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April 2005 issue
Health Care Venture Capital Spending
Increases 19% During First Quarter 2005, But Tapers Off In April
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Companies Mentioned in this issue: April
2005 |
Health Care Venture Capital Spending Increases 19% During First Quarter 2005, But Tapers Off In AprilHealth care venture capital spending increased 19% and deal volume increased 23% during the first quarter ended March 31, 2005, compared with the previous quarter. During the past three months 119 health care companies raised $1.9 billion in venture financing. The average deal size for the quarter was approximately $16.1 million. Although there was little difference in the number of deals closed from one sector to the next, in terms of dollar volume, the biopharmaceutical sector accounted for the greatest share of the total with $609.5 million—more than double the amount raised in biotechnology, with $215.4 million. Pharmaceutical companies raised nearly $479.7 million while medical device companies raised $344.2 million. Following a robust quarter, the health care venture capital market has not been operating at full throttle during the past two weeks. From March 16 to April 15, not a single venture financing for $50 million or more was announced, but strikingly, three separate Southeast-based renal dialysis center operators closed venture rounds and all three are planning to expand. In the past 30 days, 42 health care companies raised $493.5 million in venture financing, resulting in an average deal size of just $11.75 million. Biopharmaceutical companies raised the greatest total amount of funding in one sector ($155.7 million; 10 deals), followed by those companies categorized as other ($122.3 million; 10 deals)—including the largest venture financing of the month. The largest venture capital deal of the month, and two other deals, were announced by operators of renal dialysis centers that plan to use the proceeds for expansion. In the first renal care deal, also the largest venture capital deal of the month, National Renal Alliance raised $43 million from lead investor, The Warwick Group, and Fifth Third Bank. With the proceeds of this round, National Renal Alliance plans to double from 11 the number of centers it now operates in the Southeast. Just days before the venture round was announced, National Renal Alliance said it had signed definitive agreements to open up to four dialysis centers in Augusta, Georgia and the surrounding communities. Founded in 2002, Franklin, Tennessee-based National Renal Alliance is focused on meeting the needs of underserved markets. Moving on to the second renal care deal, Renal CarePartners, a Miami Lakes, Florida-based dialysis center operator, raised $5 million from Montreux Equity Partners. According to recent contact with Orestes Lugo, the CFO of Renal CarePartners, the proceeds of this financing will be used for the continuation of de novo development and to fund strategic, special-situation acquisitions, such as the Arlington facility it closed on this month. Renal CarePartners was slightly profitable in 2004, with revenues of nearly $8 million; revenues are expected to double in 2005. As the company gets larger during the next few years, an IPO is an option Renal CarePartners will consider. Focusing on the third renal care deal this month, in a recent discussion with Larry "Red" Martin, the CFO of U.S. Renal Care, we learned that the current executive management team was assembled fairly recently with assistance from Schroeder Ventures. U.S. Renal Care’s founder, Chris Brengard, formerly the CEO of Select Medical (NYSE: SEM), remains with U.S. Renal. The proceeds of this $10 million venture investment, along with $15 million in debt financing from First Tennessee Bank, were used primarily for the acquisition of eight dialysis centers, valued in total at $19 million, and the balance will be used as working capital. This round, the Series A, included participation from SV Life Sciences, Salix Ventures and Select Capital Corporation, the venture arm of Select Medical. U.S. Renal Care, based in Jonesboro, Arkansas, raised an initial angel round of an undisclosed amount in 2000.The second-largest health care venture capital deal of the month was closed at $35 million, raised by TorreyPines Therapeutics, from Johnson & Johnson Development Corporation and other investors. Just two other venture investments were above the $30 million mark in the past two weeks: Diagnostic Ultrasound Corporation raised $34 million and TolerRx, Inc. raised $31 million. TorreyPines Therapeutics recently signed a research agreement with Japan-based Eisai Co., Ltd., the maker of Aricept, a treatment for Alzheimer’s that was launched in 1997. TorreyPines is studying the mechanism of the pathogenesis of Alzheimer’s disease, with the intent of discovering compounds to modify the effects of the disease. Eisai now has the exclusive rights of first negotiation and first refusal of validated compounds discovered through the research, and under certain conditions it is possible that the two companies will collaborate on drug development. Diagnostic Ultrasound Corporation intends to use the proceeds of its $34 million venture financing for growth through acquisitions and internal initiatives. The company specializes in application-specific medical ultrasound devices, including the BladderScan, an instrument that accurately and non-invasively measures bladder volume. The device is also clinically proven to prevent unnecessary catheterization and reduce the rates of urinary tract infections and patient trauma. TolerRx, Inc., which withdrew its IPO registration last June, nearly a year after it was filed, raised $31 million in its D round and simultaneously announced the addition of a new CFO to the company. TolerRx has raised more than $83 million since its incorporation in 2000 and has clinical collaborations in effect with Genentech (NYSE: DNA). SpinalMotion has the experience of marketing its products in South Africa since 2002, and now the artificial disk manufacturer is coming to America. In a recent discussion with David Hovda of SpinalMotion, we learned that the company will use the proceeds of its $20 million B round to substantially complete enrollment in its two clinical trials for patients in the United States, one for an artificial lumbar disk and one for an artificial cervical disk. The funding is expected to be sufficient to get SpinalMotion’s disks through pre-market approval. Final FDA approval is anticipated by late 2008 or early 2009. In a recent conversation with Alan Blazei, CFO of Entelos, it was revealed that the company opened its Series D specifically to appease the interest of Pfizer (NYSE: PFE), a client of Entelos’ since 2001. Entelos develops simulated computer models of human physiology for the pharmaceutical industry and has raised $50 million in venture funding, including this round. InterCure, Ltd., headquartered in New Jersey and Israel, announced one of the smallest financings this month with the $3 million first close of its C round, but it may have one of the more interesting products on the market. InterCure is addressing hypertension with a non-invasive therapeutic program that is reminiscent of the yoga-related concept of Pranayama, or attuned control of the breath. InterCure believes that the standard of care for hypertension would be improved with the integration of its non-drug treatment device, called RESPeRATE, which has been successful in seven clinical trials. The device, a small machine that looks a bit like a walkman, with headphones and a respiration sensor, utilizes patented technology to monitor a patient’s breathing rate and pattern, then using sound, induces breathing at a slower, therapeutic pace. In studies, after three to four weeks of at-home self-administration, for 15 minutes per day, three to four times per week, both non-medicated and medicated patients using RESPeRATE experienced a reduction in blood pressure. Many patients were so satisfied, they insisted on continuing the treatment after the trial, and in a 6-month follow-up, researchers found that compliance remained high and blood pressure was sustained at lower levels. RESPeRATE is the first non-drug medical device to be indicated by the FDA for the adjunctive treatment of hypertension, and it may also be useful in the treatment of heart failure, respiratory diseases and other conditions. RoundTable Healthcare Partners, a Lake Forest, Illinois-based health care private equity firm, closed its second fund at $500 million, $100 million above target, with legal advisory services from Davis Polk & Wardwell. RoundTable targets segments of the health care industry including medical devices and disposables, medication delivery systems, specialty pharmaceuticals, specialty distribution and complementary outsourced services, primarily partnering with established, profitable companies. |
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