drug discovery and therapeutics," said Ken Andersen, editor of VentureWire, an industry tracker and newsletter. "There has been some cooling of interest in bioinformatics. People are starting to wonder if bioinformatics [companies] can be stand-alones."
Venture capital investment in biotech reached $688.5 million during the first month and a half of 2002 compared with $161.1 million for the same period one year ago, according to VentureWire.
For genomic and proteomic tool companies, however, VC investment this year through Feb. 21 was $52.1 million compared to $87.5 million for the same period in 2001, while bioinformatics companies saw $20.9 million for the first month-and-a-half in 2002 versus $24.4 million during the same period one year ago.
"VCs like to be behind the next big thing, and that's shifted from genomics to proteomics," added Andersen. "With proteomics, there's interest, but companies like Syrrx and Structural Genomix are so far ahead of the game" it's hard for others to catch up.
In fact, the upsurge in biotech investment had begun in the fourth quarter of 2001.
Approximately $1 billion was invested in biotech over the final three months of last year versus $868 million for the same period in 2000, according to a survey by PricewaterhouseCoopers' MoneyTree unit, Venture Economics, and the Nature Venture Capital Association. This reversed a downward trend in biotech investing that had begun in the third quarter of 2000, said the report.
Biotechnology also saw the greatest rise in investment as a percentage of total venture capital dollars going to all industries, rising to 8.2 percent in 2001 from 3.5 percent in 2000, according to the report.
While the report did not break down figures for biotechnology, the authors did see opportunities in the genomics and proteomics sectors, reporting that the upsurge in biotech investment is due to "a wide range of opportunities created by the integration of technology in the drug development process and continuing advances in the genomics and proteomics fields."
The name game problem
Venture capitalist Michael Lytton, a general partner at Boston-based Oxford Bioscience Partners, and Noubar Afeyan, CEO of Cambridge, Mass.-based Flagship Ventures, view that genomics and proteomics as strong investment targets within the overall biotech sector.
"Technology risk is no more risky than development risk, probably less risky, despite current bias of aspects of the venture community," said Lytton.
Whether investment in genomics and proteomics is hot or not may be a matter of semantics reflected in tracking.
"The problem is a naming game," said Afeyan. "Everybody is changing the name of what they do, but they are doing same thing. So how do you track where things are going?"
"A lot of the stuff is merging together, companies are trying to relabel themselves as drug-discovery companies," agreed Andersen.
As for bioinformatics, experts said that the business model is in transition.
"Bioinformatics is going to have to chase where the bottleneck is, constructing knowledge out of a deconstructed state," said Afeyan. "Bioinformatics is getting into more of a constructionist approach, all of which are new business opportunities."
Still, the flow of investment dollars into biotech makes it "a very good time to start new ventures," added Afeyan.