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Venture Capital Funding and M&A Quarterly

Biotechnology • Pharmaceuticals • Medical Devices

4th Quarter, 2007 – United States

Published by: VentureDeal

Writer: David Hamilton

Summary

Biotechnology, medical-device and pharmaceutical startups raised a total of $2.6 billion in venture-capital funding during the fourth quarter, a 28 percent increase over the previous quarter (see Table 1). The number of companies receiving funding also rose by 28 percent, to 220.

Medical device companies received the most funding out of the three sectors, pulling in $946 million during the quarter and narrowly edging out biotechnology, which accounted for $921 million in new financing. Cardiac applications, particularly those involving minimally invasive heart procedures and implantable diagnostic sensors, were particularly attractive to venture medical-device investors during the quarter.

In biotechnology, some of the most intriguing companies receiving funding are ones aiming to re-wire the immune system or to produce new molecular diagnostics for early detection and measuring the progress of diseases like cancer. Neither area has been traditionally popular with venture investors, both because of the perceived technology risk and, particularly in diagnostics, the difficulty of pricing actual products high enough to recoup investment.

Both biotechnology and devices saw funding rise in the quarter, while new investment in pharmaceutical startups declined slightly to $716 million.

Biotechnology, in fact, had a banner quarter, as venture capital flowing into the sector more than doubled compared to the previous quarter. Eighty-nine biotech startups received funding, an 82 percent increase, topping both medical devices (81 startups) and pharmaceuticals (50 startups).


Funding Activity

Biotechnology

As noted above, some of the most interesting biotech fundings of the quarter involved startups focused on immunology and diagnostics, neither being an area that has received much love from venture investors until recently.

One major immune-related startup funded in the quarter was Bayhill Therapeutics, a Palo Alto, Calif., biotech that raised $21.5 million in an unspecified funding round. The company aims to take on autoimmune disease in a novel way - by introducing “tolerizing” proteins to the immune system in a way that defuses its attack on the body's own tissue. Bayhill's lead experimental therapeutic, which targets multiple sclerosis, has completed a mid-stage, phase II test that seemed generally promising, although the detailed results were still open to interpretation.

Other notable immunology plays in the quarter included Xencor, a developer of antibody drugs against autoimmune disease and cancer that raised $15 million as part of its series E round, and Juvaris BioTherapeutics, a vaccine developer that pulled in a $15.9 million series A round.

The leading diagnostic investment of the quarter goes to Rules Based Medicine, an Austin, Texas biotech aiming to develop blood tests for various conditions by sampling proteins found in blood serum. Its initial goal is to determine whether a given experimental drug is likely to produce serious side effects when tested in large numbers of people. The company raised $25 million in a series A round, although it immediately paid half that sum to its former parent company, Luminex (Nasdaq: LMNX), with whom it's fought over licensing rights for years.

Asuragen, another Austin biotech, raised $18.5 million in a series B round for molecular diagnostics based on micro-RNA molecules, which could potentially serve as blood-based markers for the presence of tumors. Aviir, of Palo Alto, aims to launch a test for diagnosing and determining the prognosis of heart disease later this year; it raised $11.5 million in a series B.

Overall, the largest biotechnology funding in the quarter involved Ambit Biosciences, a San Diego biotech that raised $49.3 million in a series D round. Ambit hopes to produce the next big cancer drug using a “discovery engine” screen for drug candidates that block biochemical messenger proteins called kinases.

Ambit’s lead candidate, AC220, is following in the footsteps of one of the earliest and most successful of the new generation of targeted cancer drugs – Gleevec, a Novartis kinase inhibitor that can produce all-but-miraculous remissions in chronic myeloid leukemia. AC220 is currently being tested in an early stage, phase I trial in patients with acute myeloid leukemia.

Next up was Optherion, a New Haven, Conn., biotech that pulled in a huge $37 million series A round. The ophthalmology-focused startup is taking aim at age-related macular degeneration (AMD), a leading cause of vision loss among the elderly, with drugs that regulate an immune-system function known as the alternate complement pathway.

Other notable fundings included Anaptys Biosciences, another San Diego biotech that raised $33.9 million in a series B for antibody drugs, and Tengion, of Norriton, Pa., which drew $33 million in a series C funding for organ-regeneration work.

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