San Francisco's Alta Partners, a 7-year-old venture capital firm
with $1 billion under management, plans to raise a $250 million fund for
investments in late-stage private and public biotechnology companies.
"It's a great time to be an investor in these types of deals as
many of these companies have taken a significant valuation hit because of
the state of the capital markets," said Farah Champsi, managing
director at Alta.
The new fund, to be called Alta Biopharma III, is expected to receive
backing from prior Alta investors. Prior limited partners in earlier funds
include The California Public Employees' Retirement System, Bank of
America Corp., Corning Pension fund, Rhode Island Employees'
Retirement System, Mellon Bank, Hamilton Lane Advisors, Pacific
Corporate Group, Finova Capital Corp., TIAA-CREF and Unisys
Pension Plan. She also expects new investors.
Alta's fund-raising comes amid a steady stream of PIPE deals. PlacementTracker.com,
a Web-based data researcher on PIPE deals, says that this year VC firms
have led 35 PIPE deals after completing 76 last year. That's compared with
26 in 2000, when public valuations were high.
"Now that biotech stocks have come down as far as they have, the
valuations for many of these public companies are extremely attractive and
VCs increasingly want to get involved in these types of deals," said
Robert Kyle, executive vice president of PlacementTracker.com.
Another draw, he said, is that most PIPEs are made at a 10% to 20%
discount from the market price and that exits are usually far shorter than
the typical five to eight years for traditional VC deals.
Champsi said that nowadays she can buy a minority stake in a public
biotech company with advanced product lines for less than she would pay
for a private, less advanced company.
Traditionally, such so-called PIPE deals are primarily the domain of
hedge funds, mutual funds and a handful of crossover investment funds,
while most venture funds are limited by agreements to invest in private
companies. Alta, however, has been an active PIPE investor for about two
years and has made 18 such investments since 2000, chiefly through its
prior Alta Biopharma II fund.
Champsi said Alta has participated in two PIPE deals this year, Rigel
Pharmaceuticals Inc., a drug developer aiming to treat asthma,
allergies and hepatitis C, and Deltagen Inc., which is focused on
treatments for oncology, metabolic disorders and inflammatory diseases.
An Alta source said that Alta Biopharma II's current internal rate of
return, a standard profitability measurement, is "flat." The
fund has made 18 investments so far and may make five to 10 more.
Alta plans more PIPE deals in the months ahead.
"Companies that would fit our criteria for these types of deals
would be significantly undervalued but at the same time, will have made
progress in therapeutic areas or in the areas of medical devices or
technology," she said.
ęCopyright 2002, The Deal,
LLC. All rights reserved.