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March 2007 issue
Backing Best Bets In Health Care - In Various Sectors Venture Capitalists
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Companies Mentioned in this issue:
3i Group p9 |
Backing Best Bets In Health Care - In Various Sectors Venture Capitalists Are Investing In ProductsThirty-nine health care companies raised $713.6 million during February 2007, including several that actually have products on the market or in late stage trials. Fifteen companies that are already selling at least one product or service, or have FDA approval to launch one, announced venture capital deals during the month, garnering about 33% of the total dollars raised. In the following pages we take a closer look at these fifteen companies, and talk with some of the executives involved in the deals. Starting in Medical Devices, the sector with five of these fifteen, we talked with Rick Lifsitz, Senior Vice President, Corporate Development of HyperMed, Inc., about the investment the company received from Greenwich Biotech Partners. Recently, HyperMed, a Waltham, Massachusetts-based company, "got a call from a venture firm interested in talking to us about an investment," he said. "I’ve found that when an investor contacts you, they are already familiar with the market and your time to close a round is much faster because there isn’t the need for them to get up to speed." HyperMed actually secured $3.0 million in the first tranche of its Series A financing just months after its first conversation. "We expect to receive the other $2.0 million tranche before the end of the year," he said, although it is contingent upon agreed to milestones. The company is keeping its numbers private, for now; however, Mr. Lifsitz did say, "We have near-term projections for profitability." HyperMed is focused on the development of hyperspectral technology, which is light-based and does not involve radiation, for medical applications. Already, "HyperMed has an FDA-cleared product, ready to go to market, initially targeting diabetes and peripheral artery disease," said Mr. Lifsitz. HyperMed’s flagship product is a diagnostic device that maps the state of tissue oxygenation in patients with poor circulation, including those with diabetic foot ulcers, leg pain or other symptoms. The hope is that better assessment of tissue oxygenation will lead to improved health outcomes, primarily for people suffering from diabetes and peripheral vascular disease. There are over 160,000 amputations in the United States per year—75% of which are considered avoidable. Mr. Lifsitz continued, "HyperMed hopes to make a major dent in the amputation rate as physicians adopt our technology." Currently available devices provide some, but not all, of the information doctors can obtain with HyperMed’s device. "This is one of the first diagnostic tools for quantitatively assessing tissue at the bedside," he explained. "It is available in limited release today, with the full production release expected in the middle of this year." The device has a reimbursement code and is for use by vascular surgeons, foot and ankle surgeons, endocrinologists, orthopedists and wound care providers, in hospitals and private practices. "We believe we have created a new category of diagnostic tool, which offers an anatomic scan and also provides a quantitative assessment of the oxygen content in tissue," Mr. Lifsitz stated. While the device is not intended to replace diagnostic tools such as CT and MRI scans, it is expected to be used in conjunction with such tools. Greenwich Biotech Partners is led by Internet industry veteran David Wetherell, who founded CMGI (NASDAQ: CMGI) and is now investing in life sciences. HyperMed was, Mr. Lifsitz said, "previously financed by government grants, including a $3.5 million peer-reviewed grant from the NIH." Greenwich Biotech is also invested in Lentigen, a biotech focused on the manufacturing and development of lentiviral vectors, that in January announced a new collaboration with Wave Biotech. Wave is providing process and equipment expertise for Lentigen’s manufacturing platform based on its proprietary lentiviral vector technology, which enables the delivery of genes or RNAi directly into cells for a range of biotechnology and medical applications. Also among the medical device makers with products on the market, MAKO Surgical, an emerging orthopedic company developing devices for least invasive knee surgery, raised $30.0 million from Tudor Investment, Ziegler Meditech Equity Group and other investors. MAKO is using the funding to execute an operating plan for expanding the clinical presence of its proprietary therapy system for early-stage osteoarthritis of the knee and developing its next generation of proprietary technology and implants. Cayenne Medical, a developer of technology for the soft tissue reconstruction segment of the sports medicine market, recently received FDA approval for its first product, which is now being launched. The company’s technology enables surgeons to totally repair the anterior cruciate ligament of the knee. Cayenne secured $12.7 million in Series B funding from Split Rock Partners, MB Ventures and other investors. The fifth device company, Paradigm Spine, a provider of non-fusion spinal technologies to the international spine community, raised $13.9 million from HealthCor Management. The private placement was managed by Viscogliosi & Co., Inc., an investment bank founded by Viscogliosi Brothers, LLC, a merchant banking firm that specializes in the musculoskeletal and orthopedic space. Paradigm will use the proceeds from the round for international expansion of its coflex technology, to fund clinical trials and expand its technology portfolio through both organic development and acquisitions. To date, Paradigm Spine has raised more than $43 million, with major backing from Viscogliosi Brothers. Looking back at one of the medical device companies that received venture funding in January, Inogen is also in the market with its first product, and just recently, Kathy Odell, Chief Executive Officer of Inogen, told us more about the company. Inogen secured $22 million in financing from first time investors Novo Ventures and Arboretum Ventures, with continuing participation from existing investors, Versant Ventures, Accuitive Medical Partners and Avalon Ventures. "It’s really a very interesting story. The product was actually inspired by Alison’s grandmother, and designed with her in mind," began Ms. Odell, referring to Ali Perry, who together with Brenton Taylor and Byron Myers founded Inogen. The trio won first place in a business plan competition while attending the University of California Santa Barabara, and in 2005, the founders and Ms. Odell were named Entrepreneurs of the Year by Ernst & Young LLP. "What they set out to do was completely redesign the way oxygen therapy is delivered," she continued. The result is the Inogen One, a portable oxygen concentrator that weighs less than ten pounds, so even patients who are not very strong can carry it. The device did not require clinical trials for FDA approval, which took about nine months. "The first shipment was in December 2004. Now the Inogen One is the leading portable oxygen concentrator on the market, with steadily accelerating sales." "The students have been extraordinary," remarked Ms. Odell, who has been CEO since the company began operations in 2002. They are still with the company and are held to the same high expectations as the rest of staff, proving to be quite capable by their own merit and contributions. Ms. Odell projects that, "Inogen will reach profitability this year." The company does not have any additional financing events planned at this time. To our question of whether an IPO or a strategic sale might be the next step, she responded, "We believe we have a company that can be independent, but we make decisions based upon the best interest of our shareholders; that focus will decide our future actions." Other companies in this space include AirSep Corporation, based in Buffalo, New York, and SeQual Technologies, based in San Diego, California. Inogen is expanding its reach overseas, with a key focus on Europe, but also selling the Inogen One in Canada and working its way into the Asian market. Inogen also has a nonbranded Web site for public education and is building a community network of patients who require therapeutic oxygen, at www.OxygenNation.com. Inogen is catering to a patient population of more than 1.6 million people in the United States, expected to reach 2 million or so in the next few years. Most of the patients who require therapeutic oxygen have Chronic Obstructive Pulmonary Disease (COPD), which is Inogen’s primary target market. "Inogen also has extensive technology under development," Ms. Odell stated, and will continue to focus primarily on COPD. "There is a paradigm shift going on in oxygen therapy, so this is a very exciting time to be helping these patients. They will no longer need to make a choice between portable and stationary units," explained Ms. Odell. Although the newer, more technologically advanced oxygen concentrators, including the Inogen One, could cost up to $3,200—six or seven times more than the older, bulkier equipment—Medicare does provide reimbursement. "Oxygen therapy is the number one expenditure in Part B," we learned, and, "Last year, changes were made to increase reimbursement for newer oxygen technology, including Inogen’s." Headquartered in Santa Barbara, California, Inogen currently has a staff of approximately 110, including more than 20 on the development team, and does its manufacturing all in-house. Lincare (NASDAQ: LNCR) and other home medical equipment buyers are its primary clients, who deliver the units to patients. The Inogen One is transportable to just about anywhere a patient could go, including automobiles and airplanes. Getting back to the rest of the fifteen companies that received venture funding in February and also have a product on the market, two are pharmas and three are e-health companies. The rest include one biopharma, one biotech, one contract research organization, one health care services company and one managed care provider. Of the two pharmaceutical companies, we talked with the Chairman & Chief Executive Officer of NextWave Pharmaceuticals, Mahendra Shah, who confirmed that the company has $40.0 million in Series B funding in the bank. Investors in NextWave Pharmaceuticals’ latest round include Sofinnova Ventures, Vivo Ventures and two other firms that have asked not to be named for now, but we hear they are well known and have deep pockets. Undoubtedly part of what attracted investors to NextWave is that the company has products on the market, and is launching others later this year. Its focus is on the pediatric marketplace, with both prescription and over the counter products. "Currently, in the United States we are co-promoting Suprax, a prescription drug with five approved indications, with Lupin Pharmaceuticals." Lupin Pharmaceuticals, Inc. is the wholly owned U.S. subsidiary of Lupin Limited, one of the top pharmaceutical companies in India, and has a sales force headquartered in Baltimore, Maryland that is dedicated to delivering high-quality, branded and generic medications. Suprax, a third-generation cephalosporin, is prescribed for urinary tract infections, otitis media (ear infections), pharyngitis, tonsillitis and bronchitis. NextWave also has its own first product on the market, MY KIDZ IRON, a nonprescription, but behind-the-counter iron formulation. Right now the company is also working to launch MY KIDZ IRON with Fluoride, which will require a prescription. "We have a number of other drugs in the development pipeline," Mr. Shah said, "and good, quality people. Currently we have 45 sales reps." The company was founded in October 2005, and its sales force was launched in 2006. The other pharma, Specialty European Pharma, headquartered in the United Kingdom, completed a $19.5 million round led by Advent Venture Partners. In addition, the company acquired two products that are already approved for use in certain European markets. The proceeds from the financing will be used by Specialty European Pharma to support additional launch and approval initiatives for the products, in Germany and other countries in Europe. Among the e-health companies, Purkinje raised $10.0 million, mostly from two individuals. Purkinje provides physicians with a suite of software solutions in areas including practice management, electronic health records, personal health records and electronic prescribing, and will use the funding to enhance its market position and introduce new products and services. PatientsLikeMe raised $5.0 million from Collaborative Seed and Growth Partners and Invus. The Web site PatientsLikeMe.com enables patients with life-changing diseases to share experiences, including quantitative data on treatments and outcomes. Originally beta-launched for Lou Gehrig’s disease, PatientsLikeMe is expanding to cover more than 50 diseases in the next two years. Canada-based Virtual Expert Clinics secured $1.2 million from GrowthWorks Atlantic Venture Fund and BDC Technology Seed Investment Fund. Virtual Expert Clinics is a provider of online software for guiding special needs programs. It will use the proceeds from this round to accelerate global sales and marketing efforts, initially focusing on its first product suite, AutismPro, which was launched in October 2006. Advanced BioHealing, the biopharmaceutical company, announced a $25.5 million round from strategic investor Safeguard Scientifics (NYSE: SFE) and others. Advanced BioHealing is using the proceeds to complete the launch and expand the market for its FDA-approved product, Dermagraft, for the treatment of full-thickness diabetic foot ulcers, and to start a pilot human clinical trial for its next drug candidate. The biotech, Cellix Limited, is an Ireland-based developer of technology platforms for the drug discovery and diagnostics industries that will use the proceeds from its recent $1.0 million financing to continue ongoing research and development, and expand internationally. Vantage Oncology, an operator of radiation oncology treatment centers that currently has 20 sites, will use the proceeds from a recent Series D financing to continue its strategy of acquiring existing radiation treatment facilities. Camden Partners, New Enterprise Associates, CCP Equity Partners, Versant Ventures and other investors contributed to the $22.5 million round for Vantage Oncology. Superior Vision Services, a provider of managed vision care plans, secured $19.3 million in equity financing as part of a recapitalization round totaling $54.25 million. The proceeds will primarily be used to repurchase stock held by legacy shareholders. ABS Partners and other investors participated in the deal. Bridge Pharmaceuticals, a preclinical contract research organization, secured $35.0 million from Granite Global Ventures and other investors. The funding will be used to accelerate the growth of Bridge’s preclinical operations in China, as well as to support M&A activities, including its recent acquisition of the preclinical division of Gene Logic. Also this month, we talked with Gregory A. Demopulos, M.D., Chairman and Chief Executive Officer of Omeros Corporation, which currently has its lead product candidate in a Phase III program. Omeros has now raised in excess of $80 million in five venture rounds, beginning with its first round in 1995 and including the oversubscribed $63 million Series E financing announced during February—the second-largest deal of the month. The Seattle, Washington-based biopharmaceutical company is building products based on a systems biology approach. Regarding the financing, Dr. Demopulos noted, "This is a significant achievement for Omeros. The quality and depth of the firms involved, as well as the straightforward terms and conditions under which they invested, provide further validation of our technologies, commercial potential and strategic course." Omeros’ most advanced compounds are designed for use during surgery, to act on multiple molecular targets, improving therapeutic benefit while minimizing the risk of side effects. The lead product candidate is added directly to the standard irrigation solution used during arthroscopy procedures. "This is a perioperative drug product designed for delivery directly to the surgical site, to preemptively inhibit or decrease pain and inflammation," Dr. Demopulos explained, "by blocking the pathways that mediate the processes." Although administered while a patient is in surgery, the drugs are designed to have positive effects that potentially may last well into the recovery period and beyond. Omeros will be looking at opportunities to raise additional funding later this year, with consideration open to both the public and private markets. Dr. Demopulos continued, "We are looking to launch the lead product in early 2009, and planning to submit two more INDs [investigational new drug filings] during 2007 or early 2008." Omeros has a pipeline of product candidates for use in orthopedics, rheumatology, urology, cardiovascular medicine, ophthalmology, pain management and neurological disorders, and holds 77 issued and allowed worldwide patent applications, with approximately 120 more pending. Its pipeline includes drug candidates that cross the blood-brain barrier, being developed from Omeros’ platform technologies for the discovery of neurodegenerative disease and behavioral disorder therapeutics. The company has made one acquisition so far, in August 2006, when it purchased Nura, Inc., a company with potential treatments for pain and other central nervous system disorders, including schizophrenia and Parkinson’s disease. At the time of the acquisition, ARCH Venture Partners, Aravis Ventures and Novartis Venture Partners became investors in Omeros. These three firms participated in the Series E financing, as did other investors, including subsidiaries of American Financial Group (NYSE: AFG), Grosvenor Funds, Southern Cross Capital, Stanley Medical Research Institute (SMRI), Trevi Health Ventures and WRF Capital. In last month’s issue, we noted that Omeros secured $9.0 million from SMRI, but more specifically, that January funding was a separate deal for up to $9.0 million in equity and grant money from SMRI, and is being used to advance Omeros’ schizophrenia program through Phase II clinical trials. |
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