Venture capitalists are putting money into life sciences companies at a clip that could meet or exceed last year’s total, according to a quarterly analysis released in late October. Notably, the sector has drawn more than one-quarter of all VC investments for the first nine months of 2005.

According to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, the life sciences sector received $1.6 billion in 3Q investments into 155 companies, outpacing the prior quarter.

Tracy Lefteroff, of PricewatershouseCoopers, pointed to “a couple of factors driving investments in life sciences. No. 1, M&A activity seems to be pretty active, which encourages venture capitalists to continue to fund companies in this space. IPOs that are getting out are still predominantly life sciences IPOs, even though they’re at much-reduced rates compared to prior years.” And she added a “third thing ... that venture capitalists are really looking at the worldwide demographics of an aging population base.”

Lefteroff said that “while the IPO window certainly isn’t wide open, I think for life sciences companies there is a crack and we are seeing some of them make it out into the market.” She said, “With healthcare spending setting pace to double over the next 10 years and the FDA approving the first brain stem cell transplant last week, I can’t say that the interest has ever been higher in this space than what we’re seeing right now, and the activity in public markets reflects it.”

The life sciences VC funding through the first nine months of the year broke down to $2.75 billion for biotech firms and $1.46 billion for medical device companies. While not “life sciences” companies, healthcare services companies – considered at least supporting players in the med-tech universe – added another $338.65 million in financings through 3Q05.

Four of the 10 biggest VC deals in the quarter involved biotech companies: Replidyne (Louisville, Colorado) raised $62.5 million; Affymax (Palo Alto, California) brought in $60 million; Cerexa (Alameda, California) received $50 million; and Esprit Pharma Holding (Princeton, New Jersey) raised $45.4 million.

The largest medical-device VC deal in the quarter was the $40.8 million raised by TherOx (Irvine, California), a developer of systems for delivering oxygen to ischemic tissues. That ranked just outside the top 10 in the 11th spot.

The life-science sector’s nine-month total was $4.2 billion, equal to 26% of all year-to-date VC investing, a pace that will match or surpass last year’s total of $5.8 billion – and that total represented a three-year high.

Through the third quarter, medical device firms showed quarter-to-quarter growth: $422.06 million in VC funding in the first quarter, $476.14 million in the second and $557.81 million in the third. The $1.46 billion raised through the first nine months puts the sector on a pace to easily top 2004’s full-year total of $1.75 billion.

In the larger picture, total third-quarter VC investments across the board reached $5.3 billion in 714 companies, a slight dip from last quarter’s $6.1 billion but ahead of last year’s 3Q total of $4.6 billion. Still, it falls in the middle of a $4 billion to $6 billion quarterly range over the past three years.

“I think the overall strength of the venture market is really quite good,” said Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. “We’re continuing to see year-over-year growth, albeit not huge growth, but there is growth there.”

For the first nine months of this year, VC investing totaled $16.3 billion, compared to $15.9 billion in the same period last year, meaning that full-year VC investing could meet or exceed 2002’s $21.7 billion, the highest level in the past three years. All in all, VC investments continue to exhibit steady growth in the period after the boom times between 1999 and 2001.

Further, Lefteroff noted that a look at comparable periods, such as the years prior to 1997 in relation to the past three to four years, show current VC investment levels to be higher. “Venture investing in general is still pretty robust,” he added, “even after the Internet bust and all the trouble that we’ve seen over the past five years. We’ve come back to a more normalized and sustainable level of venture capital investments.”

VC investing in later-stage companies over the past year continues to be a dominant theme. In the third quarter, later-stage funding rose slightly to $2.6 billion – a four-year high that follows an upward trend that began late last year. For the year to date, later-stage investments reached $7.2 billion, approaching last year’s total of $7.6 billion that was a three-year peak.

Commensurately, the average post-money valuation rose to $78.9 million for the 12 months ending in the second quarter, compared to $63.2 million for the first quarter. (Valuation data lags investment data by one quarter.)

However, funding for start-up and early-stage companies fell back to $1 billion for 216 companies. Also, early-stage companies’ average post-money valuations were essentially flat at $14.4 million for the year ending in the second quarter, compared to $14.2 million for the period ending in the first quarter.

While early-stage companies often bemoan a dearth of funding opportunities, Lefteroff noted that business’s self-valuations might not necessarily equal VC’s thoughts. “There’s a ton of money out there looking for investment,” he said, adding the caveat that high pre-money valuations are not affordable if VCs are to expect returns in the mid- to high teens, given lower exit values in IPOs and [mergers and acquisitions] as compared to the bubble years.

The year-to-date totals of $3.2 billion and 697 deals among early-stage companies are on track to match last year’s totals of $4.3 billion and 1,028 deals.

“There is plenty of capital for entrepreneurs,” Lefteroff said, adding that investing is definitely not hitting a trough. “The general health of VC-backed industry is good. We just need public markets, as well as M&A transactions, to ratchet up a little bit in valuation to see some of that valuation expansion accrue to founders and management teams.”

The MoneyTree Survey measures cash-for-equity investments by the professional venture capital community in private emerging companies in the U.S. The data are primarily obtained from a quarterly survey of venture capital practitioners, and information is augmented by other research techniques including other public and private sources.

Ovarian screening useful but still risky

To screen or not to screen? That is a key question of much modern medical diagnostics that isn’t particularly well answered by a new study from the National Cancer Institute (NCI; Bethesda, Maryland) concerning some of the newest methods for assessing ovarian cancer. The study says that currently available screening methods such as transvaginal ultrasound (TVU) and testing for a protein biomarker called CA-125, alone or in combination, can detect ovarian cancer. But it offers the large caveat that the system also produces many false-positive results and therefore may lead to unnecessary surgical procedures.

CA-125 and TVU have been considered as potential screening techniques, although studies to date have not shown that they can be effective, and thus they are not currently recommended, the NCI said.

Those findings, the first published ovarian cancer screening results from the NCI’s ongoing multi-center Prostate, Lung, Colorectal and Ovarian (PLCO) Cancer Screening Trial, are based on an analysis of the trial participants’ initial screening tests.

The report, which summarizes preliminary results from the PLCO trial, was published in the Nov. 15 issue of the American Journal of Obstetrics and Gynecology.

“Ovarian cancer is a disease that is often fatal, and both patients and physicians are anxious to find ways to detect it at an earlier, more curable stage,” said first author on the study, Saundra Buys, MD, of the University of Utah (Salt Lake City). “However, the results from the initial year of screening show that TVU and CA-125 cannot currently be recommended for widespread use in the general population.”

Buys also said that “future results from the additional PLCO screenings and subsequent follow-up will be needed before a final assessment of this screening strategy can be made.” The long-term objective of the PLCO trial is to determine whether screening with TVU and/or CA-125 decreases ovarian cancer mortality in women age 55 to 74.

Of the 28,816 healthy women who underwent the initial, or baseline, screening, 1,338, or 4.7% had an abnormal TVU and 402, or 1.4%, had an abnormal CA-125 blood test. Thirty-four women had abnormal results in both screening tests. Among the women with abnormal tests results, 29 tumors were detected. Thus, 541 women underwent surgery but did not have cancer.

Enrollment in the PLCO study began in 1993 and ended in 2001. When initially enrolled in the study, women in the interventional arm underwent baseline ovarian cancer screening with CA-125 and TVU and received additional annual screenings and follow-up. Women in the control arm of the study were not screened but were observed over time.

The published results reflect analysis of the initial baseline screenings for women enrolled between 1993 and 2001. The results of the subsequent years screening with TVU and CA-125 are not yet available, and it is those additional results that will ultimately determine whether this screening strategy is effective in reducing mortality from ovarian cancer, according to the NCI. Those results, it said, will not be available for several years.

At the time of the baseline examination, both TVU and CA-125 had low predictive values – a measure of how likely a person with a positive test result is to have the disease of interest – when used to screen healthy women for ovarian cancer.

The NCI said that “many investigators feel that an acceptable predictive value for an ovarian screening test is around 10%. The predictive values of those screening tests were 3.7% for an abnormal CA-125 test, 1% for an abnormal TVU, and 23.5% if both tests were abnormal.” Although having an abnormality in both tests had a fairly high predictive value, only nine of the 29 tumors, or 31%, were associated with abnormalities in both tests.

Patricia Hartge, an NCI investigator on the PLCO project, added, “As women are followed for a longer period of time, it will be possible to examine how screening tests behave in special groups of women; for example, those with breast or ovarian cancer in their family.” Investigators also will be able to study whether other biological markers that are proposed but unconfirmed as useful for early detection of ovarian cancer.

SIR backs Senate push on AAA screening

The Society of Interventional Radiology (SIR; Fairfax, Virginia) voiced its support of the Senate’s efforts to increase the early detection of abdominal aortic aneurysms (AAA). A newly passed amendment would institute a one-time ultrasound screening for AAAs through Medicare, as well as establish a national education and information campaign.

Citing a threefold increase in the occurrence of AAAs over the past 30 years and more than 15,000 deaths per year attributed to AAAs that rupture, SIR said it has been working with congressional leaders to ensure that patients receive access to screenings that could save their life.

The organization commended Sen. Rick Santorum (R-Pennsylvania), who sponsored the amendment to Senate Bill 1932, along with co-sponsors Jim Bunning (R-Kentucky), Christopher Dodd (D-Connecticut), Joseph Lieberman (D-Connecticut), John Rockefeller (D-West Virginia), Craig Thomas (R-Wyoming) and George Voinovich (R-Ohio).

“Once an abdominal aortic aneurysm has ruptured, the chances of survival are low, with 80% to 90% of all ruptured aneurysms resulting in death. These deaths can be avoided if an aneurysm is detected and treated before it ruptures,” said interventional radiologist George Fueredi, MD, who chairs SIR’s Government Affairs & Health Care Policy Committee.

He added: “This bill ensures those patients at highest risk, those over 65, can receive AAA screening which can lead to early treatment and ultimately prevent death.”

Besides SIR, other organizations participating in the National Aneurysm Alliance include the Society of Vascular Surgery, American College of Surgeons, American Society of Echocardiography, American Vascular Association, Aneurysm Outreach, National Electrical Manufacturers Association, Society of Diagnostic Medical Sonography and Society for Vascular Ultrasound.

Med-tech firms Boston Scientific, Cook, Gore, Johnson & Johnson, Medical Media Systems, Medtronic, Philips, Siemens and SonoSite also are part of the alliance.