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Alta to raise $250M biotech fund
by Katherine Goncharoff
Sep-13-2002

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.

 


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