Venture capital circles turn dour in the face of some tough challenges

This year ended on a series of sour notes from venture groups that the biotech industry found impossible to ignore.

The National Venture Capital Association helped get the party started with a survey showing a significant chunk of the VC community looking outside the U.S. to place its bets. Only one in three VC execs later said they expect investment levels to rise in the U.S. next year; slightly more expect a drop.  And there's widespread anger and dissatisfaction about the regulatory hurdles facing drug developers, with some disease fields being particularly affected by tougher FDA standards.

Another moribund year for biotech IPOs hasn't helped the venture community one little bit. Without a timely exit on the horizon, investors won't be able to get very excited about drug development.

By the time the principals at Scale Venture Partners announced they were throwing in the life sciences towel back in November, the angst in investment circles had grown palpable.

Despite all the stormy headlines, it's not all darkness and despair. Third Rock Ventures has been barreling ahead, handing out large rounds to early-stage startups with some intriguing science. Steven Burrill may not have rounded up all the cash he had promised for his fourth fund, but at better than $300 million, he will continue to play a key role in the investment scene. And new investors at RusNano have popped up to back nanobio plays with some major cash. Even Europe, which has been struggling, saw some big rounds for emerging companies.  

It's unlikely 2012 will see any dramatic changes at the FDA that will make life any easier for developers. And IPOs remain a dark spot. The simple fact is it's hard for the vast majority of biotechs to get investors excited about the potential of an experimental drug. What they see is huge clinical trial risk, followed by big hurdles at the regulatory agencies and even bigger challenges on the commercialization stage. But there are enough visionaries--and, let's face it, opportunists--to keep the money tap open in the year ahead.

Plexxikon, BioVex and Pharmasset have all helped demonstrate how developers can provide hefty returns for investors. They all were bought out this year, of course. But as long as those kinds of payoffs remain possible, there's hope for better times ahead for the venture side of the business.

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