A Medical Device Daily

Despite the recent turmoil on Wall Street, venture capital investments in the life sciences sector do not appear to have been impacted – at least not yet. According to the MoneyTree report, complied by PricewaterhouseCoopers and the National Venture Capital Association, using data from Thomson Reuters, the life sciences sector (biotechnology and medical devices combined) saw a 10% boost in VC investing in 3Q08, with $2.2 billion going into 207 deals.

Those figures, however, do represent an 8% drop in deals from the second quarter of 2008, which the report attributed to declining investment levels in the medical devices sector.

Minnesota bucked that trend, however, as medical device start-ups helped give the state its best quarterly VC performance in eight years. Minnesota companies attracted $220.8 million in the third quarter with seven medical device firms, led by CVRx (Brooklyn Park) and Cardiac Concepts (Minnetonka), capturing $130 million, or 59% of overall investment in the state. Minnesota ranked seventh nationally, according to the report.

"I think it's great for the state to have a blowout quarter dollar-wise," Jay Hare, a partner with PricewaterhouseCoopers, told the Minneapolis-St. Paul Star Tribune. "But it comes at a time there is clearly some concern about future funding. Minnesota will trend with the rest of the country."

On the other hand, Hare said investors see medical devices as a "safe haven," especially when other industries like software and biotechnology start to retract in a soft economy, the Star Tribune reported. That's because medical devices represent unique technology that saves people's lives, a proposition that never goes out of favor with investors, Hare said.

Minnesota device companies that received funding in the third quarter included CVRx, a company that makes a device that treats high blood pressure. CVRx raised $84 million in July (Medical Device Daily, July 31, 2008) on top of the $200 million investors had already poured into the company. Cardiac Concepts raised $21 million in its first round of financing, according to the Star Tribune. Affinity, Accuitive Medical Ventures and Three Arch Partners are backing the start-up company.

Venture capital investing overall remained within historical norms in the third quarter, the MoneyTree report said, with venture capitalists investing $7.1 billion in 907 deals. Quarterly investment activity, however, was down 7% compared to the second quarter when $7.7 billion was invested in 1033 deals. Investments in life sciences companies represented 31% of all investment dollars and 23% of all deals in the third quarter.

"While overall venture investing hasn't yet been impacted by the turmoil in the financial markets, as evidenced by $7 billion plus invested in Q3, we do expect to see a dip in investing over the next several quarters," said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. "We also do not expect venture funding to dry up. Venture capitalists have slugged through difficult economic times before and this one should be no different. They are long-term investors and won't jump ship just because the times are tough. They may tighten their belts and those of their portfolio companies but they still have money in their coffers and will continue to make investments."

In other financing activity, Salient Surgical Technologies (Dover, New Hampshire), a private company that develops advanced energy devices for use in surgical procedures, said it has completed its Series F financing totaling $17.9 million. Investors in the round included Piper Jaffray, Arnerich Massena & Associates, Medtronic, RiverVest Venture Partners, and other financial and strategic investors.

Salient said it plans to use the net proceeds to fund programs aimed at continuing to expand its sales and marketing organization and accelerating development of new products based on its Transcollation technology. Salient said it would also use a portion of the proceeds to fund working capital requirements and amortize term debt.

Salient's products are used in orthopedic reconstruction, spine and surgical oncology.