Michael Fitzgerald writes about the increasing interest in neurotech companies by the U.S. venture capital community in this month's Venture Capital Journal. Here are a few excerpts from the article which I recommend reading in full here (follow the link).
"The venture business is famous for finding and funding the brainy and their ideas. Now the brain itself is becoming a hot area. One recent example: MPM Capital Partners was so crazy about psychiatric drug maker Somaxon Pharmaceuticals that it led a $65 million round in the company.
Of course, MPM isn't the only VC firm that's gaga over the so-called "neurotechnology" market. Investments in neurotech companies totaled $1.5 billion last year, up from just over $500 million in 1999, according to NeuroInsights, a San Francisco consulting and research firm. Neurotech companies make drugs and devices to treat disorders and diseases of the central nervous system (CNS), most notably the brain, as well as software and other tools to measure and understand the CNS.
Neurotech "is going to be one of several big areas [because] we have an aging population," says Jean George, a general partner at Advanced Technology Ventures of Waltham, Mass.
"Brain imaging is quite high resolution compared to a few years ago and seems to be marching in an exponential curve," says Steve Jurvetson of Draper Fisher Jurvetson in Menlo Park, Calif. DFJ has invested in two neurotech companies: Everest Biomedical Instruments and Posit Science. Everest, based in Chesterfield, Mo., is developing a device to monitor consciousness. Posit, based in San Francisco, makes software to keep brain activity high later in life.
Still, VCs are likely encouraged by a number of exits in the space. NeuroInsights notes that a dozen neurotech-related companies have gone public since January 2004, 10 of which are VC-backed. Most of the newly public neurotech companies are trading below their IPO prices, but two have done particularly well: Neurometrix and Senomyx. Both are trading at twice their IPO prices.
The biggest winner was New River Pharmaceuticals, which makes treatments for pain and Attention Deficit Disorder. Its stock price has risen more than 240% since its $34 million IPO in August 2004. (New River's private funding came largely from its CEO.)
Jurvetson says neuroscience is filled with exciting scientific breakthroughs, but the business models are still unclear. Posit Science, for instance, makes software that competes with pills. How should its products be priced? What are its competitive issues? Jurvetson says the model is still being defined.
That's true for neurotech overall, he says. "The pace of learning is very exciting. But the risk is: Are these sciences and technologies that get people excited for their own sake, or is there a real business there?"
Perhaps some wise VC will invest in a company that makes it easier to know such things. Such is the potential for the neurotech market."
Zack Lynch is author of 
