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'The Gravy Days are Over'

The biotech industry is slowly learning that though investors were once eager to give money to budding innovative drug companies, "the gravy days are over," The Wall Street Journal's Jonathan Rockoff and Pui-Wing Tam say. While companies were once able to secure millions in funding, venture capital for biotech has been down in recent years, partly because of the economy, and partly because investors are learning that stock offerings from these companies often have poor returns, Rockoff and Tam add. "Venture capitalists invested a total of $3.92 billion last year in biotechs of all stages, well below the $6.17 billion peak in 2007," they say. "And shares in biotechs that went public last year averaged 29 percent less than their expected midpoint offering price." In addition, large pharmaceutical companies, which often provide funding for biotech through various deals, are starting to demand more successes from these companies.

Some biotechs have started to get creative, seeking out alternative sources of funding, while others have focused on cutting costs. "Ultimately, some promising advances may go unexplored, if startups can't find new ways to secure seed money," Rockoff and Tam say.

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