After describing the advantages and lucrative market for his two-piece, bioprosthetic heart valve to a group of venture capitalists in downtown Los Angeles last week, Dr. Ivan Vesely's suit pocket was filled with business cards and even a few offers of help in polishing his pitch.
Large checks would have been better but after years of trying to take his invention to market, Vesely was just happy to be getting some serious investors interested in his device, which includes a component that can be replaced without risky open-heart surgery. That's an advantage over the models that are now on the market.
"It's just bloody difficult to get VC money or even angel money," said Vesely, head of the Saban Research Institute's cardiothoracic surgery research program at Childrens Hospital Los Angeles. "We've had to do a lot of the groundwork to prove this project with just grant funding."
Vesely was one of 18 emerging company presenters at the annual conference hosted by the Southern California Biomedical Council, a regional life sciences trade association. Local scientists, entrepreneurs and startups take the trouble of coming to the event in the hopes of seeking venture capital and other funding.
Over the past several years, it's been difficult for small Los Angeles County life science companies to attract venture funding, given the relatively small size of the industry here. The bigger biotech hot spots are in San Francisco and San Diego and much of the action takes place there.
However, Vesely and other participants may benefit this year from a turnaround in life science venture capital funding that began in 2005 after a period of miserable prospects for biotechnology and medical device start-ups nationwide that hit L.A.'s smaller community particularly hard.
"This is going to be a banner year for fund-raising in the industry," Steven Burrell, a San Francisco life-science merchant banker, predicted in the conference's keynote address.
Still, private equity funding for biomed isn't raining from the sky as it often appeared to be during the 1990s tech boom. Some high-profile biotech failures, on top of the economic downturn triggered by the dot.com bust, left many young companies that required hundreds of millions of dollars for clinical trials only able to attract grants, wealthy angel investors or other incremental funding.
And the VCs that are funding often form syndicates that can handle the huge capital needs of a long development cycle and avoid diluting the value of their stake in later rounds of financing. They're also more apt hedge their bets by doling out a funding round in increments, based on a company meeting certain milestones.
Among the two dozen companies in Los Angeles, Ventura and Santa Barbara counties that received $110 million in the fourth quarter, no biomed company got critical first-round funding. The only local biomed deal was $20 million in third-round funding for Monrovia-based drug developer Xencor Inc. from a longtime backer, according to a recent MoneyTree Survey.
In comparison, first-round funding went to four of 13 biomed companies in San Diego County, that were backed during the same period. They received $121 million in funding altogether.
Allan Wolfe, the Manhattan Beach-based general partner for Salt Lake City's UV Partners and the conference co-chair, said venture investors continue to remain cautious, looking for investments they can evaluate easily and that stand a chance of bearing fruit within the average seven-year life of a fund.
"The angel investors are finding this out when they go to raise next round of funding, they're in the same boat I'm trying to avoid," said Wolfe.
Wolfe added that venture funds are always very careful to pick the choice time for putting money into biotechnology companies. Investors want to see some human trial data first, but they can't wait too long for fear that positive results in later-stage trials boosts a company's valuation too high for them to make a profit.
For example, Andrew Firlik, a general partner at Rowayton, Conn.-based Foundation Medical Partners said his firm will invest in medical devices at the preclinical stage, but waits until a biopharmaceutical company has later, Phase 2 clinical data before writing a check.
"We think we can predict the likelihood of success for a device better from just reviewing the concept than for a drug that hasn't been tested in humans yet," Firlik said.
Unlike many other early-stage funders, Foundation Medical tends to stay invested in a company in later rounds until it's time to exit when the company goes public or is acquired.
Needs $8 million
"I think the recent upturn in the public markets, from a liquidity and financing standpoint, has been pretty good for us. There's a greater availability of follow-on and later-stage capital," he said.
This willingness to invest in medical device companies early on could help Vesely's ValveXchange Inc., which he started with a National Institutes of Health small business grant while working at the Cleveland Clinic.
ValveXchange, which he runs from his Tarzana home office in his spare time, has two board members and a vice president for product development.
The enterprise is seeking $8 million in funding to hire a chief executive and finish the animal studies that are necessary before testing the product on humans can get off the ground.
"I'm the technology guy, I'm good at developing start-ups but I really don't have the background or time to be a CEO," said Vesely, who co-founded another life sciences company in the early 1990s.
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