Venture Capitalists Are Abandoning
Agbiotech

IPO Reporter (Financial Newsletter on Initial Public (Stock) Offerings)
August 13, 2001

Venture Capital-Backed Biotech Hard To Find; Organic Appeal Grows In
Spotlight

BY: Frank Musero

After a series of disappointing drug trials and fallout resulting from
genetically engineered food products, the biotech boom of 2000 has largely
fizzled in 2001. However, some deals are still getting done, and new biotech
entrants are making a push toward the public market.

To date, only three venture-backed initial public offerings were completed
this year by biotech companies, netting $190.6 million, according to the
VentureXpert database. Yet in 2000, 36 VC-backed biotech companies went
public, totaling $3.2 billion in proceeds.

The largest VC-backed IPO so far this year has been from Wright Medical
Group Inc. (NNM:WMGI), which went public July 12 and raised $93.8 million.
The Arlington, Tenn.-based maker of reconstructive orthopedic devices was
backed by Warburg Pincus. Wright Medical priced 7.5 million shares at
$12.50, and the stock has since jumped 28% to $16 by market close last
Thursday.

Third Wave Technologies (NNM: TWTI) and Seattle Genetics Inc. (NNM: SGEN)
were the other two VC-backed biotech companies this year to go public. They
raised $47 million and $49 million, respectively, in the first quarter.
By contrast, the smallest offering last year was from microfluidic systems
maker Cepheid (NNM:CPHD), which raised $30 million last June. After pricing
five million shares at $6, the company plummeted 55.8% to $2.65 at press
time. Last year's largest deal was from Lexicon Genetics Inc. (NNM:LEXG),
which raised $220 million in its April 7, 2000, initial public offering. The
gene and cell database company priced at $22 and is now trading at $9.02, a
drop of 59%.

Genetically Modified Foods Turn Passe

With agriculture-based biotech companies coming under fire from various
constituencies around the world, the demand for genetically engineered crops
is waning. Instead, demand is being placed on organically produced food
products.

Last week, biotechnological pesticide manufacturer AgraQuest Inc. (Proposed
NNM:AGRQ), filed with the SEC for a $75 million IPO, becoming the sixth
VC-backed deal in the pipeline waiting to go public. As a group, these
companies are siting on $486.3 million in deal monies.

AgraQuest, which has selected Merrill Lynch to lead-manage its IPO and
Stephens Inc. and First Union Securities as underwriters, last received
financing in December 2000. The $15 million late stage round included such
backers as BioAsia Investments LLC, Burrill & Co. and Rockefeller & Co.,
along with some undisclosed investors.

The Davis, Calif.-based manufacturer of environmentally friendly natural
pest control products plans to use proceeds from the IPO for expanding its
sales and marketing capabilities, research and development activities, and
to enhance its manufacturing facilities. It also plans to use $5 million to
repay a promissory note.

The company did not sell any of its products until the end of 2000, which
meant it incurred a net loss of $9.08 million that year, compared with a net
loss of $6.08 million in 1999. Serenade, its first product, has been
approved for use on grapes, apples, pears, cherries, tomatoes, hops, several
vegetables, peanuts and walnuts.

"We feel the hey-day of ag-biotech has peaked and it's going to be a
downhill ride for them now because no new countries are moving to produce
genetically engineered crops," said Ronnie Cummins, the national director of
the Organic Consumers Association, a Minnesota-based consumer group. "There
are more and more new stories about the boom in organic products."

AgraQuest argues that a formulation of Serenade is approved for use in
organic agriculture. Its S-1 statement revealed: "As concerns over the
effects of synthetic chemical pesticides and genetically modified crops
continue to grow, we believe our products will be increasingly adopted into
the integrated pest management programs of conventional and organic growers
as well as by institutional and home users. We believe we will set the
industry standard for natural pest management solutions."
AgraQuest competes with Valent Bioscience Corp., EDEN Bioscience Corp.
(NNM:EDEN) and Certis USA. Inc.