Most new drug companies start small, with few staff members and little money. So in exchange for equity in their company, biotechs can raise much-needed cash from venture funds looking to invest in a technology early in order to earn a big pay-off down the road. Experienced individuals from the venture capital firms usually play a key role making decision and guiding the new company through the development process. 

Venture capital funds will, at various stages, provide fresh infusions of cash if a biotech's program shows promise and continues to move through the clinic without hitting any major speed bumps. Ideally, the drugmaker will exit when the it's in a position to demand a premium price. Promising Phase II or, better yet, Phase III data could tempt a larger company to make a pricy buyout offer. Alternately, some developers attempt to raise money by filing an IPO. This is a gamble at best. While some high-flying developers like Pacific Biosciences have had success on the open market in recent months, investors still lack an appetite for small developers with no drugs in the market and the risk of an FDA delay or rejection looming in the future.

In 2010 biotech venture capital investing began to recover from its 2009 low, growing three percent in the number of dollars raised and eight percent in the number of deals which were struck. That represents a significant bounce-back from 2009, which saw biotech investing plummet 19 percent during the worst of the economic crisis. The industry dropped to second place overall behind software, with $3.7 billion going into 460 deals.

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Biotech Venture Capital

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Latest Headlines

UPDATED: VC Frazier Healthcare nails $377M fund with eye on biotech startups

Amid renewed optimism in biotech venture capital, Seattle stalwart Frazier Healthcare has pulled down a $377 million fund, surpassing its goal as it scouts for the next wave of emerging drug developers.

Third Rock's path to success lined with patience, rigor and T-shirts

Looking at this year's boom in high-dollar biotech IPOs, you can't miss the fingerprints of Third Rock Ventures, with three of the hottest market debuts coming straight from the fund's portfolio. That success is no coincidence, the group says, and its founders gave Nature an inside look at its painstaking process of choosing which companies to bankroll and which to let slide.

Syndax snags $26.6M round for Phase III breast cancer study

Waltham, MA-based Syndax Pharmaceuticals took a big step to the threshold of a key pivotal study for its lead cancer therapy today, completing a $26.6 million venture round. The funds will pay for a Phase III study of entinostat, an HDAC inhibitor which promises to extend the efficacy of a standard breast cancer therapy.

OrbiMed lays plans for $300M biotech VC fund in Asia

OrbiMed Advisors, an active biotech investor, is apparently scaling down plans for a new pan-Asian fund. OrbiMed Asia filed documents with the SEC for a proposed $300 million fund, well under the $500 million its partners were discussing back at the beginning of the year.

Karyopharm snags $19M more to expand work on anticancer contender

Karyopharm has scored an additional $19 million for its Series B round of financing, padding the $48.2 million raised for the round in May, for a total of more than $67 million, among the largest this year for a drug developer.

$1.3B VC cash surge buoys biotech as analysts point to a rebound

A blistering round of IPOs wasn't the only source of fresh cash for biotech companies in the second quarter. The National Venture Capital Association and PricewaterhouseCoopers tracked a $1.3 billion gusher of venture capital in the biotech community, a spike of 41% over Q1 as two big rounds in a mix of 103 deals helped drive the surge.

NEA's Mott, Kleiner Perkins pump $20M into cancer drug upstart

David Mott at New Enterprise Associates has put together a $20 million round to back 3-V Biosciences, an upstart biotech with deep roots in Switzerland's scientific community and an office in Silicon Valley.

Merck Serono CEO stakes out Boston biotech startups

Merck Serono CEO Stephan Oschmann has made overtures to biotech entrepreneurs as the pharma group seeks ways to bolster its business after a series of R&D setbacks such as the failure of an experimental oral drug for multiple sclerosis and major layoffs and cutbacks in Geneva, Switzerland.

Effector Therapeutics snags $45M venture round from A-list backers

Effector Therapeutics has rallied marquee investors for a sizable $45 million Series A financing, determined to use discoveries in protein translation to mine for new cancer drugs.

Amgen, Novartis aim to fuel biotech startups in alliances with Atlas Venture

For Amgen and Novartis, investing in the latest fund from Atlas Venture wasn't enough. The Cambridge, MA-based venture firm has struck separate agreements with the two major drugmakers to join forces on biotech startups.