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Biotech investing surges

Buoyed by a rising stock market and the successful debut of several public companies, investors poured more than a quarter-billion dollars into biotech start-ups in the Boston area during the third quarter of this year.

The surge in investments — worth $266 million — is an abrupt turnaround from the previous quarter, when the biotechnology sector experienced its lowest level of funding in nearly a decade, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thompson Reuters.

That poor showing was immediately followed by highly successful initial public offerings of Boston-area biotechs.

For example, Foundation Medicine Inc. was launched in late September at $18 a share and raised $106 million. On Thursday, those shares closed at $34.88.


That successful debut followed several other Massachusetts biotechnology IPOs, including by Enanta Pharmaceuticals Inc., Bluebird Bio Inc., and Agios Pharmaceuticals Inc. — all of which seems to have piqued investors’ interest in drug makers.

“Right now, biotech is booming. There’s renewed interest,” said Jeff Fagnan, a partner at the Cambridge firm Atlas Venture, which invests in life science and software start-ups.

The rebound helps reinforce the area’s reputation as a hub for medical and pharmaceutical innovation, and it comes at a time of increased overall activity in the venture market, said Fagnan, whose firm invested in a handful of biotech start-ups in the last quarter.

Overall, Atlas was the most active local venture firm during the period, according to the report from MoneyTree, and invested in about 25 start-ups over the quarter. Of the companies that Atlas invested in for the first time, the vast majority are in Boston.

“We are maniacally focused on Boston,” Fagnan said. “It’s a great time for entrepreneurship and innovation.”

Atlas, however, was not in on the largest deal of the quarter: $60 million to Dicerna Pharmaceuticals Inc., an early-stage company in Watertown that is working on advanced therapeutic treatments for cancer and other diseases.


Beyond biotech, total venture spending in New England for the third quarter rose 7 percent to a total of $870 million; nationally, such investments climbed about 11 percent to $7.7 billion.

The overall rise in venture spending follows recent growth in the stock market as well as a spate of technology stock offerings that have scored well with public investors, said Neeraj Agrawal, a general partner at Battery Ventures in Waltham, another one of the area’s most active firms during the quarter.

“It’s frothy out there,” said Agrawal. “We’re in a very nice bull market, and it’s benefiting venture capital.”

His firm invested in four new companies, while several of the older firms in its portfolio were acquired or went public, giving Battery a windfall valued around $500 million.

Most of Battery’s recent investments have been in the software market, which had also hit a lull last quarter.

Nationally, investments in software start-ups hit $3.56 billion, a level not seen since the booming Internet days of early last decade. Locally, the sector accounted for the greatest number of deals for the period, with 32 investments.

Only one Boston-area software firm, the mobile payment firm Paydiant Inc. of Wellesley made it onto the MoneyTree list of the 10 biggest regional deals. It raised $20.5 million.

The dollar amount going into software start-ups is falling because it take less money to get those companies off the ground, compared with the capital-intensive biotechnology and medical device companies, according to investors.


“You see a lot of companies that are able to start on a few million dollars,” said Fagnan, from Atlas. “My sense is that the average investment size is going to continue going down.”

Michael B. Farrell
can be reached at michael.farrell@globe.com.