Mark Dempster

Russo Partners met recently with Mark Dempster and Ralph Sutton of the Thomas Weisel Partners New York City healthcare investment banking team to catch up on what’s happening in biotechnology, pharmaceutical and medical technology financing.

With the financing environment continuing to be challenging for companies in need of capital, we asked Mark and Ralph what they’re seeing today.  Here’s their view:

• VCs are consolidating their investments. The VCs are being forced to hold onto portfolio companies longer than originally planned and are having to take a hard look at their porfolios and focus funds on a subset of companies. VCs may be an alternative funding source for public companies with low market valuations, but companies need meaningful clinical data in hand or in upcoming announcements to be attractive to them.

• Access to capital is extremely challenging for small-cap and private biotechnology companies. The investor universe has narrowed significantly. To raise capital, many small companies are looking to partner or sell to large-cap pharmaceutical or biotechnology companies.  However, there are more sellers than buyers. This likely means some small biotechnology companies will go bankrupt or otherwise go out of business. Companies are being forced to focus their efforts on key programs and husband cash.

• In medical technology, financing has shifted toward later stage companies. VCs are seeking opportunities to provide growth capital or where the risks are related to commercialization and execution, rather than clinical, regulatory and reimbursement. Small-cap companies have suffered from the market downturn. The average return of the 50 IPOs completed in 2004 through last year  is -60%, and, for the pre-revenue companies in that universe, the return is -75%.

Mark Dempster and Ralph Sutton are managing directors in healthcare investment banking at Thomas Weisel Partners in New York City. You can reach them via e-mail at mdempster@tweisel.com and rsutton@tweisel.com.