Venture Market Still Healthy, Even Caring: Investors and Caregivers Put Their Money on Happier Patients

Are we finally getting back to the basics of health care? In a world that has become so fast-paced, even the business of keeping people healthy is practically mass-produced, for quick, efficient delivery. What some health industry business models have been lacking in recent years is the caring. Some of the deals made during the past four weeks at least give us some hope for the future, including the largest venture financing of the month, in which XLHealth secured $63.75 million, from Goldman, Sachs & Company along with a former CEO of Oxford Health Plans. XLHealth has a disease management model that includes face-to-face visits instead of remote consultations, while MDVIP, Inc. ($6.0 million) is resurrecting the idea that patients should be cared for like people instead of like widgets—by helping doctors run small, patient-centric concierge practices—and Wellpartner ($14.0 million) is trying to make it easier for people to mail-order their prescriptions. These and other companies with similar philosophies, if we are lucky, could change public opinion about health care, and investor sentiment, especially since these types of companies do not require investors to wait for trials of a new drug or technology before they might get a return on their money.

The common thread is that more companies seem to be offering products and services that are meant to provide a patient-centric, proactive, prevention-oriented and personalized approach to the delivery of health care, and investors are interested. An equitable but delicate balance, between the bottom line and the delivery of quality health care, may yet be restored in the industry.

XLHealth has not only signed a series of contracts recently, including one to manage a Medicare disease management program in Tennessee this year, but its approach to interacting with patients is appealing, plus the company says its clinical outcomes and health care cost savings are among the best in the industry. XLHealth is focused on improving patient care and quality of life for the chronically ill, while validating its business model as a way to substantially improve the delivery of care by coordinating visits, patient profiling, behavior modification, lab information and other aspects of disease management into a streamlined process that emphasizes avoidable disease complications.

Between December 16, 2004 and January 15, 2005, neither deal volume nor total dollars spent in the health care venture capital market was much different than it was the year before, but there is some difference in the types of companies getting attention. In the year-ago period, biotechnology and pharmaceuticals got most of the $656.0 million total venture dollars raised and accounted for most of the 19 deals; by contrast, the list included only three device makers that raised $83.0 million total.

During the past 30 days, 11 companies, eight of which are located in the United States, announced venture investments of $20.0 million or more. Four of the United States-based companies are in their D round: in California, Alexza Molecular Delivery Corporation, based in Palo Alto; VisionCare Ophthalmic Technologies, based in Saratoga; and DexCom, based in San Diego; and in Minnesota, Maple Grove-based Myocor, Inc. The latter three of these are medical device companies.

Trailing XLHealth by only about $12 million, Alexza Molecular Delivery Corporation was biotech’s saving grace this month, the only other company to bring in more than $50 million. Alexza is working on a technology that patients can use to self-medicate, without the need for IV lines or hospitalization. The device is intended for use by chronically ill patients who experience severe, constant pain. The two next-most sizable deals, other than XLHealth, were each worth approximately $42.0 million and were done by pharmas: one, Nereus Pharmaceuticals, based in the United States, and the other, Neuro3d, a psychiatric drug developer based in France. Nereus has received only the first tranche of its financing; the balance is contingent upon developmental milestones related to its oncology and anti-inflammatory candidates.

Although biotechs raised a respectable $185.2 million with eight deals in the past 30 days, device makers were hot on their trail: in the same period, a total of 12 medical device and surgical system companies raised $156.0 million, ahead of pharmaceuticals with seven deals that raised $152.2 million. These are not your mother’s medical device makers, either… VisionCare Ophthalmics makes prosthetics for the eye; VidaCare has needles that stick through bone into the marrow; CryoFluor Therapeutics is working on tissue ablation; and Imalux Corporation provides technology for tissue microstructure visualization. The list goes on but one point is clear: these companies can be described as very high technology, if not biotechnology.

Myocor is researching ways to improve cardiac function in patients with heart disease by restoring the geometry of the heart and valves. Its current focus is on treating mitral valve regurgitation and mitral valve insufficiency. Another device maker focused on matters of the heart, New York-based ProRhythm (fka Transurgical, Inc.) is developing products for the treatment of atrial fibrillation.

VisionCare’s lead product is an implantable, miniature telescope for the treatment of age-related macular degeneration. The visual prosthetic is currently in Phase II/III trials, involving about 200 patients; the final clinical results of the trials are expected later this year.

At San Diego, California-based DexCom, developers are working to create the first long-term implantable glucose monitor, for diabetes patients. The device sounds an alarm when levels are inappropriate.

SuturTek, of North Chelmsford, Massachusetts, announced that it had raised Series B funding, primarily for the launch of its safe suturing devices, designed to prevent needlestick injuries in the operating room. The amount was undisclosed, for reasons that could not be disclosed, but the company did raise twice the amount it had expected to this round. SuturTek was advised by MedTech Capital on the transaction; the investors, led by Spring Bay Ventures, included Triathlon Medical Ventures, Mayport Venture Partners, Series A investor, Tyco Medical (NYSE: TYC), and several individuals.

The pharmaceutical, biopharmaceutical and drug development arena continues to produce venture capital deals, including $34.0 million for Vitae Pharmaceuticals, which has changed its name from Concurrent Pharmaceuticals since its last venture financing, $15.0 million, in January of last year. Vitae’s major shareholders include Allergan (NYSE: AGN), from whom it acquired a research enterprise in nuclear receptors, and Intel (NASDAQ: INTC). Vitae currently has multiple drug candidates under development, in the areas of cardiovascular and metabolic diseases, cancer and dermatology. The Fort Washington, Pennsylvania-based company is focused on discovering novel compounds through the combination of its knowledge of nuclear receptors, enzyme inhibitors, aspartic proteases, and kinases, with its technology platform that integrates drug design methodologies with medicinal chemistry and biology. One of its four lead compounds is still in the preclinical stages, and Phase I trials have not yet begun for the other three.