A Medical Device Daily

The Bio-Star Private Equity Fund (Petoskey, Michigan), one of Michigan’s first medical device-specific venture capital funds, completed its financing with a total of $26 million. This is the third and final closing after its initial stage of $11 million, which closed in November 2003.

Health-oriented investment funds and institutions as well as medical and investment professionals participated in increasing Bio-Star’s size, the fund said. Trout Capital served as financial advisor to the fund in its financing efforts.

“This increased investment pool allows Bio-Star to participate in more deals, and to maintain its investment share in subsequent rounds,” said John Lonergan, general manager of the fund. “With this additional capital, we find ourselves competing more favorably for bigger opportunities.”

Mike Henson, Bio-Star’s general partner, said, “Since our first close in late 2003, Bio-Star’s deal flow has accelerated. The fund is positioned as a ‘go-to’ destination for vascular medical device firms at early and middle stages of their development.”

As Bio-Star’s funds under management have grown, it has added several members to its advisory board, including Gregg Stone, MD, professor of medicine and director of cardiovascular research and education at the Center for Inter-ventional Vascular Therapy at Columbia University Medical Center and vice chairman of the Cardiovascular Research Foundation (both New York), and Peter Fitzgerald, MD, PhD, associate professor, director of the Cardiovascular Core Analysis Laboratory and co-director of the Center for Research of Cardiovascular Intervention at Stanford University Medical School (Palo Alto, California).

“We have a premier group of vascular interventionalists to advise our investments and follow them along to fruition,” said Dr. Louis Cannon, founder and general partner of the Bio-Star Private Equity Fund. “Our combined group participates actively in clinical trials, technical evaluation and adoption across a large area of the world. We’ve honed our model over the past 15 months, and are very comfortable with our ability to find, evaluate and invest in new vascular medical device opportunities.”

Cannon founded Bio-Star in Saginaw, and moved the Michigan Bio-Star offices to Petoskey when he took the position of program director for the Northern Michigan Hospital Heart and Vascular Institute and joined Petoskey Cardiology (both Petoskey). “We retain close ties with our investors and advisors throughout Michigan,” said Cannon.

Bio-Star focuses on early-stage medical device company investments, with particular focus and expertise in the areas of minimally invasive cardiovascular and peripheral vascular devices. Since its inception, the fund has made seven investments, including Revascular Therapeutics, MiCardia and Setagon.

In addition to its office in Petoskey, Bio-Star has an administrative office located in Irvine, California.

Solexa (Hayward, California) said it has entered into a definitive agreement for a $32.5 million private sale of common stock and warrants for the purchase of common stock with a group of institutional investors in the healthcare sector.

The transaction is led by ValueAct Capital, and G. Mason Morfit, a partner with that firm, has been named to the Solexa board of directors.

Solexa said it plans to use the proceeds from the private sale for the development and launch of its first-generation Sequencing-by-Synthesis (SBS) molecular array platform for genetic analysis, and for repayment of its loan from Silicon Valley Bank.

“We are delighted to bring in funding for the introduction of our first SBS system at the end of 2005, which we expect will dramatically lower the cost of DNA sequencing and gene expression analysis, and for our commercialization ramp in 2006,” said John West, Solexa CEO.

Morfit said he envisions a “significant commercial opportunity for Solexa as the company brings to market its next-generation technology for DNA sequencing.”

Under terms of the financing, Solexa will sell about 8.1 million shares of common stock at $4 a share and will issue warrants to purchase some 4.1 million common shares at an exercise price of $5 a share.

About 2.1 million shares of common stock and 1.1 million warrants will be issued in a closing expected to occur today, and the balance of roughly 6 million shares of common stock and warrants to purchase another 3 million shares will be issued on the same terms in a second closing subject to stockholder approval at the 2005 annual meeting.

All of Solexa’s previous venture capital investors, including funds affiliated with Abingworth Management Ltd., Amadeus Capital Partners Ltd., Oxford Bioscience Partners and SV Life Sciences, will be investing a total of about $10.8 million in the financing at the second closing and have entered into agreements to vote in favor of the financing at the annual meeting.

SG Cowen & Co. served as the exclusive placement agent for the transaction.

The SBS platform is expected to support many types of genetic analysis, including DNA sequencing, gene expression, genotyping and micro-RNA analysis. Solexa is focusing initially on the research market. Its long-term goal is to reduce the cost of human re-sequencing to a few thousand dollars for use in a wide range of applications from basic research through clinical diagnostics.

In other financings activity:

• Uroplasty (Minneapolis), manufacturer of a family of minimally invasive products used to treat urinary and fecal voiding dysfunctions, said it has closed a financing transaction principally with institutional investors, generating gross proceeds of $7.5 million.

The company has issued about 2.2 million shares of common stock at $3.50 a share, as well as five-year warrants exercisable at $4.75 a share to purchase an additional 1.1 million shares.

Uroplasty plans said to use the net proceeds from this transaction for general corporate purposes, including sales and marketing activities and product development.

Craig Hallum Capital Group was the exclusive placement agent for the transaction.

The company’s injectable implant products, CE-marked for sale in Europe, offer physicians and their patients a minimally invasive treatment option for urinary incontinence, vesicoureteral reflux, fecal incontinence, vocal cord rehabilitation and dermal augmentation. Uroplasty is concluding a multi-center U.S. investigational device exception clinical trial with its urethral bulking agent, Macroplastique, as a minimally invasive, office-based procedure for treating female stress urinary incontinence.

• Genaissance Pharmaceuticals (New Haven, Connecticut) has closed on a two-year, $4.5 million loan with Xmark Funds and affiliates. Proceeds from the loan were used to repay the remaining $2.5 million term loan with Comerica Bank and to provide additional working capital.

Genaissance also issued warrants to Xmark Funds and affiliates to purchase 2 million shares of Genaissance common stock at $2.25 a share.

The loan bears interest at 5% and has no scheduled principal payments. Principal is due in full on April 21, 2007, or earlier, depending on the company’s cash liquidity.

Genaissance is developing products based on its pharmacogenomic technology and has a revenue-generating business in DNA and pharmacogenomic products and services. It also sells its Familion test, designed to detect mutations responsible for causing Familial Long QT and Brugada syndromes, two causes of sudden cardiac death.

• Avitar (Canton, Massachusets) has entered into a $750,000 private placement of convertible preferred stock and warrants with Cornell Capital Partners. Gross proceeds of $375,000 were raised at the first closing and the second tranche of $375,000 gross proceeds are expected at the second closing within 30 days.

The securities issued in the private placement are $750,000 of Series E convertible preferred stock and warrants to purchase 75,000 shares of common stock.

Avitar manufactures ORALscreen, the world’s first non-invasive, rapid, on-site oral fluid test for drugs of abuse, and Hydrasorb, an absorbent topical dressing for moderate to heavy exudating wounds. It also is developing diagnostic strategies for disease and clinical testing in the in vitro diagnostics market, targeting conditions including influenza, diabetes and pregnancy.