Burrill Targets Biotech, Expects Surge in IPOs –

Burrill & Co. expects to hold a first close on a new biotech fund by the end of this month. The new biotech fund-Burrill Life Sciences Capital Fund III-has a target between $300 million and $500 million expected to close on about $120 million by the end of March, says Steven Burrill, the firm’s founder and CEO.

It may be an opportune time to raise a new fund, because Burrill expects 2005 to be a popular year for biotech IPOs. He says Wall Street still has a strong appetite for venture-backed biotech IPOs, even though 30 VC-backed biotech issues went public last year. “We’re going to see 40 bio IPOs in 2005,” he boldly predicts.

None of the companies in Fund II has gone public. The fund closed in January 2004 with $211 million, and will be fully invested by year-end, when Fund III is expected to close. However, Burrill hasn’t had any problem in the IPO department with its other funds. To date, eight of the firm’s portfolio companies have gone public. Also, another five portfolio companies are in registration, or they have plans to go public, Burrill says.

Others aren’t so sure that the IPO market will be so welcoming this year. Historically, biotech industry cycles tend to last about four years, says Rodney Ferguson, managing director of the life sciences group at JPMorgan Partners in San Francisco. Even though one-third of this year’s IPO listings are biotech-related, for Wall Street to remain receptive it will have to buy new issues from companies that are earlier in their product development and have less-than-robust Phase II development data than biotech IPOs that were done in 2004, Ferguson says.

“Most of the companies with that kind of data have gotten out so far in this cycle – such as Pharmion, Eyetech, Cytokinetics, Idenix and Therevance,” Ferguson says. “We won’t see as many IPOs in 05 as in ’04; maybe 10 for the year.”

Jean Deleage, co-founder of San Francisco-based venture firm Alta Partners, which led the industry last year with 10 life sciences IPOs and two other exits, says he isn’t convinced that this year will be as big as 2004 for life sciences investors. “We’ll see,” he says. “There are conflicting stories. Some say the companies in registration will go out well, but others say they’ll be crushed.”

However the year shapes up for IPOs, it will be a big year for bio funds because of the successful biotech IPOs last year, Ferguson says.

Other firms with health care-related funds in the market include Frazier Healthcare Ventures, MPM Capital and Prism Ventures. Versant Ventures is also expected to raise a new fund.

In raising Fund III, Burrill expects that it will include more endowments and pension funds than past vehicles. The Burrill funds count 33 limited partners, including 16 corporate LPs. Among them are Archer Daniels Midland, Bayer AG, Chiron, IBM, Mitsubishi Corp., Nestle, Novell and Unilever. Fund III will be split 50/50 between corporate LPs and more traditional institutional investors, Burrill says.

As Burrill gears up for Fund III, there hasn’t been enough interest to close on the firm’s Australia Fund (which had a target of $100 million). Burrill says that he wasn’t terribly surprised about the fund down under. Two years ago, he noted, “There haven’t been any funds of that scope in Australia. I have a sense it will either work or it won’t.” Instead of raising a fund dedicated to that market, the firm instead will fold any commitments from Australia into Fund III, Burrill says.

The firm has been investing with a vengeance. It made its first investment from Burrill Life Sciences Capital Fund II in 2002 and has since made nearly 20 deals from that fund (16 of them in 2004), according to The MoneyTree Survey by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Venture Economics (publisher of VCJ).

Most of Fund II’s investments center around drug development for mainstream treatment areas, such as cancer and heart-related conditions. The firm also works in unusual areas such as the development of fungicides for use in agriculture (note its relationship with Archer Daniels).

Similar to its predecessor, Fund III will continue to invest in segments such as ag-bio, but the majority of its investments will be made in areas like drug discovery and development.

Separately, Burrill has hired former WI Harper Group and Walden International pro Jonathan Wang to serve as general manager of a new effort focused on strategic partnering and investing opportunities related to Greater China.

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