Letter from the Editor

Contributed by:

Taren Grom, Editor

NOTE: The content below contains the first few paragraphs of the printed article and the titles of the sidebars and boxes, if applicable.

Funding in a closed space

The healthcare private equity market was down in 2002, and industry experts don’t expect a gr eat deal of improvement in 2003.

Venture capital firms are sit ting on massive funds and are still doing deals, but according to Russell LaMontagne, president and founder of Corinth Group Communications, their energies are focused on reinvesting in portfolio companies and safer late stage deals. As a result it has never been harder for the early-stage, pure startup company to get funded.

Mr. LaMontagne points to two notable exceptions — TargetRx and Cambridge Pharmaceuticals.

TargetRx was founded in January 2000 at the height of the Internet bubble. TargetRx, which provides data on physician prescribing habits to the pharmaceutical industry and major medical associations, raised its first venture capital round in June 2000 and its second round in December 2001. Mr. LaMontagne says what is interesting is how much the market changed in between the funding rounds. In 2000, it was a sellers’ market for young companies. By late 2001, the market had shifted 180 degrees. Despite a tight private equity market, TargetRx was able to raise its second round of funding.

Cambridge Pharmaceuticals, an emerging pharmaceutical company focused on acquiring, developing, and commercializing products that meet the needs of underserved patient populations, was founded in early 2002. Cambridge Pharmaceuticals’ first product is a breakthrough therapy that is intended to treat nausea and vomiting. The company is actively trying to raise a Series A round of $8 million.

It has never been more important for companies to accurately and realistically position their business models. Every venture capitalist has seen hundreds of “next generation solutions” and “paradigm shifts” that didn’t solve or shift anything.

For companies that don’t have late-stage products on the table, the funding window is all but closed. Many early-stage companies must continue to monitor their burn rates vigilantly in order to preserve their cash until a more favorable funding environment opens or until they can produce substantial human clinical data to attract the venture capital firms.

“The idea is that venture capitalists support innovation and help young companies, but that’s not what VCs are doing right now,” Mr. LaMontagne says. “They are funding known quantities.”

Industry expert, Ken Andersen, editor of VentureWire, concurs, stating that in the last six months of 2002 there was a significant change in the funding environment for lifescience startups across the board, specifically in drug discovery and drug development.

“In the last year and a half, investment in those sectors has been driving the entire venture industry,” Mr. Andersen says.

The downward shift in the second half of 2002, Mr. Andersen says, can be attributed to a couple of trends. Specifically, VCs took a step back to evaluate their current funding portfolios. Second, changes in the public market cooled the momentum of VCs rushing in to make investments.

There also is concern about the lack of an IPO market and follow-on market for companies right now. But despite these obstacles, investors, analysts, and company presidents remain upbeat about the opportunity for companies to raise venture money in the long term.
Taren Grom


Volume 3 . Number 1

EDITOR Taren Grom

Darlene Kwiatkowski

Virginia Kirk
Denise Myshko
Elisabeth Pena
Kim Ribbink
Alex Robinson
Lynda Sears

Copyright 2003
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Printed in the U.S.A.
Volume Three, Number One

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