Friday, March 7, 2008
Venture capital starts to flow as industry matures
Phoenix Business Journal – byAngela Gonzales Phoenix Business Journal
Jim Poulin/Phoenix Business Journal
Kay Wing of Swan Rehab in Phoenix uses technology from Kinetic Muscles Inc. to help patient Tammy Hamill with her therapy. Kinetic Muscles was certified for the angel investor tax credit and attracted a bit of angel funding last year.View Larger
Venture capital was scarce for biotech startups in Arizona long before the big push in 2002 to create a hub in the state.
But that is starting to change with two recent investments.
A $20 million bioscience venture capital group called Translational Accelerator LLC, or Trac, was launched in February to target early stage companies in that industry, while a Los Angeles biotech company plans to infuse $21.5 million into that sector in Arizona.
As part of Abraxis BioScience Inc.‘s $21.5 million investment, $14 million will help start a nonprofit group called Catapult Bio, which will fund life sciences startups focusing on medical diagnostics, drugs and devices.
Eric Tooker, one of the four managers of Trac, said his group’s infusion of capital addresses one of the most pressing needs in Arizona’s quest to build a thriving bioscience sector. He expects Trac to invest $500,000 to $2 million in each of eight to 10 biotech companies.
The group’s first investment was in Silamed Inc., a Scottsdale startup working on a drug for cancer and neurodegenerative diseases. Stephen Gately founded Silamed in 2003 in Chicago as RND Pharmaceuticals Inc., then moved the company to Scottsdale a couple of years later.
Two of Silamed’s advisers are Richard Love and Dr. Daniel Von Hoff, who also are among the managers of Trac. The fourth Trac manager is John Bentley, a partner with Grayhawk Venture Partners.
Love and Von Hoff were responsible for wooing Jeff Trent from the National Institutes of Health back to Arizona to create the Translational Genomics Research Institute in 2002.
Trac’s investments will support efforts to move scientific discoveries from the lab into the clinic.
The concept for Trac was formed when Love was at TGen and recognized the need to attract investor funding to seed early discoveries with commercial potential.
Silamed CEO Craig Taylor said Trac not only gave his company seed money, but also is playing a lead role to help it raise up to $6 million in a Series A round of financing. While Silamed has received small amounts of financing from wealthy individuals, biotech executives and Northwestern University, this will be the company’s first institutional financing, Taylor said.
Trac will be one of several investors in the Series A financing, he said. The money will be used to conduct preclinical development work to go through the “investigational new drug” application process with the U.S. Food and Drug Administration to transition into human clinical trials, Taylor said.
One of the phase one trial sites will be TGen Clinical Research Services, a strategic alliance between TGen and Scottsdale Healthcare.
The venture capital road can be just as frustrating as an initial public offering, especially for companies that haven’t yet conducted late-stage clinical trials on their drugs or technologies, Taylor said.
That said, an IPO could be in Silamed’s future, he said.
“This has come together very nicely,” he said. “We’re happy with our situation and still have some very difficult milestones to achieve. We’re well-positioned for our start here. Now we need to get a Series A raised. We hope to get that done midyear.”
Meanwhile, Tooker said other biotech startups in Arizona and elsewhere are contacting him in search of VC funding.
“Whether we invest or not, we’re trying to get these companies that show an interest in Arizona over to someone like Rob Hooley at (the Greater Phoenix Economic Council) to see if we can’t get them here in any event,” he said. “That’s how it’s all going to grow.”
Plus, Tooker said, he is talking to out-of-state VC firms to leverage the $20 million fund into more money to be invested.
With his fund and Catapult Bio to invest in early-stage companies, it’s time to start getting companies on the road to commercialization, he said.
“We feel a great sense of responsibility to do the best we can with this Trac fund so we can build on it,” he said. “Many of the individuals who care so much about Phoenix and the state of Arizona, and the bioscience community here, have really stepped up to the plate and helped us get off the ground.”
Glenn Williamson, managing director of investment banking for Exeter Financial LLC in Scottsdale, said biotechs also need to look outside their state — and even their country — for investment opportunities.
“The people who invest in life science companies know each other,” Williamson said. “It’s a very small world. They go to the same conferences. Good deals will always get funded.”
Silamed Inc.: www.silamed.com
Translational Accelerator LLC: 480-268-2008
Abraxis BioScience Inc.: www.abraxisbio.com
Exeter Financial LLC: www.exeterfinancial.com