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April 2007 issue
$1.3 Billion To Fund March VC Deals - Wireless Monitoring Devices Take More
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$1.3 Billion To Fund March VC Deals - Wireless Monitoring Devices Take More Than 10% of TotalThe month of March 2007 produced 43 health care venture capital deals totaling almost $1.2 billion, nearly as much as the $1.3 billion raised during the entire third quarter of 2004. March 2007 is now tied with April 2004 for the most total venture capital funding raised by health care companies during any one month in at least three years. Pharmaceutical companies, including EUSA Pharma, which announced the largest deal, with $175.0 million, raised the greatest amount of funding in one sector, with a total of almost $414 million. Medical device companies accounted for the next-largest share of funding in one sector, with nearly $308 million, including the $110.0 million raised by CardioNet in the second-largest deal of the month. CardioNet, headquartered in San Diego, California, is focused on helping physicians diagnose and treat patients with arrhythmias. The company has developed an integrated technology and service, which it calls mobile cardiac outpatient telemetry (MCOT), to provide continuous, heartbeat by heartbeat electrocardiogram (ECG) monitoring, analysis and response. Founded in 1999, CardioNet received FDA marketing clearance for its core technology in February 2002 and began serving patients through its first monitoring center, which is located in Philadelphia, Pennsylvania. CardioNet’s MCOT uses a telephone line or an embedded cell phone to transmit the data, depending on where the patient is at the time of an arrhythmic event. When the system identifies an abnormal rhythm, it automatically sends data to the company’s monitoring center, where trained technicians review, respond and report the information as needed. The referring physician receives daily reports of significant cardiac events, analysis and symptoms by fax or over the Internet. During its first year of operation, the CardioNet center monitored nearly 3,000 patients, and has since expanded to monitor more than 70,000 patients throughout the eastern, midwestern and southwestern United States. More than 80% of the cardiologists and electrophysiologists in its initial service area became regular prescribers. Since its founding, CardioNet has raised more than $200 million in private debt and equity from investors including Sanderling Ventures, Hambrecht & Quist Capital Management, IngleWood Ventures, BioFrontier Partners, IDEO, Boston Scientific and Foundation Medical Partners. According to James Sweeney, the chairman and chief executive officer of CardioNet, "This significant round of funding clearly demonstrates the strong market support that exists for the proprietary CardioNet technology, the highly competitive business model of the company and the future of wireless telemedicine." Currently, the company is considering bankers to work with for the IPO process, which the company intends to begin later this year. CardioNet first began developing its technology in 1999, became commercial in 2003 and expects to maintain its position as a leading provider of ambulatory, wireless real-time arrhythmia monitoring. To that end, also in March, CardioNet announced it had acquired PDSHeart, Inc., in a deal that we discuss on page 5. CardioNet, during its first whole year with a product on the market, generated about $8 million in revenue, and in 2005, generated nearly four times that amount in annual revenue. Now combined with PDSHeart, the company’s annual revenue is approximately $65 million. CardioNet’s technology poses two striking benefits over older cardiac monitoring equipment. With a CardioNet unit, patients can be away from the hospital while being monitored, freeing up time for these individuals. The cost is far less with CardioNet, too—only about 5% of what it would cost to hospitalize and connect a patient to stationary in-hospital equipment. "We were the first company in the health care industry to commercialize wireless real-time monitoring," Mr. Sweeney stated. "Prior to CardioNet, larger, more complicated equipment was necessary to do wireless monitoring, and it had to be done in the hospital." Going forward, he expects, "using this kind of wireless telemedicine will reduce overall health care costs." He senses a number of factors causing the costs of health care in the United States to skyrocket, and conveyed a sense of desire to help curtail this escalation in spending. Hospitals have shown a growing interest in the current and potential applications for CardioNet’s technology. Its product is being considered by some hospitals and cardiology centers as an alternative or complement to the bulky, expensive equipment generally installed for cardiac monitoring. Medicare and other payers have also expressed quite an interest in the technology. In addition to saving money by reducing hospital stays, CardioNet’s device can save payers money on reimbursement by charging only for actual use. Although a patient typically fills a 14-day prescription for the product, "In many cases, within only 8 to 10 days the offending arrythmia is identified, which is the data a cardiologist needs to determine the best next step in the diagnosis and treatment process," we learned. Then, the equipment is returned to CardioNet, which bills only for the time its services were being utilized. CardioNet’s device is entirely non-invasive, consisting of a sensor worn around the neck, with three leads that track heartbeat and a cell phone-sized wireless device that receives and transmits data to the company’s monitoring center. CardioNet is working on getting a Medicare reimbursement code, but is already able to collect reimbursement through a Medicare contractor in Pennsylvania, and other insurers are already reimbursing for the device. UPS delivers and picks up the equipment and CardioNet provides over-the-phone instructions, training and technical support on the device, so patients don’t even need to leave home to get "hooked up." Cardiology professionals represent CardioNet’s primary market, but Mr. Sweeney said the company’s underlying technology has applications for other markets, including diabetes. "We can monitor anything that can be sensitized and digitized—for example, blood pressure, certain brain activity and blood sugar levels." Ongoing research and development in industry areas such as nanotechnology and MEMS are likely to enable the development of more refined devices and broaden the potential applications in health care. Mr. Sweeney surmised, "I think in the next ten to fifteen years, we’ll see chips so small they are implanted through a syringe, for various monitoring and other applications." The worldwide market for wireless technology is surely in the billions of dollars, and health care represents a huge market for specialized applications. According to an estimate by Kalorama Information, in 2007 the market for wireless applications in health care alone was about $1.7 billion, and that figure is expected to quadruple by the end of this decade. Mr. Sweeney commented, "This is the beginning of the development of a very large new industry." Another company targeting the wireless monitoring market is Transoma Medical, a St. Paul, Minnesota-based company that in March announced a $13.0 million Series C financing from investors Canaan Partners, Affinity Capital Management and Polaris Venture Partners. Transoma is currently developing its first clinical product, an implantable electrocardiogram (ECG) monitor, as well as leveraging its technology platform to design and develop a line of products to aid in the treatment of chronic cardiovascular disease. Transoma’s product, not yet FDA-approved but currently under review by the agency, is intended for use in the diagnosis and management of patients with cardiovascular disease, as well as for patients suffering from syncope, which is the sudden unexplained loss of consciousness. Transoma also raised a $12.0 million Series B round in late 2005, and in late 2006, the first patients were implanted with Transoma’s ECG monitoring system. The company has two divisions, including the Patient Management Device division developing wireless sensors for use inside the body, and the Data Sciences International division, to provide tools for drug discovery and evaluation. As an update, Aerovance has drawn down the second tranche, $32.0 million, of the $60.0 million Series C financing that was announced in May 2006. Based in Berkeley, California, Aerovance is focused on the development and commercialization of clinical-stage products for respiratory and allergic disease, with molecules currently in development for uncontrolled asthma, cystic fibrosis, chronic obstructive pulmonary disease and uncontrolled eczema. Aerovance was spun out from Bayer Pharmaceuticals, Inc. (NYSE: BAY) in 2004 and is supported by investors including Apax Partners, Clarus Ventures, Alta Partners, Lehman Brothers and Burrill & Co. Of course, other health care companies are working on new deals. Vaccinex, a Rochester, New York-based biotech that recently announced a collaboration with Teva Pharmaceutical Industries (NASDAQ: TEVA), is currently raising third-round financing. Teva and Vaccinex together are planning to develop and commercialize a human antibody discovered by Vaccinex for the treatment of multiple sclerosis. Vaccinex also has three other human antibodies in preclinical development. The financing, which is expected to exceed $25 million at closing, is already being led by Teva and Pan Atlantic Bank and Trust Limited. According to chief executive officer Richard Buckley, M.D., Pennsylvania-based Aurora Scientific, Inc. is also in the market for funding, now that the company is ready to launch its first EMR/HER product, iUniversal. In addition to the software solution, Aurora is offering physicians the ability to utilize and provide to patients an iUniversal Smart Card or Smart Stick. Using either memory device, physicians and patients can store potentially life-saving health information, encrypted, but with security access dictated by the patient—so, for example, if a patient was unconscious, emergency responders could, perhaps, view key details such as diseases the patient has, or medicines he or she is on, without accessing the patient’s full medical history. The iUniversal system is designed to give physicians new income sources and tools that help them manage both the business and the practice of health care. From what we gather, the patients using iUniversal are also viewed as consumers, who may opt to receive marketing pieces or promotions from various sources, based on health conditions, lifestyle or other factors. Aurora isn’t the only company working in the EMR/EHR space, but Dr. Buckley noted, "No others have income opportunities associated with them. In addition to documenting the doctors’ notes, we are also providing a smart card or smart stick." Aurora already has its first customer, Pocono Medical Care, Inc., and is in contact with industry professionals who would work with Aurora once new funding is in place. Aurora is seeking up to about $6 million to build out its sales, marketing and customer service, enabling the immediate roll-out of its products and services. Aurora anticipates that once its iUniversal system is launched, it won’t need any more funding anytime soon. The EMR/EHR market that Aurora Scientific is targeting is expected to grow rapidly in the coming years, from about $1 billion in 2005 to more than $4 billion by 2015, according to a recent study by Kalorama Information. Furthermore, since the United States government has mandated that physicians adopt EMR software by the year 2010, Aurora Scientific estimates that potential sales of new EMR installations could reach up to $11 billion. Speaking of companies in the market for venture funding, Bill Longley, the chief executive officer of Scientific Intake, filled us in on his company’s product—the only non-invasive bariatric device we have heard of. "While others focus on dietary restriction in the gut, we utilize oral stenosis at the point of entry—the gateway to the body," Mr. Longley stated. The device is custom-made to fit in the oral cavity, with a proprietary "soft edge" surface against the side teeth and two nearly invisible ball clasps for positioning. "By reducing oral capacity, bite size is reduced and patients cannot gulp food," but, he explained, the real reason it works is because it forces a slowing of food intake and causes the body’s physiological satiety response to trigger—thus patients feel satisfied on less food. He continued, "It’s designated as a class II, non-significant risk device by the FDA." One clinical trial of the device is just ending, with further submissions to the FDA expected later this year. Scientific Intake closed a $1.0 million venture round in December 2006, from investors including Georgia Venture Partners, and Mr. Longley noted, "Right now we are funded through March of 2008." Currently, the company is working to secure about $20 million to fund the product launch, from either strategic or venture investors. One deal that will be included in our figures next month is the $40.0 million round announced by Syndax as we were going to press. Dr. Joanna Horobin, the president and chief executive officer of Syndax, talked with us about the Series A financing, co-led by MPM Capital and Domain Associates. Dr. Horobin said, "I’m delighted with the slate of firms, excited about getting the molecule into the clinic and continuing to build the organization." The team at Syndax also sparked her compliment, "I’m confident this team has the capability to build a development company or commercial organization, whichever we choose to be." According to Dr. Steven St. Peter of MPM Capital, "Dr. Horobin has led the company’s efforts to identify and pursue extremely promising therapies for development in combination and attracted key executives with an excellent track record." Syndax has an exclusive license to intellectual property on histone deacetylase inhibition and the regulation of nuclear receptors from the Salk Institute. The proceeds from this round, said Dr. Horobin, "allow us to execute plans to initiate several clinical trials this year. We expect to announce shortly the in-licensing of a lead product candidate, which should move forward rapidly in development. Right now we are looking to leverage our intellectual property to fill our pipeline. Other innovative programs with the potential to treat cancers in optimized, mechanistically driven combinations with other known cancer therapies will be added in the near term. We will also continue to evaluate other in-licensing opportunities. We are keeping an open mind about long-term possibilities." |
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