BIOTECH FUNDING NOW AVAILABLE FROM VENTURE CAPITAL FIRMS IS OVER $500 MIL.; 1992 COULD BE "BANNER YEAR" FOR STARTUPS, ERNST & YOUNG REPORT PREDICTS

Venture capital firms have internally committed over $500 mil. for future investments in startup biotechnology companies, according to Ernst & Young's "Annual Report on the Biotech Industry," released on Sept. 22. Observing that the "initial public offering shutdown is creating opportunity for startups," the report notes that by mid- 1992 "the leading venture funds [had] over $500 mil. of capital earmarked for investment in biotechnology." Ernst & Young National Director Steven Burrill estimated that the amount of venture capital available for biotech firms may now be closer to $1 bil. The Ernst & Young report asserts that "signs...indicate that 1992 may become a banner year for biotechnology startups." The firm noted that "venture capitalists who spent months working to take companies public are aggressively eyeing opportunities to raise new funds." The public markets for biotechnology have "cooled" significantly since June: only $100 mil. has been raised through both initial public offerings and follow-on offerings in that time frame. By comparison, $1.37 bil. was raised in the public markets in the first six months of 1992 -- $739 mil. in initial public offerings and $626 mil. in secondary offerings. The Ernst & Young report indicates that while the overall availability of venture capital funding in the U.S. has declined in recent years to $1.3 bil. in 1991 -- the lowest amount raised since 1983 -- venture capital interest in biotechnology remains strong. Biotechnology has received "more than 8% of total disbursements" this year, according to the report. Venture capital disbursements in 1992 so far are approximately $185 mil.: $100 mil. from January to June; and $85 mil. since June. In 1991, venture capital fund investments in biotechs shrank to $112 mil. from $151 mil. in 1990. During the 18-months from early 1991 to mid-1992 that Wall Street's window for public financings was wide open, biotechnology companies raised $5 bil. through public offerings and a total of 67 companies went public. Speaking to journalists via teleconference on Sept. 22, Ernst & Young execs Burrill and Kenneth Lee hesitated to predict when the next window for public financings would occur, but suggested that, based on historical cycles, it could open again by mid-1993. Meanwhile, biotech companies are following predictable strategies for commercialization, Burrill and Lee said. The Ernst & Young report notes that the strategies being used by companies to "accelerate commercialization" include: strategic alliances, e.g. Lilly and Centocor; partial acquisitions, e.g. Sandoz and SyStemix; product swaps, e.g. Immunex and Bristol-Myers Squibb; licensing in late-stage technology, e.g. Genta and Virna Pharmaceuticals; and acquisition of generic product lines, e.g. Gensia and Kendall McGaw. In the June 1991-July 1992 period measured by Ernst & Young, the biotech industry had revenues of $8.1 mil, up 28% from last year. Sales for the industry were $5.9 bil., a 35% increase over last year. The increase in sales was fueled by the successes of Amgen's Epogen and Neupogen in 1991. R&D expenditures increased to $4.9 bil. up 42% from the previous year. The industry had a net loss of $3.4 bil. The report notes that "top-tier companies, buoyed by public offering confidence, have ramped up their spending." The net burn rate for top-tier biotech firms (defined as those with 300 employees or more) was $2.9 mil./month in the period tracked compared to $1.5 mil./month for the similar period last year. The net burn rate for "large" (136-299 employees) and "mid-size" (51- 135 employees) biotech firms was $659,000/month and $620,000/month, respectively. In addition, the survival index for all companies has increased from 35 to 45 months. "Small companies on average now have nearly three years of cash reserves on hand," Ernst and Young reported.