Financings of the Fortnight Checks in on the A-List

Our colleagues at Start-Up do a little thing every year they call The A-List, in which they slice, dice, julienne and slow-cook the year's biopharma and med-tech Series A venture rounds as a way to gauge the health and direction of the industry. If the annual A-List is a three-course meal, consider this post a snack to tide you over.

Four months into 2010, we take a step back and ask: "How are biotechs faring as they try to tap into crucial early-stage funding?"

Not so great, according to Elsevier's verison of the Magic 8-Ball, the Strategic Transactions database. Early-stage biotechs raised $163 million via 15 A rounds through April 30, with the average financing pulling in $10.9 million. (If a deal was tranched -- and many were -- we only count the tranche raised, not previous or future tranches included in the same round. For example, Flexion Therapeutics raised $9 million from Pfizer as part of a much larger A round, but only the Pfizer money was announced this year.)

At this pace, biotechs will raise $652 million in Series A money in 2010. In 2009, the figure was $842 million, and in 2008 it was $709 million. Filter out the massive $145 million A round pulled in last year by Clovis Oncology, and 2009 is still ahead of this year's pace. Paces can change, of course, and last month was one of the busiest for Series As in the past two years.

And that must mean momentum, except that... sigh... it doesn't. So far in May we've seen just one biotech Series A, the low-key Swedish cardiovascular play Cardoz (more on them later).

One trend carrying over from last year is the involvement of corporate venture investors. Last year, about 20% of all venture deals included corporate cash, and 40% of the top-dollar Series As had at least one corporate investor. This year, three deals have had a corporate element. Pfizer leads the Series A corporate pack so far with the aforementioned $9 million funneled into Flexion.

It's early to make grand prognostications on four months worth of data. Still, the numbers are worth monitoring as an indicator of VC health. It boils down to this: Will venture capital rebound to previous norms as the economic wheel turns to the good, or will we emerge from the cave of the global recession squinting at a fundamentally changed landscape in which traditional VC is no longer the dominant source of funding for early-stage R&D? There's a case to be made we've been headed that way for a while, even before the financial crisis. We're curious to see how 2010 eventually fits into the grander of scheme of things. Meanwhile, life goes on, and life requires cash, not to mention long walks, fresh air, and feta cheese. What else can you not live without? How about...

Ikaria & NuPathe: A funny thing happened on the way to this year's IPO window. Ten biotech issues that registered last year have gone public this year, ranging in size from Ironwood’s $203 million take in February to Australia’s CBio, which garnered a tiny $6.2 million. But until the past fortnight, no biopharma had filed an S-1 in 2010 -- how's that for enthusiasm? That is, not until Ikaria, which filed its S-1 on May 13, and NuPathe on May 14. Neither has set terms, though Ikaria used the rather ambitious placeholder of $200 million, while NuPathe went for the more typical $86 million. Haircuts have been the rule not the exception in this year’s IPO market, so don't be surprised if they are extra cautious as their bankers gauge the market. One positive for both companies: their assets are in late-stage clinical trials. Ikaria’s Lucassin is entering Phase III in hepatorenal syndrome, and NuPathe already has advanced its migraine drug, Zelrix, through Phase III and hopes to win approval and launch by 2012. Also of note: Whether Ikaria goes public or not, it will distribute a $130 million dividend to 12 company officials this quarter, payable from a new $250 million loan. Ikaria says the payout is a one-time deal. Prospective investors should also note that Ikaria's top investor New Mountain Partners will continue to run the show post-IPO, controlling as many as three board seats. -- Joseph Haas

Cardoz: After a boffo April for early-stage funding, only one biotech reeled in a Series A round this past fortnight. Spotlight, then, on Cardoz, a low-profile Swedish startup working on repositioned drugs. It doesn't have a Web site, so its investors announced a SEK 100 million round (about US $13 million), which Cardoz will receive in two tranches that aren't tied to milestones, Cardoz CEO Carl-Johan Dalsgaard told IVB. The funding comes from a European syndicate led by Dutch firm Forbion Capital Partners. YSIOS Capital Partners of Spain and Sweden's HealthCap, where Cardoz was incubated and Dalsgaard is a partner, also joined. Its lead compound, the origins of which Dalsgaard declined to reveal, is already in the clinic, and the cash will help push it through Phase II to treat abdominal aortic aneurysms. Cardoz also has a preclinical program to develop novel inhibitors of leukotriene A4 hydrolase. -- A.L.

Sequenom: Look who's back. In April 2009 the diagnostic firm Sequenom admitted employees mishandled data from its Trisomy 21 Down syndrome test, resulting in the dismissal of CEO Harry Stylli, among others, federal investigations, and accusations of insider trading. But new management has recouped enough investor confidence to boost the stock -- if not quell skepticism in other corners -- and raise $51.6 million in a private placement announced on May 12. It was much-needed cash, as Sequenom reported only $30 million in the bank at the end of the first quarter. There's a caveat to the comeback: Sequenom sold the 12.4 million shares at $4.15 each, a 23 percent discount to the previous day's close. On its May 6 earnings call the new management team detailed a clinical development plan using outside data and also, for the first time, clarified that the Trisomy 21 test will be DNA-based (it is now being run on Illumina’s sequencing platform). Whether a Trisomy 21 diagnostic gets to market -- as a laboratory developed test (LDT) by the end of 2011, to be followed by a PMA application for regulatory approval by the end of 2012 -- remains a question, but the company is at last giving details. That, plus the significant discount to its stock price, certainly helped complete the financing. -- Mark Ratner

NeuroTherapeutics Pharma: The B-list needs some attention, too. This Chicago-area startup said May 20 it pulled in a $43 million Series B, notable not just for its size but for its participants, which include corporate funders GlaxoSmithKline and Pfizer. NTP's lead molecule, NTP-2014, has potential applications across numerous diseases, including epilepsy, pain and other CNS indications, according to the company. The drug is still in preclinical development with an IND filing planned for later this year and trials planned in pain and epilepsy. As noted in our intro, corporate funders played an ever-larger venture role last year. We also take note of the presence of GSK's SR One fund. This is the first SR One deal we've heard of since the big re-org, or should we say, the latest big re-org, with ex-Sirtris chief Christoph Westphal taking the reins as he also tries to launch a separate fund that reportedly has cash from GSK. Meanwhile, it's Pfizer's second venture deal this year. NTP officials told "The Pink Sheet" they did not give away any rights, such as right of first refusal or options, in order to secure the financing. NTP chairman Heath Lukatch, a partner at Novo Ventures, said the Series B cash should see the firm through three years and three "robust" Phase IIa trials in pain and epilepsy. -- Jessica Merrill

Photo courtesy of flickr user cheesy42.

Financings of the Fortnight Gets Slightly Ahead of the Curve

The year is nearly one-fourth done. Is it just In Vivo Blog, or is life speeding up? For those with small children and caffeine addictions, the answer is always yes. For makers of innovative biologics, the answer is no -- take your sweet, sweet time. No rush. No pressure. The Congress's gift of 12 years of market exclusivity is the legislative equivalent of a late-night shoulder rub. Or a first date with Scott Brown in pink leather shorts.

Well, no, not with the new senator's aversion to all things HCR. (But we had to sneak that reference in somehow.)

For those raising cash in the biopharma world, life is almost certainly bound to speed up, though our most recent spin through the Elsevier Strategic Transactions Database reminded us not to get too frothy. We don't have official first-quarter data, but here's a sneak preview: as of a few days ago, year-to-date venture funding, follow-on offerings, and PIPEs for biotechs were all tracking behind last year's numbers, despite general signs of economic recovery. Nearly at the one-quarter mark, venture was at 20% of 2009's total, follow-ons were 18%, and PIPEs were 18.5%. Only IPOs were projecting north of last year's numbers, with $350 million already raised, compared to $831 million all of 2009.

What do these data mean? A lively final week of March--March Madness--could put us on pace to match 2009. But in the aggregate, there's no great case yet to make that 2010 is going to be much better than 2009, and for those who barely survived last year, that's cold comfort indeed.

Funny, then, how 2009 on the surface wasn't that bad. Twelve billion dollars of IPO, PIPE, FOPO and venture is higher than the totals raised in 2001, 2002, 2003, 2005 and 2008. Some of that $12 billion is deceptive -- as we've noted, a third of the follow-on cash last year was sucked up by three big issues, Human Genome Sciences, Vertex and Dendreon. And some of 2010's numbers aren't quite what they seem. For example, despite a few IPOs including Aveo Pharmaceuticals, which we'll describe below, no biopharma has filed to go public this year except for BG Medicine, which freshened up an old registration in January. (We hoped for a moment that recent S-1 registrant Eyeblaster was some sort of radical ophthalmology therapy, but alas, it's a digital advertising firm.) In other words, the $350 million raised so far looks nice compared to last year, but there's almost nothing in the pipeline. The S-1 storm at the end of 2009 quickly fizzled.

Perhaps passage of health-care reform will remove enough uncertainty to encourage more filings, but we haven't seen the signs yet. That means IPO financing, which has started the year ahead of the curve, could quickly fall behind the curve.

Which reminds us: Time for more coffee. We're falling behind the caffeine curve. Pull up a chair and we'll pour you a fresh cup of...



Lexicon Pharmaceuticals: Amid a flock of recent follow-on offerings, Lexicon's stood out for both its size--nearly 162 million new shares at $1.15 a share for $181 million raised--and its arrangement. Once again Lexicon, of The Woodlands, Tex., turned to its largest shareholder, Invus Group. Invus, an evergreen fund that avoids club deals, bought a private placement of 65 million shares. Lexicon simultaneously floated a public offering of 96.5 million shares (including the over-allotment) run by Morgan Stanley and JP Morgan Securities. It's an old formula for Lexicon. Last October, it raised $55 million, selling nearly 23 million units to underwriters and 15.4 million to Invus at a price of $1.50. In 2007, Invus pumped $205 million into Lexicon in a warrant-heavy arrangement and took the right to buy up to $345 million more in Lexicon stock. Lexicon, which has four homegrown small-molecule candidates in Phase II, also has a joint-venture-like structure with another private-equity investor, Symphony Capital. For the Mar. 19 issue, $1.15 per-share provided a discount to the $1.54-to-$1.80 range in the weeks prior to the offering. After the offering, the stock fell to $1.20, but shares recovered a bit to close at $1.44 on March 24. -- Joseph Haas

Merck KGaA: As if to underscore German Chancellor Angela Merkel's constant harangue of Greece during the European debt crisis, Germany's Merck KGaA -- the world's oldest drug company -- went out and raised the largest European bond offering this year. Merck issued €3.2 billion ($4.9 billion) in bonds on March 17 to help fund its $7.2 billion acquisition of R&D equipment maker Millipore, announced in February. Bank of America Merrill Lynch, BNP Paribas and Commerzbank led the issue, which was heavily oversubscribed and included 2-, 5- and 10-year notes. The Millipore acquisition was initially funded by cash and a term loan from the three banks, and Merck said at the time it would sell bonds to repay the loan. The bond float reportedly benefited from receding worries about Greece reneging on its sovereign debt and the return of investors’ appetite for riskier corporate debt. But even in the darkest hours of the financial crisis, drug companies have been able to issue debt for strategic financing. Pfizer and the American Merck both sold bonds to fund multibillion dollar takeovers of Wyeth and Schering-Plough. Early in 2009, Amgen and Novartis also raised several billion dollars under reasonable terms. -- John Davis

Rhythm Pharmaceuticals: There were larger venture rounds to choose from, but we're intrigued by Rhythm for a couple reasons. First, it was essentially carved out of the flank of Ipsen, taking its lead candidates, formulation technology, and an equity investment from the French firm. Second, it was incubated in the Boston offices of MPM Capital, which is one of the many VCs in active fund-raising mode. MPM co-led the anticipated $21 million Series A round with New Enterprise Associates. The first tranche of $10 million will go to develop preclinical candidates in-licensed from Ipsen in a deal announced days prior to the Series A. Rhythm has pledged up to $80 million in milestones plus royalties for exclusive global rights to melanocortin and ghrelin analog agonists for metabolic diseases, an area Ipsen says is no longer part of its focus. Rhythm can also use Ipsen’s formulation technology to deliver the peptide therapeutics. Included are BIM28131, with potential in postoperative ileus, diabetic gastroparesis, and cachexia, and BIM22493 for obesity and diabetes. Ipsen also took a 17% stake in Rhythm. The financing is MPM’s third recent investment in metabolic-focused biotechs, showing that not all VCs are eschewing riskier primary care companies despite changing FDA guidelines. In January, the VC led the $35 million B round for Alnara Pharmaceuticals; last year MPM, through its MPM/Novartis venture fund, led Elixir Pharmaceuticals'$12 million Series E round. That particular financing occurred with Novartis' decision to secure an exclusive option to buy the Elixir outright. -- Amanda Micklus

Aveo Pharmaceuticals: The Cambridge, Mass.-based Aveo debuted March 11 after selling 9 million shares at $9 each, as it tried to ride the momentum of lead candidate tivozanib, a small-molecule triple VEGF inhibitor that Aveo licensed in 2007 from Japanese firm Kyowa-Kirin. Tivozanib recently started Phase III trials for renal cell carcinoma. The going-out price was lower than the $13 to $15 range the company first targeted, and it had to sell 2 million more shares. The issue was delayed one day while its bankers scrambled to assemble the book, not surprising in the current environment. The 36% discount was the second-largest among 2010 IPOs, according to Renaissance Capital. The largest was also a biotech, Anthera Pharmaceuticals. Right on Aveo's heels, tissue-repair firm Tengion on Mar. 17 set a target of 4.4 million at $8 to $10 per-share. If Tengion prices, it will be the eighth biopharma to go public since the window re-opened last fall. Given investors' appetite for risk is still tepid, the pricing of Tengion's IPO is a must-watch event. -- Alex Lash

Photo courtesy of flickr user The Wolf.

Fate Seals $30 M Series B, Gets Corporate Venture On Board

Fate Therapeutics has lined up $30 million in a Series B venture round as it pushes development of its lone clinical candidate, works toward making mass supplies of induced pluripotent stem (IPS) cells, and lines up licensees for its IPS platform.

Its Series A venture backers all re-upped, said CFO Scott Wolchko, and three corporate funds jumped in: Genzyme, Astellas Pharma, and an undisclosed party.

Fate will use part of the cash to push its candidate FT1050 through Phase 1. Fate hopes to have data next spring, and one alternative is to advance it into a Phase 2/3 pivotal trial by the end of 2010, said Wolchko. The small molecule is aimed at adult hematopoetic stem cells to help cord-blood transplant patients recover from their transplants faster. Genzyme and Astellas have commercial experience in the transplant area and could provide significant guidance, Wolchko said. Genzyme outbid Millennium Pharmaceuticals in 2006 for a Canadian firm whose product, Mozobil, helped prepare hematopoetic stem cells for collection and autologous transplant. Astellas has built the immunosuppressive Prograf into a $2 billion a year franchise and is trying to fend off generic attack from Novartis.

With FT1050 a key data point to watch for is time to engraftment, or how long a patient's immune system takes to bounce back from the transplant. Shaving several days off the time to engraftment could be a signficant clinical benefit.

FT1050 is Fate's first test of its larger proposition of using drugs to redirect or enhance the healing properties of a patient's own stem cell populations.

Fate is also working on the flip side of the problem: how to use small molecules and proteins to rewind cells back up to pluripotency. Fate cofounder and Scripps Institute professor Sheng Ding said in October his team had found a combination of drugs to speed up the reprogramming process and boost the yield of induced pluripotent stem (IPS) cells, though much work remains before Fate's process can produce industrial-scale amounts of cells that it or other drug companies can use for conventional drug research or, farther down the road, for cell therapy applications.

Wolchko, who directs the firm's business development efforts, said he expects to cut license deals for the platform technology within the next 12 months even if the production methods haven't reached industrial scale. "There are lots of parties we're talking to with different areas of expertise," Wolchko said. "Some might create cardiomyocytes for toxicity screening, or some might see it as a solid foundation for cell therapies; some of the applications might take five to ten years to materialize."

Even without licensing fees, Fate now has two years of capital in its pocket.

Photo courtesy of Flickr user anarchosyn.

Venture Round: Looking for the Bright Side

What if this is the best thing that could have happened for venture capitalists and their companies?

By “this” we mean the complete and utter destruction of Wall Street, and by “best thing” we’re obviously thinking long, long-term impact here. Clearly, things will be rough for a long time coming.
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But venture capitalists have been squealing about how Sarbanes-Oxley has regulated them right out of the IPO business, saying the costs and oversight were too much for their little start-up companies to bear.

Then, the bulge bracket banks—the big guys with the bankers, analysts and cash—began turning their eyes to bigger, exciting and, yes, revenue-generating deals, leaving their little biopharma and device companies that could under-covered and forgotten in the eyes of many VCs.

Well, those days are clearly done. The question now remains, what will rise from the ashes? Will the banking and analyst staff that once populated the highest offices in Manhattan find their way to some of the boutique banks that have made themselves a nice little business putting together smaller deals, bringing the experience and resources to grow those institutions?

Furthermore, as one institutional investor tells us, venture capitalists could help themselves and this nascent boutique banking industry by steering some of the choice work toward smaller investment banks, eschewing the cache and hoopla associated with one of Wall Street’s blue chip names.

Uh, former blue chip names.

PE Hub had a similar conversation about small tech companies with Paul Deninger, vice chairman of the investment bank Jefferies & Co. We're not buying all that he's selling, but read it here, including the blistering comments. (BTW, we'd hardly consider IPC The Hospitalist Company, a tech company. It's a health care company thanks very much.)

So, is this the end of the world as we know it? Or has the past few weeks been a necessary—and admittedly painful—cutting of the larger trees that will allow some sunshine and rain wash over the growth underneath?

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As we said the short-term is pretty bleak. Witness this week's announcement that the spin-out of Angiotech Pharmaceutical is in danger, which likely means no investment by Ares Capital or New Leaf investment.

Also, VentureWire Lifescience and others reported on the recent fund-raising by Kalobios, which didn't include previous investor Lehman Brothers.

"We were all set to close on Friday of last week, until Lehman filed for bankruptcy," said KaloBios Chief Executive David Pritchard. "They had several million committed to the round, and while we only lost one business day...we had to rush to make that up."

Lehman had led KaloBios' $20 million Series C round in July 2007 through its health-care venture capital group. That group invests directly off the firm's balance sheet, unlike Lehman's IT-oriented venture partners group, which closed a $365 million fifth fund in September 2007. Randy Whitestone, a Lehman spokesman, said the venture partners group is part of the firm currently being auctioned off, and he said the firm is not certain of the health-care group's fate.

Pritchard described embattled Lehman as "a great investor and very supportive of the company." Jeffrey Farrell, a senior vice president at the investment firm, was an observer on KaloBios' board.

Pritchard said many of the round's other investors stepped in over the weekend to fill the hole left by Lehman, contributing above-pro rata shares. New investors Genzyme Ventures and Mitsubishi UFJ Capital led the round, joined by existing investors Alloy Ventures, 5AM Ventures, GBS Ventures, Lotus Bioscience Ventures, MPM Capital, Singapore Bioinnovations and Sofinnova Ventures.

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Fred Wilson, general partner at Union Square Ventures, has an interesting little post on his A VC blog about how the New York Times came to profile his firm. The serendipitous origin of the article must broil PR pros who would kill to get their clients such a profile, but more often than not this is how such profiles come together.

Anyway, the article relays how Union Square Ventures is willing to take small stakes in tiny start-ups, exclusively in tech. That's easier to do with a $165 million fund, but it got us thinking. We wrote extensively about how larger venture capital firms are maintaining their early-stage medical device flow by committing small bits of capital in ventures started by proven entrepreneurs who are affiliated with the fund. But are there any life sciences VCs who exclusively make similarly sized bets in untested start ups?

Venture Round: Covidien Ventures Out

The announcement that Covidien Ltd. launched a venture fund should come as no surprise to faithful IN VIVO readers. We reported on the groups's creation back in our May issue in a cover story on the company. Despite our prodding, the company opted not to provide details on the group until this week.

But the news still warrants review as this is a significant departure for Covidien, the former Tyco Healthcare. In its previous life, the group now known as Covidien had a dismal record when it came to investing in R&D and new technologies. (See chart, right.) In the late 1990s, Tyco grew its health care business through significant acquisitions of low margin hospital supplies and other mostly low-tech endeavors.

Trouble hit in 2002 when Tyco fell under the weight of its storied investigations. At the time, the company didn’t have the resources to commit to R&D even if it wanted to.

But all that is in the past. Covidien is a full year removed from its Tyco ties, and it’s working to restore its research and development capabilities.

The press release doesn’t give much information, but VentureWire Lifescience offers a bit more. Most interesting is the team Covidien assembled to make the investments (which will be $5 million on average in early stage companies.)

Covidien has built a team of three to manage its new venture wing. Daniel T. Sheehan, a former general partner at Affinity Capital Management, is heading the new operation as vice president of corporate venture capital. He is joined by Dave Neustaedter, former director of commercial strategy and advanced technologies at Stryker Development LLC, and Joseph Graham, who worked in strategic marketing for Covidien's patient care and safety business.

Covidien deserves credit for dipping into the venture business to find its new leader. Too often, corporations try to staff their venture groups from people within the organization. (Of course, it’s usually difficult to lure folks from the venture side back to the corporate venture side.) An experienced venture capitalist should come with the contacts to find deals that might not typically be shopped to corporate investors (i.e. VCs looking for some dumb corporate money.)

The additions of Neustaedter and Graham give the new group expertise both in corporate innovation as well as the ins and outs of Covidien itself, which is a far flung organization with businesses and divisions across the globe.

Covidien's move might be deemed a bit counter-culture as the number of corporate devices investors and acquirers is dwindling. But the company has been on a frenetic shopping spree over the past two years, buying eight companies over the past two years including some big-ticket buys like Vivant Medical and Confluent Surgical.

Still the company isn't taking big chances with its purchases. Instead, it's moving into opportunities that lie within or generously abut its current borders. "When you look at the acquisitions that we've done, they are focused and purpose-driven," Jose Almeida, head of Covidien's medical device segment, told us back in the spring. "They have niche specialties and market advantages, and they are synergized to our sales channels. They augment our technology base. They bring potential double-digit growth for the 10-year period that we analyze the sale."

We expect the venture group will take the same measured approach, but perhaps Covidien will let its hair fall down just a bit further.

Venture Round: An IPO To Do List

KPMG LLC released a survey this week declaring that a venture capitalist don't expect to see a "consistent flow" of IPOs until 2010.

Odd, dire predictions like that coming from an industry populated by eternal optimists. (We later learned the survey of 297 included venture capitalists, corporate buyers, bankers and entrepreneurs.)

Ah well, as we've discussed in the past, times are tough. However, our own private survey of a few investment bankers paints a slightly brighter picture for life sciences IPOs. But it's only slightly brighter.
However, as we noted in our upcoming IN VIVO magazine, predicting when the IPO window will open is not unlike trying to predict when the winter's snow will melt. Yes, it'll happen eventually, when the weather gets warmer, and if you project out far enough into the spring calendar you've got a greater chance of being correct.

But so many macro-economic factors must be taken into account when crystal balling the IPO market. Fortunately for us, investment bank Jefferies & Co. Inc. presented us with a clear road map of what must happen for medical device and biopharmaceutical IPOs to return.

(Jefferies also provided us with some fascinating data tracking IPO success with stage of company. The results will surprise. Check out the magazine.)

Bottom line, our gurus are hoping to see things coming around sometime next year. But so many balls still hang high in the air.

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Not surprising but certainly worth noting: SR One Ltd., one of the more if not the most venerable of corporate venturing programs, has seen its last days as an independent entity. It's merging into the new GSK Ventures, according to this morning's VentureWire Lifescience.

We suggested this would happen when we broke the news on GSK Ventures back in May. True, SR One had staying power. The unit has existed since 1985 when Peter Sears started to invest on behalf of SmithKline Beckman.

But the group's West Conshohocken office must have been equipped with a revolving door to handle all the changes in management since Sears' retirement a decade ago. The units managers have swung in and out of the place leaving for opportunities in the venture world or back at Daddy corporate.

GSK Ventures new manager Russell Grieg, a direct report to Andrew Witty, the new GSK CEO, will work from the group's office in Pennsylvannia, according to the report. SR One's web says the group has moved to East, we presume, to Conshohocken.

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Is the out of control locomotive starting beginning to slow? VentureWire reported this week that first half investments in healthcare companies dropped 30% compared to the same period last year. Overall venture capital dropped only 12.4%

The $1.97 billion Q2 total is off 22.1% from the $2.53 billion invested in the corresponding period in 2007, a year in which VCs funneled a record $10.17 billion into the sector. So far this year, firms have invested a total of $3.8 billion in health care, down from the $5.5 billion they had funneled into the sector by the end of June 2007.

[In the biopharma sectors VCs] invested $1.07 billion last quarter, down 15% from the $1.26 billion sunk into the sector in Q2 of 2007. This year's first-half biopharma total of $1.88 billion is down 41% from the $3.1 billion in the first half of 2007, and is the lowest since 2005, when firms had invested $1.73 billion into biopharmaceutical concerns through two quarters.

Medical-device funding is also down. Investors put $797.6 million into devices companies in the second quarter, down from $1.05 billion in second quarter of 2007. Device investing stands at $1.6 billion for first two quarters, down from $2.07 billion last year.

We generally agree with the VCs quoted in the artice. This seems like a healthy correction and a wise one given the current economic state. But we'll provide deeper analysis of our own fund-raising data in the September Start-Up.

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VentureWire Lifescience also confirmed what we reported a few weeks ago. Foundation Medical Partners is raising a fund. VWLS puts the target at $150 million which sounds about right to us....VWLS also says that OrbiMed Advisors has hit the $150 million for its Pan-Asian health care fund, Caduceus Asia Partners LP. OrbiMed added to its Asia-based team with the hiring of Sunny Sharma, a private equity partner in Mumbai. Sharma joins managing directors Nancy Chang and Jonathan Wang. Sharma previously had been managing director of Easton Capital.

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Remember the VC Comic? They brought a little bit of laughter to an otherwise dreary day of venture capital reporters who covered the stone-cold life sciences industry rather than the red hot Internet investments. Of course, we got the the most important laugh--the last one--a few years later. (Thanks to HEC Paris Private Equity and Venture Capital Club blog.)

Venture Round: The BEAT Goes On

When we wrote about CardioNet's IPO back in March, we had no idea it would hold such historical importance.

CardioNet, trading under the symbol BEAT, remains the last venture capital-backed company to go public this year, including both life sciences and technology plays. And we have to admit its doing the VC-crowd proud.

But the company is doing so well one could argue it may have sold more shares than it had to.

You may recall the cardiac monitoring company entered into a unique structure with investors back in spring 2007 when it raised $110 million in a Series E. Investors were given stock that converted into common shares during the IPO. The company's management took a bit of a gamble as there were repercussions if the company didn't get out in a timely manner.

Well, it did go out at the lowest price allowed by the deal--$18 per share. As we noted back in March, the conversion of those shares depended upon the IPO price. Had CardioNet gone out at $23 per share, which it initially had hoped to do, those Series E investors would have held 5.9 million shares.

But if CardioNet went out anywhere between $18-$20, the Series E shares converted to 7.2 million shares.

Today, CardioNet shares are trading at $27.50, making it a darling among IPO stock pickers, with a nearly 53% gain in three months.

It's interesting that if CardioNet priced its IPO at $23, more than four dollars below where it's trading today, the company would have had to hand over one million fewer shares to its Series E investors.

We're being a bit facetious, of course. CardioNet's stock didn't really take off until the company posted better than expected numbers in mid-April. So this is the case of a company doing what it needed to do to go public, and then going out and proving its value to shareholders.

At the time, the company clearly wasn't getting traction at $23 per share. In fact, $18 per share seemed rather generous. It apparently wasn't.

While we're engaging in some 20-20 hindsight, Boston Scientific--which acquired a sizable stake in CardioNet through its purchase of Guidant--sold off 1.5 million shares at the time of the IPO, recouping $27 million.

Had it held on, its stake would be worth more than $41 million today.

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Edmund de Rothschild Investment Partners more than doubled its assets under management for life sciences by closing on €150 million last week for its third life sciences fund. The Paris-based firm previously raised €80 million and €26 million for its second and first funds, respectively, according to VentureWire Lifescience.

The firm expects to invest the new fund in 15 to 20 life science companies across all stages of development, including biopharmaceutical, medical device and diagnostic companies, mostly in Europe.

According to the firm, its investors include most of Edmond de Rothschild Investment Partners' life science existing investor base, including La Compagnie Financière Edmond de Rothschild, La Caisse des Dépôts and Amgen. Other investors include health insurance companies, public pension funds, social institutions and institutional investors.

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Attention any other venture firms in the market with new funds, save the postage. Washington State Investment Board isn't interested, according to a recent post on Private Equity Hub.

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Three Arch Partners, still investing its 2004 vintage fund, probably won't be in the market for a new one until next year.

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Fresh from the "I made a seven minute presentation to a bunch of lawyers and investors, and all I got was a lousy...." file.

As always, if you have any private suggestions, tips, or if you really, really, really hate the idea that we'll be running this column on Wednesdays instead of Fridays email me here.

(Image courtesy of Flickr user RWK through a Creative Commons license.)

Venture Round: Venture Capital To Go

That's the thing about Asian venture capital news. A week later and you find yourself still hungry for more.

Well, last week we profiled MPM Capital's first foray into India, a $20 million investment in Sai Advantium Pharma, a contract research organization. At the time, we declared it the first investment that a U.S.-based VC made in an Indian life sciences company, a designation we later had to undeclare as we failed to identify TPG Biotech (previously known as TPG Ventures, also recognizable as the venture firm affiliated with Texas Pacific Group) had invested in its own CRO, Matrix Laboratories Inc., two or three years ago.

Well, you're better off just reading what colleague Ellen Licking wrote about TPG's investment here or about other opportunities here.

But if you'd enjoy another little nibble. Dow Jones VentureSource's yesterday issued its first quarter report on venture investments in India. The report says India $99 million in venture investment with 16 deals completed, "a 27% drop from the fourth quarter that saw a record $135 million put into 17 deals."

Life sciences deals didn't account for much. The report mentions only two biopharmaceutical deals were done, totaling $11 million. Last year, life sciences and health care companies brought in $99.5 million, so in the words of Peter's Evil Boss Bill Lumberg "we need to sorta play catch up."

William Greene, general partner at MPM, says he expects other life sciences deals to follow the investment in Sai. "Given the quality of the deal flow and the interest these entrepreneurial companies have in accessing international venture capital I do think this is an area that is really going to grow," Greene says. But he's not ready to predict when the next deal might be done. "I can't say whether it's one month, two months or two years."

Well, after last week's experience, if he's not going out on a limb on this one, neither will we.

***

Meanwhile, a few remote areas within the US are getting a little more attention, according to assorted reports.

Utah
VentureWire Lifescience reported that vSpring Capital well on its way to raising $200 million for its third venture fund. The firm is based in Salt Lake City, Utah and has offices in Albuquerque, New Mexico. vSpring invests in "Intermountain West region" companies operating in life sciences and other industries, according to the firm's web site.

Canopy Ventures secured $100 million for its second fund. The fund previously invested only in information technology companies, but General Partners Ron Heinz and Brandon Tidwell will target life sciences companies as well. Obviously, there's no shortage of opportunities there as we've written about opportunities and investments in medical device and personalized medicine.

San Diego
San Diego--which as we noted back in November suffers from an disproportionately low number of local VCs for a region so rich in pharma and research--has a new seed fund, again according to VentureWire. Mesa Verde Venture Partners, a successor firm to IngleWood Ventures, wrapped up $15 million for a seed fund in March, with some of the capital coming from two venture firms, vSpring and Sanderling Ventures. General Partner Daniel Wood--the Wood of IngleWood--and a team of venture partners scattered across the SouthWest will invest the capital in new health care start-ups in their respective regions. The strategy is an interesting one for Sanderling, which also has offices in San Diego. General Partner Fred Middleton told VentureWire the relationship provides Sanderling access to early-stage deals without committing too much partner time. It's made similar investments in the past in seed-stage firms in Pittsburgh and Silicon Valley.

Midwest

Finally, we leave you hopes and dreams from the Mid-West that coastal VCs will invest more capital in flyover states.

As evidence, the article--actually a report from a local venture conference--points to the recent $22.75 million spin off of Esperion Therapeutics from Pfizer Inc. as perhaps the beginning of a trend.

But clearly Esperion is too unusual a deal to build a thesis around. VCs will travel far and wide to invest in a ready made biopharmaceutical company led by its original CEO Dr. Roger Newton. You'll find an interview with Newton in our upcoming IN VIVO the Magazine. We'll link to it here when it's available.

But states like Minnesota and Michigan are drawing more attention from VC, particularly device VCs who see an fresh resource of talent coming from the recent spate of layoffs the spate of recent layoffs from Medtronic and Boston Scientific.

This rush of thousands of experienced medical device workers who don't have the require the same compensation as their Silicon Valley counterparts already is interest from coastal venture capitalists. New incubator--or accelerator--ConceptTx Medical Inc. is just one effort that will be able to tap this new pool of talent.

As always, if you have any private suggestions, tips, or if you really jonesing to talk venture this holiday weekend email me here. I'll get back to you Tuesday.

(Image courtesy of Flickr user Hfabulous through a Creative Commons license.)

Venture Round: Finding the Exit

This week brought on a flurry of news reports about venture capital firms setting out to raise new funds. VentureWire Lifescience reported that Atlas Venture, Scale Venture Partners, Pappas Ventures are at varying stages of raising new funds.

Toss in the news about Orion Healthcare Equity Partners hiring some new personnel, and the list of firms setting out to raise new funds just gets longer. (We first reported on Orion here and talked about other fund raisers Interwest Partners and Versant Venture's fund raising here)

It’s always nice to read about the flow of fresh new capital coming into the sector. Eventually, these articles will be followed up with new ones on fund closing. (Hello, this week's news about Split Rock Partners and last weeks' post on Kleiner Perkins Caufield & Byers.)

But who’s watching the dollars after they’ve been invested? Well, we did this month.

Our April issues of START-UP and IN VIVO offer some unique, data-driven insights on the opportunity for exits in the biopharmaceutical and medical device industry. The pieces are written by our fearless leaders Roger Longman and David Cassak, who are aided with data from our own Strategic Transactions Database and other sources.

Roger’s Valuation Watch takes a look the status of biopharmaceutical companies that have gone public since 2003. We’re sorry to say, the picture is not pretty for the companies or their investors. Hence the headline, “Marooned! VCs Stuck in the Public Markets.”

Among the group of 76 still-independent biopharma-focused biotechs (only a small number of recently public companies have been acquired and only a handful of those have been acquired at even a moderate profit for their investors), 61 companies are trading below their IPO price. The average trades 24.3% below its IPO price, the median 46% below.

The report names names, offering a list of the most troubled companies and the VCs who look like they’re might be in store for a good soaking.

David, meanwhile, examines both big and small cap mergers and acquisitions in the medical device industry. After pouring through piles of transaction data from our database, David opens the story with this:

To anyone with a vested interest in medical devices, investors and company executives alike, anecdotally, the past several years have felt like good times. And, in fact, by one standard alone, the total dollar values of M&A in devices, things have never been better. Total M&A dollar volume in the period 2005-2007 was up almost three and a half times that of the three-year period just prior, 2002-2004. And while a couple of very large deals, most notably Boston Scientific Corp.'s play for Guidant and the private equity takeout of Biomet Inc., have helped to push deal values up, dollar volumes over the past three years would still be much higher, even if those outliers are factored out.

But it's one thing to say that payors are paying more for device companies than they ever have. It's another to ask, What exactly are they paying for?

David’s report goes onto answer those questions and more. Deal Analyst Amanda Micklus, meanwhile, compiled some impressive tables showing what companies have been the most active buyers and, more intriguing, on what disease or conditions are those buyers spending their dollars?

There you go, you’re all caught up. Not only do you know who is raising funds, but now you’ve got the means to find out what is happening to venture bucks already invested.

As always, if you have any private suggestions, tips, or if you would like to meet up at Heart Rhythm 2008email me here.

(Image courtesy of Flickr user Paulbence Photography through a Creative Commons license.)

Venture Round: Kleiner: You want solar power with that?

Is Kleiner Perkins Caufield & Byers (KPCB) evolving into a franchise? Over the past few years, the venture firm has attached its venerable name to a series of funds or investment initiatives targeting very specific niches: Java technology, vaccines, green technologies, even the iPhone.

Just this week KPCB announced the raising of a $500 million Green Growth fund. (The good news is KPCB still plays in the generalist space as well as it also announced the closing of $700 million for its 13th fund this week. More on that below.)

It’s a strategy that’s uniquely KPCB and leads one—okay us—to wonder whether all the specialization is really necessary. After all, we’re talking about Kleiner Perkins. Clearly, the firm could invest in green technologies just fine without the pomp and publicity that goes with industry-specific initiatives. (Personally, we do applaud KPCB for emphasizing green technologies and hope it bears fruit.)

Partner Dana Mead, who joined the firm in 2005 from Guidant, says the specialization strategy just plain works, insisting it has opened more doors and established networks more quickly than investing from a traditional venture fund would. The dedicated capital draws luminaries like Al Gore to Kleiner’s table while serving as bright green neon Open-for-Business sign for entrepreneurs and companies looking for capital. “The way you make money is to predict the next big thing and invest heavily in that area,” Mead says. “We did it with biotech with Genentech, semiconductors, Netscape, Google. We think we’re doing it with personalized medicine and we see green tech as that next big opportunity”

Again, KPCB was a first mover in all those areas without the benefit of specialty funds. But who are we to argue. The firm’s limited partners appear to be satisfied with the strategy (although what institutional investor would pass up the opportunity to invest in a KPCB-anything fund?) Plus, Tom Perkins must know what he's doing to afford a boat this big.

Time will tell whether it will produce solid returns as Kleiner’s green tech investments haven’t produced any exits yet. Mead, however, says green technology companies are very much like biotechnology companies: they require significant capital and time to mature.

***

KPCB will be pulling back on the specialization strategy in at least one case. Mead says Kleiner isn’t likely to raise a follow up to the $200 million KPCB Pandemic Preparedness and BioDefense Fund, which is fully invested in 10 companies. Mead says Kleiner raised that fund for two reasons. “Number one to make a difference and number two to create a fund that makes good investments for our LPs,” he says. The jury remains out on number two, but Mead is comfortable saying that the pandemic fund helped to drum up support from the federal government, the pharmaceutical industry and not-for-profit entities like the Gates Foundation. He acknowledges that no other venture capital firm followed suit, “but in every one of our investments we have other venture firms as investors.” You can view the portfolio here. One intriguing company not mentioned is Breathe Technologies Inc.

***

Now, as far as investing the $700 million KPCB XIII Fund, Mead says KPCB will invest equally among green tech, information technology and life sciences. In the life sciences space, “We do love personalized medicine and you’ll see us doing more diagnostics. We really like medical devices and continue to do significant investments there. We like orthopedics (except for overheated areas like dynamic stabilization) right now, imaging and the opportunities in consumer medicine,” Mead says. KPCB is also looking heavily at cancer companies including those employing epigenetics as well as companies trying to stem cancer metastasis. Mead says KPCB will continue to incubate companies inside its own walls, and that the firm incubated five of the 10 life sciences companies in the portfolio of its prior fund.

Abingworth's Growth

IN VIVO Blog was happy to see the news this week David Mayer joined Abingworth to help manage the firm's growth equity stage investments. Mayer brings a wealth of private equity investment experience from his time at Thoma Cressey Equity Partners including a role in some high profile investments like ESP Pharma Inc. and Jazz Pharmaceuticals Inc. Check out the press release for more information.

What you won't see in the press release is new that Abingworth is in the process of raising $100 million to $200 million for a small fund that will supplement the firm's growth equity investments. In the case of larger deals, Abingworth might draw capital from its new growth equity fund as well as its $587 million main fund.

Mayer says Abingworth Growth Equity fund would give the firm enough powder to in larger deals--up to $80 million--without syndication. It may still want to syndicate such deals, but co-investors wouldn't be necessary.

Mayer says Abingworth's flow of growth equity deals is already strong. He expects to invest in pharmaceutical and device companies. Abingworth might also invest in services companies if they work within the life sciences field.

Mayer says the fund target is intentionally small. Abingworth wants to sync any future fund-raising campaign with its main fund. Abingworth could raise a second growth-equity fund or just raise a larger single fund.

Have any suggestions, tips, or pictures of your own really big boat, email me here.

Venture Round: VCs (and others) Win With Sirtris

Tired of Sirtris-GSK talk yet? Too bad. As we now bring you, the venture angle.

As you no doubt know by now, GlaxoSmithKline will pay $725 million for Sirtris Pharmaceuticals Inc., paying $22.50 per share, an 84% premium over Sirtris' closing price.

We've already gone over the particulars of the deal, including some of our concerns. But one irrefutable fact is Sirtris' venture investors made more than a few bucks.

As should be the case, the earlier investors did the best. Polaris Venture Partners, TVM Partners, Cardinal Partners, Skyline Ventures and a few of the company's co-founders will do very well. But by our measure even investors in the company's last private round early last year will see nearly their capital nearly triple, including the cigar-smoking guy directly above.

Now let's go over a round-by-round account:

* Back in the fall of 2004, Series A investors Polaris, TVM, Cardinal and Skyline as well as a few individual—co-founder Richard Aldrich, Paul Schimmel and David Sinclair—paid 50 cents a piece for 10 million shares of convertible preferred stock. At last year's IPO, those shares converted into 1.9 million shares of common stock, so by our measure those investors ultimately paid roughly $2.63 per common share.

* Later that year, Sirtris raised another $12.6 million by selling 21 million shares of Series A-1 convertible preferred stock for 60 cents a piece. The four venture investors bought in along with Wellcome Trust Limited. At the IPO, the shares converted into 4.1 million shares of common stock, meaning investors ultimately paid roughly $3.07 for each common.

* Series B investors, who came along in the spring of 2005, bought 33.7 million shares for $27 million, paying 80 cents per share. All the earlier VCs were joined by Three Arch Partners and Novartis BioVentures. Those 33.7 million shares converted into 6.4 million of common at the IPO, making the per common share price $4.20.

* Sirtris went to the well again in spring of 2006 raising $22.1 million in a sale of Series C stock, priced at $1.12 per redeemable share. Investors this time included all of the Series B investors as well as a trust managed by Schimmel, Paul Schimmel Prototype PSP. After the IPO, the 19.7 million preferred shares converted into 3.7 million common shares so these investors paid $5.88 per share.

* Finally, Sirtris capped off its private fund raising with a $35.9 million round at the start of 2007. Earlier investors TVM, Skyline, TVM, Three Arch as well as Sinclair were joined by CEO Christoph Westphal, co-founder Sinclair and Peter Elliott, senior vice president and head of development. Investors paid $1.68 each for 21.3 million shares of Series C-1 redeemable convertible preferred stock. At the IPO, those converted into 4.07 million shares of common. Per share price: $8.81.

Who were two other big winners? A trust managed by John Henry, the principal owner of the Boston Red Sox (pictured), was the single largest investor in Sitris' C-1 Round. Not sure how he came to be involved in Sirtris, perhaps he met up with fellow Brookline, Mass. resident Westphal at their neighborhood Dunkin’ Donuts. Meanwhile,Venture lender Hercules Technology Growth Capital will crow about its big returns in an upcoming conference call. (Tip of the cap to PE Week Wire for pointing this out.) Hercules provided Sirtris $15 million in venture debt in 2006.

Insider Sales

Sirtris wasn't public long enough to file a proxy. You can find out who owned what just after the IPO right here. But some investors and executives already unloaded some stock, so the final numbers will be different.

Early investor Polaris, for example, distributed close to one million shares to its limited partners on Nov. 30, just after the lock up expired. Shares closed at $16.09 on that day.

Co-founders Westphal and Sinclair, meanwhile, sold off 55,000 and 30,000 shares, respectively, over the past few months, with the shares selling anywhere between $11.23 and $14.95. The sales were part of a Rule 10b5-1 trading plan, a prearranged and gradual sell-off of shares by insiders. Separately, Schimmel also sold off just over 11,000 shares at $17 a piece.

Westphal's Future

In our earlier post, we wondered whether Westphal would remain with GSK to run the unit or return to his venture capital roots as he was a proficient company starter while at Polaris. Westphal has kept his fingers in the venture game serving as senior advisor to Flybridge Capital, formerly IDG Ventures.

No doubt, venture capital will continue to call to Westphal, but he will have strong incentive to stay at GSK. According to the 424B4 form filed after the IPO, the stock vesting scheduls for Westphal contain a "double trigger" requirement that "prevents an unintended windfall to management in the event of a friendly (non-hostile) change of control."

Under this structure, unvested equity awards under our 2004 Stock Plan would continue to incentivize our executives to remain with the company after a friendly change of control. If, by contrast, our 2004 Stock Plan had only a "single trigger," and if a friendly change of control occurred, management's equity awards would all vest immediately, creating a windfall and the new owner would then likely find it necessary to replace the compensation with new unvested equity awards in order to retain management. This rationale is why we believe a "double-trigger" equity vesting acceleration mechanism is more stockholder-friendly, and thus more appropriate for us, than a "single trigger" acceleration mechanism.

Westphal found Sirtris' story compelling enough to leave a general partner position at Polaris. That attraction--coupled with the "double trigger"--means he may stick around for a while.

As always, if you have any private suggestions, tips, and comments on my math email me here.

Venture Round: No Scoop for You

A year ago or so IN VIVO Blog thought we had a pretty good scoop.

While we were writing this piece on specialized health care funds, we heard from TWO independent sources that InterWest Partners—the Sand Hill road stalwart—was dropping its technology team and going with a life sciences only strategy. Feeling pretty good about the information, we called InterWest for the obligatory “No Comment” or a cryptic denial that left the door open while still trying to clear the smoke.



That’s not what we got. Instead, General Partner Arnie Oronsky told us flat-out it was not true. No way. No how. No equivocation. No matter how many different ways we asked the question, the answer was the same. Not true.

So, despite having two solid sources, we didn’t include this tidbit in the article. Quite simply, we didn’t think Oronsky was the kind of guy to mislead, misdirect or—let’s say it—lie. And we’re happy to report we were right.

Earlier this week, VentureWire reported that Interwest Partners would be launching a bid to raise its 10th fund with a $650 million target. The article, drawing on information from limited partners, suggested only one-quarter of the fund would go to information technology investments. So we were feeling pretty good about our earlier information being nearly right, but Oronsky once gain nailed us with a stream of cold water. He says the split will probably be two-thirds to life sciences one-third to IT, a fairly standard split.

“We’re still a diversified fund,” Oronsky says. “We will be more focused in the IT area. We’re not going to do certain parts of IT investing so we will just be a little more focused. We will continue the same focuses in life sciences: medical device, biotech, and biopharma. Otherwise it’s pretty much business as usual.”

We still find off-the-record comments that InterWest had indeed considered dropping IT. But Oronsky says that isn’t going to happen. He vividly recalls a decade ago when venture capital firms dropped their life sciences teams to concentrate on technology investing only to see the fortunes of the industries turn around in just a few years.

InterWest, Oronsky says, didn't make that mistake a decade ago and isn't going to make it today.

***

Speaking of break-ups of the late 1990s, Versant Ventures is in the market with its fourth fund, a $500 million partnership, according to this morning's PE Week Wire. Versant, of course, was founded by health care partners from Crosspoint Venture Partners, Brentwood Venture Capital and Institutional Venture Partners after the IT partners from those three firms flew off to form the IT-only Redpoint Ventures. It certainly seems that Versant handled the break up quite well.

***

One of the tougher jobs a reporter has is trying to determine when a new investment trend has run its course. (No, it ain’t digging ditches, but yeah, it’s tough.)

No doubt, one of those questionable trends is the consumer medicine market. We have covered this area extensively, specifically the aesthetics market. And we mean extensively. Just over the past two years we’ve written about aesthetics plays here, here, here, here, here, and here .

But we're getting the feeling we ain’t seen nothing yet. A collection of some of our favorite venture firms—Aisling Capital, InterWest, Palo Alto Investors, Technology Partners, Versant and Vivo Ventures--pieced together an invite-only conference on consumer medicine a few weeks ago at the Ritz-Carlton at Laguna Nigel. And they jammed the place with 200 VCs who are trying to get a handle on how to invest in this very different business of private pay, limited regulatory oversight and direct-to-consumer marketing.

In addition to aesthetics, VCs talked about fertility, eye care, orthodontics and other markets where a growing number of patients seem willing to pay for services and products themselves. According to one organizer, the discussions identified a few key—and not at all surprising—challenges: finding executive talent capable of bridging the gap between health care and consumer markets, determining how much regulatory involvement is required, if any, and devising the most effective marketing strategy to hit consumers.

Bottom line, the number of attendees suggests the consumer medicine trend isn’t close to peaking.

***

IN VIVO Blog loves a good buddy flick/TV show. Starsky & Hutch, Butch Cassidy & the Sundance Kid, Turner & Hooch. So we were happy to see our industry’s own dynamic duo got a little big-time pub in the Wall Street Journal this week. We’re talking, of course, about Polaris’ Terry McGuire and MIT’s Robert Langer. They’re cozy relationship is no secret in the start-up world. We reported about it often including here, here and here. The ultimate culmination of pair's work may not thwart the criminal plans of some over-the-top bad guy. But if McGuire has his way, there's an even bigger prizing awaiting Langer someday. Heck, what are buddies for?

Venture Round: A Big Quarter

IN VIVO Blog tries not to get too wrapped up in the value of quarterly numbers. Honestly, what exactly does three months of data tell you other than what's happened over the last three months?

Yet, here we are. Reporting on a new quarterly report, this time Dow Jones' Private Equity Analyst newsletter's report of a booming quarter of fund raising for private equity firms (and that includes venture capital), quite simply because we can.

You can examine the handy chart yourself. Venture capital firms had a big quarter, presumably because private equity firms can't invest money in this tight market.

All that's fine, but the most interesting note for us was Essex Woodlands Health Ventures drawing the largest venture commitment with $800 million of what's likely to a $1 billion-plus fund. The firm's principals aren't discussing the fund, of course, but it'll likely be invested in a similar if not identical fashion to the current $660 million fund.

So here we are on the cusp of having a health care-oriented venture capital firm break the $1 billion barrier and no one--meaning us in the media--seems too worried. Quite a difference from when MPM Capital blew the lid off venture capital fund sizes with its $600 million and $900 million funds, raising all sorts of questions about whether the model was sustainable.

As it turns out, the firm's partnership, as it was constituted, wasn't sustainable. But the strategy was. Spin-out group Clarus Ventures and the reconstituted MPM are faring well, with the former now investing from its second fund.

Both those firms seem more centered on later-stage opportunities. But a careful blending early-stage venture capital with larger growth equity-style investments seems to be the right combination for Essex Woodlands as well as Frazier Healthcare Ventures and Domain Associates, the firms managing the largest funds in the space.

As always, the ultimate proof will come in the exits.

***

For those who prefer some old fashioned venture capital, Cincinnati St. Louis-based RiverVest Ventures reported today the closing of $75 million for its second fund.The firm will have an additional $45 million from Small Business Administration to invest alongside the private funds.

Like Open Prairie, which we discussed last week, RiverVest placed a great deal of its attention on deals coming out of the Midwest. But the firm doesn't limit itself to the region. Half of the firm's 16 portfolio companies are located elsewhere

The firm also announced the addition of John P. McKearn, Ph.D., as a venture partner. He'd been CEO of Kalypsys Inc.

***

RiverVest portfolio company, IDev Technologies Inc. raised $25 million for a Series C to fund the commercial launch of its new stent, according to this morning's VentureWire Lifescience. The report, quoting the company's chief financial officer, said the entire round came from existing investors, who previously committed $24 million. The FDA gave 510(k) clearance for the company's interwoven nitinol self-expanding stent in January.

RiverVest also is an investor in Tryton Medical Inc., the peripheral stent company that announced its $14 million round that we discussed last week. Incidentally, our look at venture capital investment in stent companies that we mentioned in that item will be in our May issue of Start-Up, not April.

***

No quarterly data report would be complete with disappointing news from Europe, and you'll find some in the Dow Jones report. Unfortunately, that's not the only bad news we bear. This week the Financial Times reported that Sir Christopher Evans, founder and primary backer of Merlin Biosciences, is shifting his dollars and focus away from life sciences start-ups.

Instead of Merlin, Evans will invest from a new firm, Excalibur, which will concentrate on late-stage investments only.

From the Financial Times;

Excalibur is 75 per cent-owned by the Welsh entrepreneur. He hopes to raise a UK fund of up to £100m and an international fund of more than £100m. Investors include Sir Tom Hunter, the retail entrepreneur.

The company plans majority stakes in companies ranging from speciality pharmaceuticals and diagnostics to healthcare services and surgical equipment.

Merlin has three funds worth more than €450m (£360m). Sir Christopher said the first two, largely biotech-focused, would not perform as well as the third, which was more diversified.

As if the shift toward later-stage didn't make the point, Evans gave the start-up world a bit of kick on the way out.

He said the environment for early-stage biotech companies was “fraught with difficulty” and said many would have to consolidate.

The article also has a bit on the "cash-for-honours" investigation that surrounds Evans and the firm.

***

IPOHome, the site managed by Renaissance Capital, reports the lock up period for investors in spinal company Trans1 Inc. expires next week. Shares in the company are trading at $10.45 this afternoon, so it's difficult to say whether the venture capitalists involved will be looking to sell right away. According to SEC documents filed after the IPO, investors paid $7.33 for preferred stock in the company's last private round, a Series C. Each preferred share converted into a share of common stock after the IPO, so there'd be a slight gain. Among the major investors are Advanced Technology Ventures, Delphi Ventures, Cutlass Capital, Sapient Capital and Thomas Weisel's health care fund.

***
Any private suggestions, tips, or if you want to send me a picture of an even bigger quarter just email me here.

Venture Round: Weekly Wrap Up

Remain calm. All is...

Well, not so good.

The start of April means one thing and one thing only. Well, okay actually it means several things. But for the purpose of this item, the start of April presents us with the first first chance to quantify how good a year we're having or not having.

That's right. It's first quarter numbers times.

It's too soon for venture capital figures. Those won't be out for a few weeks. But venture trackers Dow Jones and Thomson Financial both dutifully released their first quarter figures for exits in the industry. And we'll release ours from our Strategic Transactions Database, too -- in this post.

We'll skip over IPOs for this particular post. Not much to report there anyway. Let's zero right in on mergers and acquisitions since they rely less upon the whims of Wall Street...

To summarize, the first quarter stunk.

Dow Jones' Venturesource said that 14 VC-backed health-care companies got sold in the first quarter for about $1.1 billion, off 42% from the $1.9 billion total during the first three months of 2007.

Thomson identified only five acquisition of venture-backed companies. Three of the five deals came with disclosed prices that amounted to $229 million. The finally dollar tally didn't compare too well to the first quarter of 2007, when four life sciences companies were acquired for $1 billion.

And our Strategic Transactions Database reports a similarly disappointing drop -- but very different numbers. We include all privately-held companies, including those that never raised venture capital. These figures include acquisitions of some companies outside the US as well as some private-equity plays. For example, last year's largest deal was the $3.6 billion acquisition of Molnlycke Health Care by Investors AB and Morgan Stanley Principal Investments.

In our broader sampling of the first quarter, 27 privately held companies sold for $1.7 billion. Cardinal Health's acquisition of Enturia for $490 million topped the list as the largest investment. Better than what others are reporting, no doubt. But those figures compare less than favorably to the 35 companies acquired in the first quarter of last year for $8.7 billion.

Yes, that's a pretty significant drop. But, it's only one quarter. Remain calm. All might be well. (You'll have to wait until the six-minute mark to see the scene. Still, it's funny.)

****

VentureWire this week reported that Open Prairie Ventures is in the midst of raising a $125 million fund. Open Prairie is one of those Midwest firms that concentrates on the regions most VCs see through plane windows.

VCs often overstate the opportunities presented in these regions but Open Prairie certainly nailed a good one with its $1 million-plus investment in TomoTherapy Inc., the innovative imaging company that went public last week.

While we reported in last month's Start-Up that a few TomoTherapy investors have started to cash out, Open Prairie didn't make our list because they haven't had to file a Form-4.

But the firm has been selling. Between shares sold in the company's May IPO and a secondary in November, Open Prairie scored more than $16 million. On top of that, Open Praire still holds 1.4 million shares in Tomotherapy, which are worth roughly $20 million at the current stock price.

In an interview with IN VIVO Blog, partner Jim Schultz deemed the TomoTherapy investment a "fund maker." It's hard to argue with the term since it returned almost all the capital of Open Prairie's first $40 million fund.

Schultz confirmed that Open Prairie has closed on $20 million of a $140 million. (Ah, we do miss the days when all VCs spoke as freely about their fund raising efforts.) Open Prairie intends to invest 40% of the new fund into health-care companies, with a focus on those that include an element of information technology as well as those life sciences companies targeting the agricultural industries.

***

Here's another one of those non-coastal VC efforts.

***

We'd be remiss if we didn't identify other investors who have sold off their shares in TomoTherapy's IPO and secondary, so let's present our SEC Documents of the Week. In addition to Open Prairie, Venture Investors, Avalon Technology, The Endeavor Group, Ascension Health Ventures and Wisconsin Alumni Research Foundation sold off more than $24 million in Tomotherapy shares during the IPO, according to that S-1.

Meanwhile, those groups plus the Mayo Foundation, Sunshine Summit, State of Wisconsin Investment Board and Robert W. Baird & Co. Inc. brought in more than $133 million by selling shares through a secondary offering last fall, according to the S-1.

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Two stent companies recorded capital this week, clearly showing venture interest remains strong in the devices.

First, CardioMind Inc. drew down $22 million, the second tranche of a $33 million financing it raised last year. The capital came after the company hit the milestone of instituting its first-in-man trials, aka Care II. Then, Tryton Medical Inc., secured a $14 million Series C to help pay for development of its bifurcated stent.

“We’re still bullish in the drug-eluting stent market,” says Hank Plain, general partner of Morgenthaler Ventures, who helped start stent-maker Xtent Inc., a company we wrote about recently in IN VIVO the magazine.

Look for more on where VCs are playing their stent bets in the April issue of START-UP.

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Finally, Highland Capital once again is running a pretty neat program for budding entrepreneurs. The bi-coastal venture firm is opening up its offices to a few select team of individuals with business ideas that need vetting. Winners get capital, use of Highland's offices and access to senior partners. In return, Highland asks for an opportunity to invest in any ventures that raise capital within six months. A write-up of the first program, which Highland ran last year, suggests an IT-leaning, but no doubt Highland would welcome opportunities in life sciences. Thanks to PE Wire for the tip.)

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