January
2007 issue
Hot Times In Health Care Venture Capital -
Year-End 2006 Results Reveal More Deals Done, More Dollars Spent
This is the fourth year in a row that the health care venture capital market
has been growing, in terms of both dollars invested and number of deals;
funding for health care services helped drive the yearly and quarterly
totals.
...
Biopharma IPO Ends Big Year With a Bang - Health Care Stock Posts Impressive
Gains In Aftermarket Performance
Initial public offerings by health care companies increased in number during
2006, compared with the preceding year, and we profile the company that in
December priced the IPO with the most notable after-market performance.
...
Mergers & Acquisitions
Another record year for health care M&A transactions comes to a close with
three billion-dollar deals, plus the sale of a biopharma results in the
first exit for a newer venture capital firm.
...
Venture Capital Market
The two largest deals announced during December involve companies focused on
the oncology market, as do four of the others, and a solid month of
transactions boosted year-end figures.
...
Private Equity Market
We talked with the principals and founders of a new alternative investment
group that was just established by a major investment bank to focus mainly
on health care royalty opportunities.
...
Notes & Briefs
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headlines.
Companies Mentioned in this issue:
January 2007
3i Group p2, p6
3M Company p14
A
Abbott Laboratories p12
Access M.D. p5
Accuitive Medical Ventures p7
Accuro Healthcare Solutions p9
Acorda Therapeutics p3
Adams, Harkness & Hill p12
Adams Respiratory Therapeutics p16
Advanced Magnetics p3
Advanced Pediatric Care p5
Advancis p3
Advancis Pharmaceuticals p14
Affentranger Associates p8
Affymax p1
Affymax Research Institute p4
Akorn p3
Albany Ventures p6
Aldagen p8
Alexza Pharmaceuticals p11
Alloy Ventures p7
Alnylam p3
Alphatec Holdings p1
Alta Partners p2
AmerisourceBergen p5
Amgen p4
AMN Healthcare p16
Angiotech p3
Antisoma p11
AorTx p8, p9
Apax Excelsior p4
Apax Partners p12
Aquarius Medical p15
ArchAngel BioVentures p8, p10
Ardea Biosciences p5
Ardent Health Services p9
Arena p3
Artes Medical p3
Assured Pharmacies p5
Assured Pharmacy p5
Aushon Biosystems p8
Azimuth Opportunity p14
B
Bain Capital Ventures p8
Banc of America p3
Banc of America Securities p14
Bay City Capital p8
Bear Stearns Health Innoventures Management p4
Behavioral Healthcare Options p14
Beijing Med-Pharm p14
BiancaMed p8
Biomet p5
BioMimetic p3
Biomira p14
Biopure p3
BioStar Private Equity p8, p9
Blue Trading, Inc. p11
BMO Capital Markets p14
Boston Scientific p2
Bridge Pharmaceut. p5
Bristol-Myers Squibb p5
Brookdale Senior Lvg. p5
Bruker Biosciences p3
C
Camden Partners p14
Canaan Partners p6, p8
CapMan Group p8
CardiacMD p9
Cardioxyl Pharmaceuticals p8
CareGuide p5
Carlyle Group p7
Celgene p5
Ceragenix Pharmaceuticals p14
Cerexa p5, p6
Cerus p14
Channel Medical Partners p8
China Biopharma p14
Chippewa Valley Angel Investment Network p8
CIBC World Markets p3
Close Ventures p8
Codon Devices p7
Columbia Laboratories p14
Columbia University p16
CombinatoRx p3
CompBenefits p3
Concuity p5
ConjuGon p8
Corgenix Medical p3
Cowen and Company p1
Cowen Group p12
Cowen Healthcare Royalty Partners p12
Craig Hallum Capital p3
Cross Creek Capital Fund p7
Cylex Incorporated p8
Cytogen p3
Cytokinetics p14
D
DAG Ventures p7
Dawson James p3
Depomed p14
Deutsche Bank Securities p14
DFJ ePlanet Ventures p8
Diamyd Medical p14
Direct Flow Medical p10
Diversa p6
Domain Associates p2, p6
Domantis p6
Dynastream Innovations p5
Dynatherm Medical p8, p10
E
Edward P. Bass p7
Edwards Lifesciences p10
EGS Healthcare Capital Partners p6
Elan Pharmaceuticals p12
Ellex Medical Lasers p5
Enclarity p8
Enterprise Partners Venture Capital p7
EntreMed p14
EpiCept p14
Equus Total Return p8
ERA Biotech p8
Essex Woodlands Health Ventures p7
F
Favrille p14
FibroGen p4
Flagship Ventures p7
Forest Laboratories p5, p6
Fortis and Whitaker Securities p11
Fortress Investment p5
Foursome Investments p8
Frazier Healthcare Ventures p6
G
Galapagos p5
Galil Medical p8
Garmin, Ltd. p5
Gene Logic Laboratories p5
Genentech p5
Genmab p6
GenVec p14
Geron Corporation p14
Getinge AB p5
GlaxoSmithKline p1
Graceway Pharmaceuticals p1
Gray Ghost p6
GTx p11
Gund Investment p7
H
Haelan Corporation p5
Harbert Venture Partners p8
HBM Funds p2
HealthCare Ventures p2
HealthSPAC p8
Heart Leaflet Technologies p10
HemoSense p14
Highland Capital Partners p7, p8
Highlander Partners p7
Holiday Retirement p5
Hopewell Ventures p7
Horizon Health p5
Hoya Corp. p5
Huntleigh Technology p5
HydroCision p8
Hythiam p14
I
Iapyx Medical p8
IDEXX Laboratories p5
IDG Ventures Boston p8
Ignition Partners p8
ImaRx Therapeutics p3
ImmuneRegen Biosciences p8
Indevus p5
Inflexion Partners p8
Innovative Imaging p5
Inpharmatica p14
Interleukin Genetics p3
Intersouth Partners p8
InterWest Partners p2, p7
Introgen Therapeutics p14
Invertec p8
Investor Growth Capital p7
J
JAFCO Life Science p4
Johnson & Johnson p6
Johnson & Johnson Development Corporation p2
JPMorgan p3
K
Kaiser Permanente Ventures p2
Kalorama Information p16
Kalypsys p1
Kempen & Co. p11
Khosla Ventures p7
Kingsbridge Capital Limited p14
Kleiner Perkins Caufield & Byers p7
Kobayashi Pharmaceuticals p15
Kolmar Korea p5
Kos Pharmaceuticals p2
Kyphon p5
L
Lazard Capital Markets p11
Lev Pharmaceuticals p3
LifeWatch p3
Lilly Ventures p2
Lipid Sciences p14
M
MacroMed p5
MannKind p3
MC Life Science Ventures p6
McClendon Venture Company p7
Mecta Corp. p16
Medarex p6
MedCath p9
MEDecision p3
Medfocus Fund p9
Medicure p14
Medicus Insurance Holdings p1
Medistem p3
Medivation p14
Medscope p16
MedServe p2
Medtronic p2
Merrill Lynch p3
Metabasis p3
Micrus Endovascular p5
Missouri Care p5
Molecular Insight p3
MonoSolRx p7
Montreux Equity Partners p6
Morgan Stanley p1, p3
Morgan Stanley Strategic Investments p9
MPM BioVentures p4
MPM Capital p7
Mulier Capital p14
Municipal Hosp. Auth. p5
MuriGen Therapeutics p8
MVM Limited p6
N
National Autism Association p16
National Cancer Advisory Board p9
National Cancer Institute p9
National Institute of Mental Health p16
National Institutes of Health p9
NBI Development p8
Needham and Company p11
NeoVista p7
Neurogen Corporation p14
New Enterprise Associates p2, p8, p14
NewHope Bariatrics p2
NexMed p14
NLV Partners p4
Nomura Code Securities p11
North Bridge Venture Partners p8
Novartis p2
Novexel p5
Novo Nordisk p6
O
Obagi Medical p3
Oculus Innovative p3
Oiler Acquisition Corp. p9
Oiler Holding Company p9
OMRIX Biopharmaceuticals p1
On Assignment p5
OncoGenex p3
Oncura p8
Ophthonix p7
Oppenheimer & Company p14
OptionCare p3
Oragenics p3
Orbimed Advisors p6
Orchid Cellmark p3
Orexigen p3
Ortho Biotech Products p4
Ortho-McNeil Pharmaceutical p6
OrthoMimetics p8
Osta Biotechnologies p14
Oxford Bioscience p8
Oxford Capital p8
P
Pacific Growth Equities p14
PacLink Capital p8
Palo Alto Investors p7
Pappas Ventures p6
Paul Capital Partners p12
Pediatric Svs. of Amer. p5
Pelican Life Sciences p1
Peninsula Pharmaceuticals p6
Pentax p5
Peptech p6
Peptech Limited p5
Pequot Ventures p2
Pfizer Strategic Investments p2
Pharos Capital Group p7
PHC p14
Philadelphia Brokerage Corporation p14
Pioneer Behavioral Health p14
Pioneer Surgical Technology p7
Piper Jaffray p3
Praecis Pharmaceuticals p5
Predictive Biosciences p8
ProCure Treatment Centers p2
ProSkelia p5
ProStrakan p11
Protherics p5, p11
Psychiatric Solutions p5
Q
QuadraMed p3
QuantRx Biomedical p14
Questcor Pharmaceuticals p14
QuickCool p8
R
RA Capital p14
Raymond James p12
RBC Capital Markets p1, p3
RedPath Integrated Pathology p8, p9
RegeneRx p14
Renal Advantage Inc. p9
ResMed p8
Response Biomedical p14
Reus Capital Riesgo p8
River Cities Capital Funds p7
Roche p4
Roche Venture Fund p8
Rodman & Renshaw p14
Rosetta Partners p8
Roth Capital p3
S
Sadra Medical p10
SafeMinds p16
Salick Cardiovascular Centers p2
Sanderling BioVentures p8
Sanderling Ventures p10
Sangamo BioSciences p5
Saratoga Ventures p9
Schaller Anderson p5
Schroders Investment p8
Sears Capital Management p6
Security Research Associates p14
Seneca Health Partners p8
SG Cowen p3
Sherbrooke Street Capital p14
Sickday Medical House Calls p16
Sierra Health Services p14
SIRS-Lab p8
Sofinnova Ventures p2
Softscope Medical Technologies p8
Southpoint Capital p14
Sprout Capital p4
St. Francis Medical p5
St. Jude Medical p8, p9
St. Mary Hospital p5
Stanford University p9
Starfish Ventures p8
Stifel, Nicolaus & Company p14
Sun Healthcare p3
Sunesis p3
SunTen Phytotech p8
SV Life Sciences p7
Symphony Allegro p11
Symphony Capital Partners p11
T
Taiwan Global Biofund p8
Take Care Health Systems p2
Takeda Pharmaceuticals p4
Tavistock Life Sciences p8
TEVA Pharmaceuticals p2
The Aurora Funds p8
ThinkEquity Partners p14
Thomas, McNerney & Partners p8
Thomas Weisel Partners p1, p12
Three Arch Partners p8
Tolmar p5
Trex Enterprises p7
Triathlon Medical Ventures p8
Trintech Group p5
Tutogen Medical p3
U
U.S. Department of Health and Human Services p9
U.S. HealthWorks p5
UBS Investment p3
ULURU Inc. p11
United American Healthcare p14
Uroplasty p3
US Oncology Holdings p1, p8
US Renal Care p2
V
Valera Pharmaceuticals p5
Vanda p3
VasCon p5
Versant Ventures p7
Vertical Group p7
Verus Pharmaceuticals p12
Vibra Healthcare p5
Viragen p3
VIRxSYS Corporation p8
VisionShare p8
VISTA Staffing Solutions p5
Volcano Corporation p3
W
Warm Springs Hospital p5
Wasatch Advisors p7
Wisconsin Investment Partners p8
World Heart p3
X
Xceleron Limited p8
Xenomics p14
Xenon Pharmaceuticals p8
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Biopharma IPO Ends Big Year With a Bang -
Health Care Stock Posts Impressive Gains In Aftermarket Performance
Email Editor
During the year ended
December 31, 2006, there were 40 health care IPOs priced, totaling almost
$3.6 billion in gross proceeds. Combining the after-market performance of
all these health care stocks yields an average increase of 19.9% and a
median decrease of just 0.2% in stock price, from IPO date to year end.
The worst performance came from Alphatec Holdings (NASDAQ: ATEC),
which suffered a decrease of 58.6%, and the best from OMRIX
Biopharmaceuticals (NASDAQ: OMRI), which gained 202.6%. During
December 2006, four health care companies priced IPOs and four others
filed for IPOs. In the same month eight secondary public offerings were
priced. In perhaps the most impressive initial public offering of the
month, Affymax, Inc. (NASDAQ: AFFY), with underwriters led by
Morgan Stanley and including Cowen and Company, Thomas
Weisel Partners and RBC Capital Markets, priced its initial
public offering of 3,700,000 shares of common stock at $25.00 per share,
which was 8% above the originally estimated IPO price. From the IPO on
December 14 through market close December 29, Affymax’s stock price gained
almost 36%, compared with the IPO price. Principal stockholders in Affymax,
a spin-off from GlaxoSmithKline (NYSE: GSK), include funds or
entities managed by Apax Excelsior, Bear Stearns Health
Innoventures Management, JAFCO Life Science, MPM BioVentures
and Sprout Capital. Philippe Chambon, a Managing Director at
NLV Partners (manager of Sprout’s health care funds), suggests that
part of the appeal of Affymax is that its lead "compound goes after a
well-understood, large market. The mechanism of action is well-understood.
It has shown good clinical results and has a reasonable risk profile."
When Affymax was
incorporated in July 2001, it acquired certain assets, technology and
intellectual property, and assumed certain liabilities of Affymax
Research Institute, from GlaxoSmithKline. Affymax’s drug discovery
platform, based on advanced peptide chemistry techniques, is expected to
generate peptide drug alternatives—smaller, containing fewer amino
acids—to protein drugs, and also offer potency and storage advantages.
Affymax is focusing its initial efforts primarily on its lead drug
candidate, Hematide, a peptide-based agent designed to treat anemia
associated with chronic kidney disease and cancer. AFFY’s product
stimulates the production of red blood cells, as do the recombinant
products currently in use for such conditions; but Hematide, which is
synthetic, is expected to have longer acting effects, requiring less
frequent dosing, and could possibly be further developed to remain stable
at room temperature. Affymax currently has more than 20 issued United
States patents. In addition, Mr. Chambon noted, "the company has a lot of
cash on its balance sheet and already has a corporate partner."
In February
2006, AFFY issued an exclusive license to Takeda Pharmaceuticals
for the development and commercialization of Hematide in Japan, and then a
few months later expanded the collaboration to allow Takeda certain
worldwide rights too. To date, AFFY’s sources of cash have been limited
primarily to the proceeds from the sale of its securities to private
investors and payments made by Takeda under two collaboration agreements.
We hear that Kathleen LaPorte, a Managing Director of NLV Partners, as
well as a member of the Affymax board, has been involved with Affymax
since about the time Sprout Group first invested in the company. Although
she was unavailable for comment at press time, we of course asked Mr.
Chambon exactly how much of a return on investment NLV achieved on Affymax,
but—of course, he told us with a chuckle that "it’s a very healthy
number."
Affymax’s
business strategy includes obtaining regulatory approval for Hematide,
implementing its collaboration with Takeda to develop and commercialize
Hematide worldwide, expanding the market opportunity for Hematide,
building a sales and commercialization infrastructure, and developing a
pipeline of other drugs from its library of compounds, plus in-licensing
and acquisitions. The company’s success is largely dependent on the
success of Hematide as a product, as its other product candidates are
still in the early stages of research. Hematide currently is in multiple
Phase II clinical trials for the treatment of anemia associated with
chronic kidney disease and cancer. Affymax plans to use the net proceeds
from the IPO to support research and development as well as to prepare for
the potential commercial launch of Hematide. However, even with the net
proceeds, the company says it may be required to raise additional capital
to complete the development and commercialization of Hematide, and would
also need additional funding to continue ongoing work on its other product
candidates.
Affymax has
sufficient cash for at least 24 months, with $83.1 million in net proceeds
from the IPO, together with cash received from Takeda, existing cash, cash
equivalents, short-term investments and interest thereon amounting to an
unaudited pro forma total of nearly $227.1 million. Based on these
figures, Affymax currently has a quarterly cash burn rate of nearly $28.4
million, or 4% of its total capitalization following the IPO. Affymax has
incurred $164.6 million of net losses from inception to September 30,
2006, and anticipates incurring continued losses for the foreseeable
future. If approved, the company expects Hematide would compete with
EPOGEN and Aranesp, both marketed by Amgen (NASDAQ: AMGN), and
PROCRIT, marketed by Ortho Biotech Products L.P., and NeoRecormon,
currently marketed outside the U.S. by Roche (SWX: ROCZ). Affymax
also counts a company we featured in our March 2005 issue among its
potential competitors: FibroGen, Inc., which is developing a small
molecule product that would offer similar benefits, but through a
different mechanism from AFFY’s.
Affymax is
engaged in arbitration and related litigation with Johnson & Johnson
Pharmaceutical Research & Development and Ortho-McNeil
Pharmaceuticals, collectively, over the ownership of certain
intellectual properties. However, the company believes that Hematide is
not encompassed by the intellectual property in dispute, and that
regardless of the outcome of the arbitration, it will be able to
manufacture, commercialize and sell Hematide in the United States (pending
FDA approval). The arbitration and related litigation stems back to a 1992
R&D agreement between Affymax N.V. (a different company from
Affymax) and Ortho Pharmaceutical. Affymax believes it will be able
to successfully support its position.
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