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Good old-fashioned health care work is looking pretty fine now that the hot, young Internet boom is on a respirator. Pushed out of the limelight in recent years by Internet-savvy colleagues, corporate lawyers with large life sciences practices are enjoying a healthy deal flow these days. “The dot-com crash did two things,” said Bruce Jenett, a Heller Ehrman White & McAuliffe partner who heads the firm’s 70-lawyer health care group. “It forced [VCs] who had raised huge funds to rethink where to invest, and secondly, it reinforced … the permanent nature of fundamental chemistry and devices and diagnostics.” Health-related companies have become increasingly popular with venture capitalists. That’s especially true as other sectors, like telecommunications and the Internet, have fallen out of favor. VCs putting money to work have kept life sciences lawyers working at a steady clip. In the second quarter, for example, life science was the only industry to see a bump in interest among venture capitalists, according to a survey of VC activity by PricewaterhouseCoopers. Life sciences companies aren’t going public, so they aren’t generating the same fanfare that Internet companies have in recent years. The industry also isn’t pushing corporate lawyers to work around the clock doing deals the way technology companies did during the Internet boom. And while seed and early-stage financing by VCs dropped in every other sector, life sciences companies in Silicon Valley are getting more startup funding. Many life sciences lawyers are seeing an uptick in company creations. Since the beginning of this year, for example, Jenett has had a hand in a half dozen startups, and the trend seems to have held through the summer. In the past six weeks alone, Michael O’Donnell, a Wilson Sonsini Goodrich & Rosati partner, has done three startup deals for life sciences clients. O’Donnell is upbeat about the industry’s popularity given technology’s downfall. He predicts that life sciences companies will help resuscitate the ailing market for initial public offerings. “The next wave of companies going public are going to be life sciences,” O’Donnell said. “They don’t have fundamental infrastructure problems, like telecom’s over-capacity, or the fundamental problem of the Internet companies, a business plan that doesn’t work,” O’Donnell added. Of course, it may be a while before the IPO market warms up to deals of any kind — much less life sciences. But in recent months, the life sciences industry has enjoyed an active mergers and acquisitions environment even while M&A has slowed in other sectors. That includes deals like the merger of Microcide Pharmaceuticals Inc. and The Althexis Co. in July, and Merck & Co. Inc.’s purchase of Rosetta Inpharmatics Inc. for $620 million in May. “In general, the aggregate dollars do reflect a reawakening in interest in health care,” said Alan Mendelson, a Latham & Watkins partner who, like Jenett, has worked with life sciences companies in Silicon Valley for a long time. Mendelson said it was only a matter of time before investors found their way back to life sciences, which has stolen the limelight several times over the last two decades. “People who have money move things around and follow a herd mentality,” Mendelson said. “No one was looking at life sciences, and now they are.” Still smarting over tech’s downturn, VCs are approaching new deals with more care, said Paul Kreutz, a Gray Cary Ware & Freidenrich partner in San Diego. “A year ago, no one was touching life sciences. People were putting their money into the Internet because it was a short-term hit,” Kreutz said. It’s back to basics now as VCs start examining the long-term value of deals, he said. “People aren’t doing what was called drive-by due diligence,” Kreutz said. “It’s taking a long time to go through the whole process of documentation.” That means lawyers can rack up more in fees. But Kreutz said it also leads to greater uncertainty when it comes to working for young companies that can’t pay bills until they secure funding. “You’re out on a limb a little further than you would be otherwise,” Kreutz said. Everyone seems to be forging ahead with a little more caution, but what’s important is they’re moving forward with deal activity, Jenett said. “People are kind of worried about the stock market,” Jenett said. “But they figure at some point, it’s gotta lighten up.”

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