Medical Device Daily Associate Managing Editor

HLM Venture Partners (Boston), a healthcare venture capital firm that invests in healthcare information technology, healthcare services and medical technology companies, reported the close of its latest fund, HLM Venture Partners II. HLM said the fund was oversubscribed, the $216 million total exceeding the original target of $200 million.

It said 18 new institutional investors participated in the offering along with all of the institutional investors in the firm’s previous fund, HLM Venture Partners.

The latest funding represented a substantial increase over the previous funding, which closed in October 2002 and raised about $88 million, HLM said.

Similar to its previous funds, HLM Venture Partners II will employ the strategy of investing in emerging healthcare companies. The fund seeks opportunities to lead investments in early- to mid-stage companies where it can provide between $8 million and $12 million over the life of the company. To date, the newest fund has backed BioProcessors (Woburn, Massachusetts), MedVentive (Cambridge, Massachusetts), Pathway Medical Technologies (Redmond, Washington) Phreesia (New York) and Puerto Rico-based Socios Mayores en Salud.

Ed Cahill, managing partner of HLM Venture Partners, told Medical Device Daily that the fund was designed “to take advantage of the major trends going on in healthcare. Our comprehensive approach to investing in healthcare information technology, healthcare services and medical technology companies enables us to capitalize on all the current drivers of growth within the U.S. healthcare system. We believe that investing in companies that address major trends such as consumerism, pay-for-performance and the advances in life sciences and medical device technology will provide exciting opportunities over the life of the fund.”

Cahill stressed that HLM tries hard not to overly concentrate on one particular area of the healthcare sector with its investments. Additionally, he noted that while the company will invest in seed and late-stage companies, the typical target is a company involved in the “first or second institutional round” of investment.

“We found that healthcare in general, has a certain built-in momentum,” Cahill told MDD. “There’s a certain amount of growth that appears to be wired into the system due to the increasing education, age, and affluence of [U.S.] society. In addition, I think we’re able to take advantage of the need to improve the healthcare delivery system, rationalize it and reduce its cost and increase its effectiveness in society.”

The fund has invested in 52 companies across the three principal sectors of the healthcare industry and has realized proceeds from 31 of these investments. Recent transactions include the $518 million sale of Animas (West Chester, Pennsylvania) to Johnson & Johnson (New Brunswick, New Jersey) in February 2006; the $245 million sale of Confluent Surgical to U.S. Surgical (Norwalk, Connecticut) in July 2006; and the $445 million sale of CorSolutions Medical (Rosemont, Illinois) to Matria Healthcare (Marietta, Georgia) in January 2006.

In other financing news:

pSivida (Perth, Australia) reported that its principal institutional lender has agreed to a forbearance with respect to any defaults through to and including the earlier of the closing of the Nordic Biotech Advisors transaction or March 31, subject to the satisfaction of closing conditions.

The lender has agreed to allow the company to transfer or grant security interests in the Medidur and Mifepristone assets which would be necessary to complete specified financing transactions with Nordic. The lender agreed to forego the interest payment due on Jan. 2 in favor of adding about $309,000 (A$391,000) to the amount of the loan (representing the value of the American Depository Receipts [ADSs] which the company would have issued to satisfy the payment had it met certain conditions allowing it to pay with ADSs.

The lender agreed to defer the company’s scheduled payment of $800,000 (A$1 million) for prior registration delay penalties until the earlier of the closing of the Nordic transaction or March 31.

The lender also agreed to forgive $770,000 (A$973,000) of additional registration delay penalties accruing through the earlier of the closing of the Nordic transaction or March 31 and to amend the company’s loan covenants to release it from the obligation to satisfy a minimum cash balance test of 30% of the outstanding principal until March 31.

In return, pSivida has issued to the lender warrants to purchase 1.5 million ADSs over five years at a price of $2 per ADS and has agreed to issue additional warrants to purchase 4 million ADSs over five years with an exercise of $2, subject to adjustment based on the final terms of the company’s transaction with Nordic.

The company said it expects to close definitive documents with Nordic for a $4 million (A$5.1 million) corporate investment in the company and a $22 million (A$27.8 million) investment over time in a special purpose vehicle that is expected to fully fund the company’s portion of costs to develop Medidur for the treatment of the chronic eye disease diabetic macular edema.

pSivida is a global bio-nanotech company in the biomedical sector focused on develooping drug delivery products.

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