April
2008 issue
Venture Deals Intertwining With M&A,
As Pharma, Bio And Device Assets Are Spun Off, Licensed Or Sold
More venture deals associated with
acquisitions expected ahead.
...
Quarterly VC Results Slightly Depressed:
Total Venture Funding In Q1:08 Falls Back To 2005 Levels
Total quarterly funding reached a
historically low level.
...
Public Equity Market
Just one health care company priced its initial public offering.
...
Mergers & Acquisitions
The two largest deals of the month involve an
acquirer in Japan.
...
New Private Equity Fund Closes
The partners discuss investment strategy, sector focus, target deals.
...
Venture Capital Funds
VC firms changing names, still
investing, closing new funds.
VC-Backed Company Update
SpineMark Corporation is soon to seek its Series B financing.
...
Venture Capital Transactions
The health care venture capital market was on a roll in March 2008.
...
Private Placements
The market for PIPE deals was even slower than usual.
...
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News Read the past
headlines.
Companies Mentioned in this issue:
April 2008
A
Abbott Pharmaceuticals p7
Abingworth Management p12
ABN AMRO Bank NV p10
ABN AMRO Capital Life Sciences p10
ABS Capital p2
Access Pharmaceuticals p4
Actelion p2
Adams Street Partners p13
Advanced Cell Technology p15
Advanced Medical Ptnrs. p8
Advanced Technology Ventures p12
AEA Investors p8
Akesis Pharmaceuticals p15
Alexza Pharmaceuticals p14
Alexza Singapore p14
Alimera Sciences p13
Allegro Diagnostics p13
Allion Healthcare p8
Alloy Ventures p13
Allscripts Healthcare Sol. p7
Almost Family, Inc. p8
Alphatec Holdings p7
Alseres Pharmaceuticals p15
Alta Partners p13
Altus Partners p9
American Capital p9
American Sr. Lvg. Commun. p8
Analogic Corporation p7
Andover Medical p15
Aperio Technnologies p13
Apex Home Healthcare Svs. p8
Applewood Retirement p8
Auriga Partners p13
Avalon Laboratories p9
Avalon Ventures p15
AVANIR Pharmaceuticals p14
AVI BioPharma p7
AVI Biopharma p4
AXA Private Equity p13
Azimuth Opportunity p14
B
Baker Brothers Investments p6
Baltic Sea Foundation p13
Banc of Am. p4
Battelle Ventures p13
Bay City Capital p6, p13
Bear Stearns p4
Bentley Pharmaceuticals p7
Bessemer Venture Partners p12
Bio-Imaging Technol. p8
BioArray Solutions p7
Biogen Idec New Ventures p12
Bioheart p4
Biomed America p8
BioNanomatrix p13
Biophan Technologies p4
BioVentures Investors p12
Boston Scientific p1
Boston Scientific Santa Rosa p7
Bostwick Laboratories p4
BrainCells p13
Breathe Technologies p13
C
C.R. Bard, Inc. p7
Cardinal Health p8
CardioNet p4
Catalyst Health & Technology p13
Cayenne Medical p13
Celtic Group p8
Centene Corporation p8
Cephalon p7
Cerimon Pharmaceuticals p3
CFO Research Services p6
Chartiers Manor p8
Chesson Laboratory Assoc. p13
China Aoxing Pharm. p7
CIT Group p6
Citi p4
Clarus Ventures p9
Co-Investment Fund II p15
Codon Devices p13
Cook Medical p3
Copley Controls Corp. p7
Corcept Therapeutics p14
CoTherix p2
Covidien Ltd. p7
Credit Agricole Private Equity p12
CyDex Pharmaceuticals p4
Cytogen p7
Cytogen Corporation p6
D
DAG Ventures p13
Darius International p8
Dayton Heart Hospital p8
Delphi Ventures p1
Deutsche Bank p4
Doctors Hospital p8
Domain Associates p10, p13
DRI Capital p7
E
Easton Capital p12
Edmond de Rothschild Investment Partners p12
EKR Therapeutics p3
Emergent BioSolutions p7
Endo Pharmaceuticals p7
EnGene p13
Enturia p8
Ercole Biotech p7
ESP Equity Partners p3
ESP Pharma p6
EUSA Pharma p6, p7
EyeGate Pharma p13
F
Fidelity Biosciences p10, p12
Flagship Ventures p13
Flybridge Capital Partners p10
Forbion Capital Partners p10, p12
Fortis Private Equity p12
Forward Ventures p13
Foundation Medical Partners p4
G
Garden State Life Sciences Fund p3
GE Healthcare Financial Services p3
Genentech p1
Gilde Healthcare Partners p12
Global Life Science Ventures p12
Global Med Technol. p7
Goldman Sachs p6
Good Samaritan Hospital p8
Good Shepherd Hospital p11
Guidant Investment Corporation p4
H
H&Q Partners p4
Hansen Medical p4
HCP, Inc. p4
Health Benefits Direct p15
Health Care Notification Network p16
Health Care REIT p4
Health Sciences Center p9
HealthCare Ventures p13
HealthTronics p8
High Country Venture p9
Highland Capital Partners p13
Highland Consumer Fund p13
HLM Venture Partners p13
Hoya Corp. p7
Humana p8
Hydra Biosciences p12
I
I-trax p8
IDG Ventures Atlantic p10
iHealth Alliance p16
Immucor p7
INBONE Technologies p7
Index Ventures p12
ING p13
Inglewood Ventures p4
Inlog, SA p7
InnerLight Holdings p8
Innovation Valley Partners p13
Integrated BioPharma p4
IntelGenex p15
IntelliDx p13
InterWest Partners p10
Investor Growth Capital p13
Invida Pharmaceuticals p7
iSirona p13
J
JAFCO p13
JCAHO p11
K
Kaiser Permanente Ventures p10
Kamada p15
Kearny Venture Partners p1
KeyBanc p4
Kingsbridge Capital p14
Kleiner Perkins Caufield & Byers p13
Kleiner, Perkins, Caufield & Byers p10
Kodiak Venture Partners p13
L
Leerink Swann p4
Lehman Brothers p4
Lemhi Ventures p13
LifeMasters Supp. SelfCare p13
LigoCyte Pharmaceuticals p13
Living Cell Technologies p14
LMA International p7
LMS Medical Systems p15
Longitude Capital Management p14
Luminous Medical p13
M
MAKO Surgical p4
Masa Life Science Ventures p13
Med. Ctr. Hosp. Authority p8
Medical Group Management Association p16
Medical Properties Trust p4
Medical University of South Carolina’s Department p16
Medicis Capital p13
MedImmune Ventures p10, p13
MediVision Medical Imaging p7
Medtronic p3
Memphis Biomed Ventures p13
Merck Capital Ventures p10
Merial Limited p13
Merrill Lynch p8
Mindray Medical p7
Misys Healthcare p7
Mitsubishi Corporation p10
Moberg Derma p13
Modigene p15
MPM Capital p1
MVM Life Science Partners p12
N
Nanogen p7
National Aquatics and Sports Medicine Institute p16
National Swimming Pool Foundation p16
New Enterprise Associates p1, p10
NewSpring Capital p3
Nexus Medical Partners p6
Nordic Biotech K/S p14
Nordic Biotech Opportunity Fund K/S p14
NovaQuest p6
Novartis p1
Novartis Venture Fund p10
Novelos Therapeutics p15
Novo A/S p12
Novo Nordisk Biotech Fund p12
O
Olympus Medical Systems p13
Ophthalmic Imaging Sys. p7
OPi SA p6
OptiMedica p13
OrbiMed Advisors p12
Oriola KD p7
OSF HealthPlans p8
Osteologix p14
P
Pacific Growth Eq. p4
Paladin Labs p7
PanGenetics p10, p12
Panorama Capital p6
Paradigm Capital p15
PDL BioPharma, Inc. p3
PDSHeart p4
Pentax Corp. p7
Pharmaca Integr. Pharmacy p13
PharmAthene p7
Phoenix Data Systems p8
Pieris p10, p12
Piper Jaffray p14
Polaris Venture Partners p10, p12
Presidio Pharmaceutic. p7
Presidio Pharmaceuticals p6
Prospect Venture Partners p12
Protein Discovery p13
Q
Quaker BioVentures p3, p12
Quest Diagnostics p16
Quintiles Transnational p6
R
RBC p4
RiverVest Venture Partners p13
Rodman & Renshaw p15
RxElite p4
S
Saad Investments p13
Safeguard Scientifics p10
Sagamore Bioventures p6
Saints Capital p13
Salient Surgical p4
Sanderling Ventures p9
Sante Ventures p13
Scale Venture Partners p13
Schering AG p2
Sciele Pharma p7
Scottish Equity Partners p13
SCYNEXIS p13
SFW Capital Partners p8
Shavit Capital Fund p15
Shijiazhuang Lerentang p7
Silicon Valley Bank p4
Sleep Solutions p13
Sofinnova Partners p13
Sofinnova Ventures p10
Specialized Health Products p7
SpineMark Corporation p11
Spiration p13
SplitRock Partners p13
SR One p13
Stentys p13
SV Life Science Partners p12
SV Life Sciences p6
Synchron Research Svs. p8
Synergy Partners p13
T
Takeda Pharmaceutical p7
Taligen Therapeutics p9
Tango p9
TAP Pharma. p7
TBI p11
Technowal p13
Tercica p3
Teva Pharmaceutical p7
TherOx p13
Thomas Weisel Partners p4
Tissue Science Laboratories p7
Transave p10, p12
Trevena p13
TriHealix p13
Trius Therapeutics p13
TriVascular2 p1
TV2 Holding Company p7
TVM Capital p6, p12
TxCell p13
U
UBS p4
Unibioscreen p13
University of Colorado at Denver p9
Upstream Capital Partners p11
V
VantagePoint Venture Partners p13
Vantia p12
Ventech p13
Ventures West p6
Versant Ventures p10, p13
ViewRay p2
W
W.L. Gore & Associates p3
Walgreen Co. p8
Washington State University p16
Wright Medical Group p7
X
XTL Biopharmaceuticals p6
Z
Zogenix p4 |
Venture Deals Intertwining With M&A,
As Pharma, Bio And Device Assets Are
Spun Off, Licensed Or Sold
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In spite of a lull in the
public capital markets, the M&A market continues to spark investment
activity on the venture capital side, including some deals tied to
spin-outs or acquisitions. Recently we talked with Jim Scopa, general
partner at MPM Capital, about such a deal. In March, it was
announced that TriVascular2 raised $30 million in equity funding as
part of a $65 million Series A financing, from MPM Capital, New
Enterprise Associates, Delphi Ventures and Kearny Venture
Partners. The proceeds are being used to spin the company out from
Boston Scientific (NYSE: BSX), a move that had been under negotiation
since May 2007. "This is not a traditional venture deal," Mr. Scopa
stated. "This deal is more akin to what MPM has done on the pharma side,
licensing out assets. TriVascular2 represents an opportunity to test that
model on the medical device side." MPM Capital has already worked similar
deals with Genentech (NYSE: DNA) and Novartis (NYSE: NVS),
and expects to do more in the future—in part because pharma companies have
plenty of cash but can’t justify on paper the costs and risks of
developing certain assets. "One example of this investment strategy
working for us in pharma, from out-licensing to successful exit, is
CoTherix. CoTherix was founded with technology out of Schering AG.
We licensed, developed and launched a product then sold the company to
Actelion (SWX: ATLN) for approximately $440 million and an attractive
venture return."
Getting back to the
investment in TriVascular2, Mr. Scopa detailed, "Of the $65 million, we
are paying Boston Scientific $30 million. They also receive a minority
equity position but did not receive a board seat. The rest of the Series A
capital is to fund development and operations as the company grows over
the next two to three years." He noted, "MPM and the investor group would
not have been able to consider this investment if we didn’t have the
ability to leverage the previous investment from BSX."
TriVascular2 was formed to
develop endovascular devices, based on the assets acquired, to treat
abdominal aortic aneurysms (AAA). "In addition to the AAA indication, we
expect the product could potentially have a market in thoracic
applications—this is a specialty area that has even greater demand for
lower profile devices," he remarked, referring to the market in thoracic
aneurysms (TAA). "Including thoracic indications and AAA, the market for
products like the one TriVascular2 is developing could reach up to $1
billion by 2010. Right now that market is worth about $500 to $600
million."
Mr. Scopa explained, "The
product TriVascular2 is developing offers an alternative to open surgical
procedures for preventing aneurysms. The stent is delivered semi-collapsed
through a catheter inserted in the leg, then injected with a polymer for
proper placement and sizing. It allows for insertion and navigation in
smaller, more tortuous vessels." The company’s recent financing is on the
large side for a Series A—but, Mr. Scopa explained, "We are comfortable
committing this amount of capital given the size of the endovascular
repair market for AAA and TAA with attractive reimbursement."
The assets that TriVascular2
is founded on were previously in development at a company called
TriVascular. "Originally, TriVascular had developed a product for AAA, and
was acquired by Boston Scientific for about $63 million and a substantial
earnout in 2005," began Mr. Scopa. "In mid-2006, BSX decided not to
continue with that development program, but the TriVascular management
group sought investors to spin them out of BSX." MPM Capital has been
involved in discussions with the management group since shortly after the
shutdown. What BSX is selling includes not only the device but also other
types of assets. "Part of this deal involves the plant and capital
equipment that have been just sitting there, protected, some of it even
shrink-wrapped. TriVascular2 is taking over the lease... in Santa Rosa."
Mr. Scopa continued, "Legacy
investors who funded TriVascular in the beginning wanted help from two
more investors to buy back the assets from BSX, and approached MPM Capital
and New Enterprise Associates. Delphi Ventures was a legacy investor,
along with ABS Capital, whose principals are now at Kearny Venture
Partners." Kearny Venture Partners, headquartered in San Francisco,
California, invests solely in health care products, including devices,
pharmaceuticals and biopharmaceuticals. This year, Kearny has also
invested in Gainesville, Florida-based ViewRay, a company
developing a real-time magnetic resonance imaging (MRI) guided radiation
therapy device for the treatment of cancer patients.
"TriVascular2 believes it
can offer a lower profile, smaller diameter product and delivery system
that will be better for some patients who are already candidates for such
a procedure, and it will also be suitable for addressing patient groups
who are not well served by currently approved products," said Mr. Scopa.
In addition to its clinical goals, currently TriVascular2 is also focused
on repopulating its engineering staff and filling other positions
necessary to get up and running, and looking into new product design and
manufacturing processes.
TriVascular2 is planning to
put the next-generation device into patients next year, including patients
in the United States, with initial implants perhaps outside the country.
"An earlier version of the product was already put in approximately 80
patients when BSX was developing it. TriVascular2 is planning on putting
the next generation device into patients in the U.S. next year, with
initial implants perhaps outside the country.
"Currently the AAA market
has three major players, Medtronic (NYSE: MDT), Cook Medical
and W.L. Gore & Associates, each with about 30+% of the market."
However, investors in TriVascular2 believe there is room for another
player. Mr. Scopa stated, "MPM believes there is space in this market for
a smaller, lower profile device that can even meet the needs of people for
whom there currently is no satisfactory treatment." The firm, he said, "is
likely to hold these assets through development to the commercial stage.
At that point, the company will examine its exit alternatives between a
strategic transaction or a public offering."
Other companies MPM has
invested in that are spin-outs from large pharma include Cerimon
Pharmaceuticals and Tercica (NASDAQ: TRCA). "There seems to be
continued interest in these kinds of deals on the pharma side, and lately,
there has been more interest from the medical device side." Pharmaceutical
companies, he said, often will focus their human and capital resources
only on the most promising products in their pipelines, or those that
address the largest market areas. Although we have seen stretches of
suffering in the public markets before, the playing field has changed
since then. "The last time we had this negative capital markets
environment, in 2002, large pharma was not as aggressive an acquirer," Mr.
Scopa pointed out. "Now we have a broad array of acquirers and more
spinout opportunities coming from pharma. Also, foreign buyers, from
Europe and Japan, for example, as well as commercial biotech, are of much
greater consequence today."
"Right now big pharma
companies have to rationalize their pipelines and perhaps have had to
raise the hurdle in terms of a minimum market size to target," commented
Mr. Scopa. "It’s true that in the past five to seven years we’ve seen more
spin-outs. Before that it was very challenging to get anything out of big
pharma, but now it’s easier," commented Mr. Scopa. He expects we are
likely to see more deals of this type. "The model has been somewhat proven
on the pharma side," he reasoned. Furthermore, "Venture funds have the
capital to finance clinical development, regulatory procedures and market
launches. In the past few years, the VC community has raised sufficient
capital to fund companies, even through periods such as this when the
public capital markets have faltered."
Mr. Scopa pointed out, "One
advantage of being with a larger fund, like MPM, is that we almost always
have reserved capital sufficient to get our companies through these
times." MPM Capital is staying the course with its current investment
strategy, funding primarily drug and device development, including early-
and seed-stage deals. "Fortunately, our transactions do not depend on the
state of the credit markets." He also said, "Venture capitalists
definitely have more interest in and ability to complete growth-equity
type investments, combining a commercial entity with a pipeline. Back in
the 1990’s, VCs didn’t really have enough capital for these deals and
there were fewer commercial companies."
Other recent deals include MPM.
MPM Capital is also involved in other
acquisitions recently announced by private, venture-backed companies.
EKR Therapeutics, which is acquiring the rights to certain
cardiovascular products from PDL BioPharma, Inc. (NASDAQ: PDLI),
announced in March that it raised $50 million of equity financing led by
MPM Capital and LLR Partners, along with prior investors Quaker
BioVentures, the Garden State Life Sciences Fund, NewSpring
Capital and ESP Equity Partners. Simultaneous with the equity
round, EKR secured $95 million in senior debt through GE Healthcare
Financial Services. The proceeds from the financing package are being
used initially to help fund the acquisition of certain cardiovascular
assets from PDL. Under the terms of that agreement, PDL is receiving $85
million in cash at closing and up to an additional $85 million in
development and sales milestones. EKR expects to continue to pursue and
acquire additional candidates for its portfolio of specialty acute-care
products.
EKR Therapeutics’ chairman
and CEO, Howard Weisman, recently said that the company’s acquisition
strategy has enriched its product mix—and correspondingly, its 2008
revenue base has been expanded by a factor of about ten. In addition, he
stated that the company is well-positioned to enter the next stage of
growth and realize its goal of becoming the pre-eminent provider of
specialty acute-care products. Founded in 2005 with an undisclosed amount
of capital, EKR later raised $13 million of venture funding in August
2007. Mr. Weisman formerly founded and was president and director of
ESP Pharma, a company formed in 2002 and sold to PDL BioPharma in
January 2005 for more than $500 million.
Mr. Scopa does not expect
the level of venture capital funding to fall dramatically during the rest
of the year, nor does he expect it to rise significantly, based on the
current capital-raising pace in the venture community. "The M&A market
will continue to offer exits and stimulate more investment activity.
Depressed valuations in the public market are creating some opportunities
to invest in companies that are publicly traded. In addition, companies
that were planning an IPO can no longer depend on raising capital through
the public market and are having to turn to the private market."
More M&A News For VCs.
According to the results of a study
released by CFO Research Services and CIT Group Inc. (NYSE:
CIT) in late February, about 46% of senior-level finance executives from
middle-market health care companies in the United States and Canada
consider acquisitions to play a contributing role in their business
strategies. Almost half the respondents indicated that the decision to
acquire is motivated by the desire to expand market share. Nine percent of
the executives surveyed said that M&A plays a major role in their business
strategies. Most (70%) of the respondents to the survey said their company
is not planning to divest any of the business during 2008, but 18% said
they are likely to sell a portion of their businesses this year.
The survey also queried
whether recent changes in the capital markets will affect the ability to
complete M&A transactions, but most executives (73%) replied that it will
not. It was also revealed that for middle-market companies seeking to
acquire other businesses, the greatest challenges are difficulty raising
capital and lack of transparency in a private company’s price, terms and
other factors, compared with what larger companies experience. However,
from what we hear, the middle market is where most deals are getting done
these days, in spite of any challenges.
One privately held,
venture-backed company that is clearly focused on growth by acquisition is
EUSA Pharma—and in March, the specialty pharma announced it raised
$53.5 million in an investment led by TVM Capital. The proceeds
from the round are being used, in part, to fund EUSA’s $22.6 million
acquisition of Cytogen Corporation (NASDAQ: CYTO). EUSA intends to
use the balance of the funding to support other acquisitions and to
continue expanding its product portfolio.
EUSA Pharma was founded in
2006 as a new, transatlantic specialty pharma focused on developing and
marketing products to hospitals. The therapeutic areas that EUSA
concentrates on are oncology, pain control and critical care. Its main
offices are in Doylestown, Pennsylvania and Oxford, England, and it has
four others in Europe and one in Canada. EUSA Pharma’s Series A financing
of $175 million was announced in March 2007 and was the second-largest
health care venture capital deal for that year. Simultaneously, EUSA
announced that it was acquiring OPi SA, a profitable
biopharmaceutical company with a range of drugs on the market. Investors
in EUSA Pharma include NovaQuest, the financial and strategic
partnering unit of Quintiles Transnational, created to help
emerging and established biopharmaceutical companies.
In EUSA’s most recent round
of financing, TVM Capital is investing $15 million, with the balance being
provided by firms including Goldman Sachs, 3i and SV Life
Sciences. EUSA plans to continue to acquire and in-license assets
within specialized areas of medical and geographic focus, and expects to
become a $1 billion company by the beginning of the next decade. The
company’s expertise is concentrated on the development and marketing of
late-stage oncology, pain control and critical care products. Currently,
EUSA has six products on the market, with several others in late-stage
development.
The recent deal involving
Presidio Pharmaceuticals and XTL Biopharmaceuticals (NASDAQ:
XTLB), represents another example of a private, VC-backed company
acquiring assets from a publicly traded company. San Francisco,
California-based Presidio acquired a license to XTL’s preclinical program
in Hepatitis C, which fits neatly within Presidio’s focus on the
development and commercialization of anti-viral therapeutics. It was
announced in late March that Presidio is paying XTL $4 million in cash
upfront, and potentially, up to an additional $104 million in development
and commercialization milestone payments. Investors including Panorama
Capital, Bay City Capital, Baker Brothers Investments,
Ventures West, Nexus Medical Partners and Sagamore
Bioventures have, so far, provided Presidio with more than $27 million
in venture financing.
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