Small biotech companies could benefit from business-friendly bills in Congress

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Brian O'Connell

The saga of life sciences funding hasn’t been a rosy one in 2010, especially the more the year draws to an end.

According to PriceWaterhouseCoopers,venture funding in the life sciences sector (PWC says the sector includes biotech and medical device firms) fell 18 percent in the third quarter of 2011.

The quarter saw the lowest number of deals in life sciences since January 2009, with only $1.8 billion invested in 170 life sciences deals in the quarter.

Why the dearth of deals? Investors told PWC that there is a current of mistrust flowing through the VC ranks – and the risk right now is too high in the life sciences field.

"VCs are saying that challenges in the regulatory environment for life sciences companies are prompting them to look to other industries to put their money to work for a faster return on their investment," explains Tracy T. Lefteroff, global managing partner of the venture capital practice at PriceWaterhouseCoopers. "When investors see a lack of exits for their companies, it depresses their appetite for funding on the front end. The nearly shut IPO window and volatility in the equity market during the third quarter contributed to the slowdown in life sciences venture funding."

But there could be some good news for the industry, and it’s not coming from Wall Street, but Washington, D.C.

Industry lobbyists say there are a number of bills winding through the halls of Congress that could amp up the flow of cash to small biosciences firms. The BioWorld blog does a good job of summing them up:

H.R. 1070  Gives firms an alternative to the IPO by letting private firms raise up to $50 million publicly and trade their shares, without the expense of becoming a reporting company (under current Regulation A rules, companies can only raise $5 million)

H.R. 2930 Allows private startups to raise up to $2 million through crowd funding, essentially opening the private markets to non-accredited investors and perhaps providing just enough support to get that preclinical proof-of-concept data needed to hook a venture investor or a pharma partner

H.R. 2167  Allows private companies to have more shareholders before they have to start reporting to the SEC

H.R. 2940  Relaxes the restrictions on advertising private financings

H.R. 3213  Expands the small company exemptions from Sarbanes-Oxley compliance

While small biosciences firms may be lacking direct access to private venture capital, they are on the radar screen of federal legislators, and could see the money spigots open up in ways they didn’t imagine possible only a year ago.

That should take some of the sting out of one of the lousiest quarters for the life sciences industry in years.

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