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Pharmaceuticals

Pharmaceutical deals also covered the waterfront in the first quarter, although a few of the most intriguing fundings involved drug-mediated neuro-regeneration and drug-device combinations.

The sector's fifth largest funding in the quarter, for instance, went to BrainCells, a San Diego company whose in-licensed drug, it believes, can help stimulate the re-growth of damaged neurons. BrainCells raised $30 million in a Series B round, and plans to test its lead drug candidate – which its previous owner had earlier tried as a potential Alzheimer's disease therapy -- as a treatment for depression and anxiety in phase II trials.

Two other startups focused on implantable devices that elute drugs in order to reduce inflammation or other side effects. Such “drug-device combinations” are fairly popular these days, particularly as devices grow more sophisticated in their ability to release drugs in particular locations or under specific conditions.

The first of these, Alimera Sciences, is an Alpharetta, Ga., startup that raised $30 million in a Series C round. Although initially a reseller of over-the-counter eye drugs, the company has now partnered with the nanotechnology concern pSivida to produce its drug-device combo Medidur. The treatment consists of a tiny structure designed for implantation in the back of the eye, where it can emit small quantities of a corticosteroid in order to control a blinding condition called diabetic macular edema.

Next up is TyRx Pharma, which is focused on implantable surgical pouches that are infused with antibiotics and other drugs intended to prevent infection. Its current products include meshes used for hernia repair or as pouches for implanted defibrillators.

The two largest pharmaceutical fundings both involved specialty-pharma companies focused almost entirely on selling in-licensed drugs – and occasionally acquiring the companies that make them. EKR Therapeutics, of Cedar Knolls, N.J., raised $145 million in equity and debt, although much of that was devoted specifically to acquiring several heart drugs from the failing biotech PDL Biopharma (Nasdaq: PDLI).

Similarly, the transatlantic specialty pharma EUSA Pharma raised $50 million in an undisclosed round. In a surprise twist, however, the company spent $35 million of that sum to acquire the publicly traded biotech Cytogen, which the specialty pharma went on to take private.

Medical Devices

Oddly enough, new approaches to measuring blood glucose – essential for diabetes control – garnered some of the most venture interest in the still-robust medical-devices field.

Luminous Medical, for instance, raised $23.5 million in a Series B round for a hospital-based glucose meter. The Carlsbad, Calif., startup's device aims to provide automatic and near-continuous glucose measurements for hospitalized patients in order to prevent sudden spikes or crashes that can produce serious complications, particularly in diabetic patients.

IntelliDx, of Santa Clara, Calif., is producing a similar hospital-based glucose meter. The company raised $21.5 million in a Series D round.

Another startup with intriguing device technology is PolyRemedy, a Mountain View, Calif., startup with a robotic system for producing customized wound dressings. The PolyRemedy device is intended for hospitals and medical clinics, where it can be used to produce tailored bandages for diabetic ulcers, particularly on the feet and other extremities. The company raised $25 million in a Series B round.

The largest device funding of the quarter was also one of the most interesting, as TriVascular raised $65 million as part of its spinout from Boston Scientific. The twist here is that the Santa Rosa, Calif., startup was acquired by Boston Scientific (NYSE: BSX) in 2005, and has just been disgorged again to pursue its devices for repairing abdominal aneurysms. (Thirty million dollars of the proceeds went directly to Boston Scientific to pay for the spinout.)

Runner-up in the biggest-fundraising sweepstakes was TherOx, an Irvine, Calif., startup that raised $30 million in an undisclosed funding round (believed to be its tenth). TherOx makes a “hypersaturated” oxygen system intended for heart-attack patients – the idea is that loading up blood with oxygen and then infusing it near the heart will help prevent damage to the muscle there.

Table 1

Venture Funding Activity – 1st Quarter 2008


Industry Total
Amount
Funded
% Change
Vs. Prior
Quarter
Number of
Companies
Funded
% Change
vs. Prior
Quarter
Biotechnology $598 Million - 35 % 65 - 27 %
Pharmaceuticals $807 Million + 13 % 50 + 0 %
Medical Devices $947 Million + 1 % 82 + 1 %
Total $2.35 Billion - 9 % 197 + 10 %

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