By Tom Still

MADISON – For much of the Great Recession and beyond,
biotechnology was out of favor among angel and venture capitalists. Software
and Internet deals became the shiny object for investors who wanted faster
returns with fewer dollars risked.

To fatigued life sciences investors, biotech seemed a bit
like last year’s prom date – expensive, time-consuming and generally “high
maintenance” because of the seemingly endless regulatory challenges faced by
emerging companies.

Software and Internet deals are still the rage, although the
memory of the “” bubble lingers among some investors who were splattered
when it burst. But biotechnology may be back on the dance card, based on
national investment figures as well as recent Wisconsin deals.

Biotech companies in the United States raised $4.53 billion
in 2013, according to the National Venture Capital Association, paced by a
strong fourth quarter performance that has generally continued into 2014.
Through the first two quarters of the year, 234 biotech deals raised $2.9 billion,
according to date collected by NVCA, PricewaterhouseCoopers and Thomson

Angel investors remain somewhat less enamored with biotech
than venture capitalists, in part because they invest earlier in a company’s
lifespan and don’t commit nearly as much cash in any single deal. Nationally
for angel investors in 2013, software represented 23 percent of all angel deals
while media and communications stood at 16 percent. Healthcare (14 percent) and
biotech (11 percent) were next on the angel deal list.

In Wisconsin in 2013, there were 86 early stage deals
(venture and angel) worth $128 million reported through “The Wisconsin
Portfolio,” a publication of the Wisconsin Angel Network. Of that total, life
sciences and biotech – primarily drugs, assays, reagents and research tools –
comprised 15 percent of the total deals. That was good for third place in
number of deals, and represented about $11 million in total investments out of
the $128 million total.

Information technology and consumer services were first and
second, respectively, in Wisconsin. Health care services, a category that
includes some health IT and software, was fourth and medical instruments was
fifth on the deal list. Some of the Wisconsin deals in water, energy, business
services and manufacturing (about 13 percent in total) may have biotech
technology in the background.

So far in 2014, Wisconsin biotech companies such as Madison
Vaccines, Promentis, FluGen, Zurex Pharma, Cellectar Biosciences, Intuitive
Biosciences, Microscopy Innovations and Stealth Therapeutics have reported
raising one or more rounds of financing.

Other Wisconsin biotech companies have shown progress on
other fronts, with Exact Sciences winning vital federal clearances for its
colorectal cancer test and Cellular Dynamics International reaching important
milestones for patent protection and manufacturing scale. The “granddaddy” of
all Wisconsin biotech firms, Promega, has continued its growth domestically and
worldwide, as evidenced by its building boom in Fitchburg, the opening of an
office in India and new product innovation.

A report released this summer by Battelle, a national
research and development group, noted that Wisconsin’s bioscience industry is
“sizable and growing.” Wisconsin was one of only 12 states to gain at least
1,000 jobs in the biotech and life sciences field in the five years ending in
2012, the report noted.

Battelle counted 31,800 jobs and nearly 1,400 businesses in
Wisconsin’s bioscience sectors, which span agricultural feedstock and chemicals;
bioscience distribution; drug development; medical devices and equipment; and
research, testing and medical labs. Madison is one of only nine metro regions
nationwide to have a job concentration in four or more bioscience specialties,
according to Battelle.

Cost and regulatory issues remain, however, and the
healthcare industry remains preoccupied with the advent of the Affordable Care
Act as well as Medicaid and Medicare challenges. That sometimes slows adoption
of new products – although new technologies usually improve care and manage

“After many years in which biotech investments were
outpacing exits, we’ve seen a reversal in the past few years,” said John Neis,
managing director for Madison-based Venture Investors LLC. More “exits,” such
as initial public offerings, mean investors are seeing returns from past deal
and beginning to put that money into new deals. Company valuations in biotech
also appear realistic overall, he added.

“I’ve been in the business long enough that I’ve seen the
‘death of biotech’ predicted several times,” Neis said. “But, in the end, the
unmet health care needs and the diseases don’t go away… which means biotech
doesn’t, either.”

For those Wisconsin companies that weathered the storm,
that’s why the future appears brighter.