Life sciences continue steady performance.

In 1998, about a year before many dot coms began to deteriorate into dot bombs, an attorney friend and I were talking about my practice.

"Oh, you do venture deals," he said. "Great. E-commerce is really hot. Definitely looks like the wave of the future. What a great career decision."

When I told him the focus of my work was not e-commerce, but life sciences deals, he was quick to offer condolences.

"Too bad you picked the wrong horse," he said, with a tone that suggested I'd just wagered my last nickel on a glue-factory reject.

Fast forward to today, however, and my life sciences "horse" is doing well. Very well, in fact.

According to the October 25, 2005 MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, life science companies continue to dominate venture capital investing through this year, garnering some $1.6 billion of the total $5.3 billion invested in the third quarter alone. The sector is currently on track to equal or better the $5.8 billion it secured from venture capitalists in calendar 2004, a mark that set a three-year high.

In 2004, these life sciences investments were spread among 578 companies, averaging some $9.7 million per company and representing some 27 percent of all venture capital invested last year. In fact, for the first nine months of 2005, life sciences--which includes the biotechnology and medical devices industries combined--accounted for $4.2 billion of all venture investing, comprising about 26% of all investments.

This life sciences investing record is hardly surprising, given the significant contributions life science companies make to the health and well-being of humans around the world. As the National Academy of Sciences recently noted, the US-based life-science enterprise is large, vigorous and growing--not to mention producing a steady stream of important, potentially life-altering results.

Medical science is rapidly moving toward achieving a fundamental understanding of the molecular basis of numerous diseases, which has led to the elimination of some and the containment of many and the associated spinoff of new pharma companies and products.

Advances in molecular biology not only have spawned the economically important biotechnology industry but have contributed fundamental knowledge about the structure of genes and the behavior of biological macromolecules. These advances have yielded new insights into the relationships among organisms and into the continuum of structure and function that connects living and nonliving things--important intellectual capital driving entrepreneurial activities in the medical devices and pharma fields.

Discoveries in agricultural science have improved understanding of soils and their chemistry and have led to the development of new strains of crop plants that are resistant to diseases and yield more food per cultivated acre--again creating a foundation for a host of new and expanding bioag businesses.

And the environmental sciences and forestry research have evolved new methods for managing sustainable resources that will help the world's expanding population pass on more of its natural wealth to future generations, contributing additional intellectual capital upon which to build the corporations of the future.

My role in the life sciences field today focuses on the representation of startup, emerging growth and middle market companies in the sector as well as representing venture capital firms in connection with their investments in life science companies. As head of a team of attorneys at Reed Smith, my practice is unique in that we work from Los Angeles--a location not generally counted among the hotbeds of life sciences activity, particularly compared to the scientific discoveries and companies associated with Orange County, San Diego or Del Mar--although clearly, just being in California, home to 20 of Entrepreneur magazines and PricewaterhouseCooper's 100 Top "Hot Companies" of 2005 is an asset.

The California connection notwithstanding, I've found that in terms of providing legal supports to life sciences investment activities, location, location, location takes a backseat to experience, experience, experience every time. And that's why I think my team's success continues to be solid and growing, year after year.

My own experience with venture capital deals dates back a quarter of a century to 1980, when I started this practice by representing a company that commercially developed artificial intelligence technology licensed from the Massachusetts Institute of Technology. In 1989, I completed my first life sciences venture capital deal, and since 2000, my team has averaged more than $250 million in deals annually. This year, we expect to top $300 million in 16 to 18 deals, and next year, we expect further growth.

Life sciences, obviously, is a great horse to be aboard. But it isn't a ride without its challenges and trends.

For instance, there has been a definite change in the favored exit strategies of biotech investors. The allure of the IPO route has recently dimmed somewhat and been replaced by M&As and other strategic transactions, often involving Fortune 500 firms; even so, the IPO route remains viable and highly visible.

In 2004, for example, 30 IPOs were completed in the U.S., adding to the seven accomplished domestically in late 2003. These 37 raised some $2.1 billion. In addition there were 38 IPOs done internationally in 2004 and, in Q1 2005, six more companies in the biotech sector followed suit, raising an additional $289 million, according to Burrill & Company, a San Francisco-based life sciences merchant bank.

As of mid-November 2005, there were more than a dozen biotech IPOs waiting in the wings, including a significant offering for a medical device my team and I are working on for early 2006. We believe it will be one of the largest IPOs for a medical device in a long, long time.

Overall, life sciences at the close of 2005 is a most vibrant and energetic sector. Its scientists and engineers are making new discoveries and uncovering new applications at an exciting pace, and entrepreneurs and investors are enthusiastic about the opportunities these discoveries offer for improving lives and the environment. New venture funds are being formed and existing venture firms are creating new funds to invest in these discoveries every day.

Michael Sanders is a Partner at Reed Smith LLP. His practice in the firm's Century City office focuses on the representation of startup and emerging growth companies in the life sciences and information technology industries and middle market companies in a broad range of industries.