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Biotech Investing Takes Patience, Comfort With Risk

Biotech Investing Takes Patience, Comfort With Risk By CARLOS MARTINEZ Staff Reporter When former Amgen Inc. CEO and Chairman Gordon Binder told an audience last year how the now-giant company started out by securing $19 million in investment capital with no technology, no business plan and exactly one employee, many in the crowd laughed. They knew how much things have changed. Today, for investors interested in the biotech sector, the promise of a revolutionary new drug or therapy is not enough. They’ve got to see a viable business plan too. “People are looking at the potential and viability of a company more now than ever,” said Brent Reinke, managing director of Westlake Village-based Crosby Heafey, a law firm that specializes in putting together deals for the area’s biotech firms. “People are always looking for the next Amgen, but that doesn’t mean they’ll invest in something just because it sounds promising.” Thousand Oaks-based Amgen reported $1.2 billion in net income on $3.7 billion in total revenue last year, and is widely viewed as the prototype of a tiny startup that grew to be an industry leader. “The payoff can be huge if you’re a serious investor willing to wait years for a product to come to market,” Reinke said. For instance, Amgen’s recently approved anemia drug, Aranesp, took nearly 10 years to develop. Analysts believe it could bring the company sales of as much as $2 billion a year. Bill Robbins, managing director of Los Angeles-based venture capital firm Convergent Ventures LLC, said investors realize they’re making gambles that could prove immensely profitable or turn out to be just another bad bet. Because of the intricate research and development process required for new drugs and therapies, companies can often take years just to get to the point where they can conduct early clinical trials, which can drag on even longer before products are finally approved and brought to market. Those protracted time frames are not particularly appealing to eager investors hoping for returns on their investments sooner rather than later, Robbins said. “For people who follow the industry, that’s a part of the normal process of developing new drugs. You can’t guarantee a winner,” said Robbins, who has invested millions in firms like Neurion Pharmaceuticals Inc. in Los Angeles and Cyrano Sciences in Pasadena. Such was the case in January when Santa Barbara-based Miravant Medical Technologies failed to meet its goals during late-stage clinical trials for its SnET2 drug for the treatment of macular degeneration, a leading cause of blindness. The drug, in development for nearly 10 years, now faces an uncertain future. So does the company, with a stock price that fell from $9.75 to about $1 following its announcement of the drug’s failures. Miravant, which has no other products in the market, is seeking new partners to continue its research with SnET2. “Stories like that hurt the industry and makes investors leery of these technologies,” Reinke said. But Norm Higo, an individual so-called “angel investor” in Thousand Oaks-based stem cell biotech startup StemSource Inc., said he’s not fazed by the troubles of other biotechs. “I don’t worry about what other companies are doing. I felt that this is a solid investment, based upon my understanding of the stem cell field,” he said. Higo said his investment is, of course, financial and he’s hoping for a return on his money, but his interest is humanitarian as well. “My investment is kind of a gift back to society,” said Higo, who would not disclose how much he invested in StemSource, “to advance some promising technologies, and I believe that stem cells, in particular adult stem cells, show a tremendous potential to help mankind.” Angel investors with that attitude are coveted by biotech firms that have trouble finding venture capital, said Sidney Edwards, a principal with TL Ventures in Los Angeles. Early angel funding is critical in the development process, when venture capital is particularly hard to find, he said. Biotech startups require substantial capital for everything from acquiring expensive laboratory space and equipment to office space and qualified personnel, Edwards said. “That’s where angel funding comes in,” he said. But it comes with a double-edged sword, said Reinke, who noted that angel investors often insist on substantial control over how the funds they provide are used. “We focus on companies that have a good business plan and great product potential,” Robbins said. “Everybody wants to be a part of the next Amgen. But you have to be willing to be in it for the long haul.”

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