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- A trend away from IPOs and the progress of six regional firms were discussed on Wednesday at the Mason Wells Biomedical Fund I annual meeting, held at the Wisconsin Athletic Club.
Limited partners, portfolio company executives, and guests of Mason Wells
met in Milwaukee to hear a speech from Mark Hessen, president of the National Venture Capital Association
, and listen to updates from six firms that Mason Wells invests in.
"What's happening today is long-term, reasoned investment," said Hessen, who took the audience through a short history of the dot-com bubble and venture capital trends. Hessen said that since the dot-com crash of 2000 venture capital firms have re-evaluated the way they handle funding, shifting to a pattern of manageable numbers with sound investments rather than huge diversified funds.
The real strength in investments has shifted from initial public offerings to mergers and acquisitions, with more and more companies taking the "organizer's route" to double and triple their investments. Public companies are scooping up companies that survived the bubble burst and stayed private, making IPOs less of a sound investment.
"The current environment for IPOs is quite difficult and the market of 2004 has not moved into 2005, especially in the life sciences," Hessen said. "There are very few [IPOs] and they are not getting the prices VCs want."
Hessen said many life science companies are using a dual strategy of registering for IPOs and trying to be acquired at the same time, so they can say they are for sale, have filed for an IPO, and are Sarbox complaint.
"More and more companies across the market are going down this route, and this is especially true in life sciences," Hessen said.
This trend is affecting Wisconsin companies as established costal firms purchase emerging regional biotech companies, move the headquarters and displace workers. Recently, Madison-based Bone Care International announced that it is being acquired for $600 million by Massachusetts-based Genzyme Corp. Still uncertain is the future employment of approximately 170 employees.
Serial biotech entrepreneur and current CEO of Deltanoid Pharmaceuticals Hector DeLuca said, "Acquisition is currently a key strategy for life science companies. I am concerned about how this affects Madison and all Wisconsin-based life science companies. Acquisitions are great for VCs but not that great for the region."
"We need to attract capital and keep it here," said Cory Nettles, a lawyer with Quarles and Brady and former Wisconsin secretary of commerce. "Part of what we hope to do is be more vigilant about convincing investors about the value of keeping companies here and think of more creative ways for entrepreneurs and VCs to find exit strategies."
Another problem also discussed is the lack of significant capital for the state's VC funds.
John Byrnes, executive managing director of Mason Wells, addressed the audience about the firm's activities in support of the state's economy and VC related activities, but cited the needed for additional VC capital in the state. "We need to raise money and try to invest locally," he said. "We can't expect coastal VCs to invest here if we don't do it ourselves."Portfolio investments
The following companies' top executives presented an overview of their firms' viability and current offerings and have investments by the Mason Wells Biomedical Fund I.Mezzia Inc.
: CEO Dave Wortman said a switch to subscription-based software has helped them reach 150 acute hospital customers such as CAMC Health Systems and Skagit Valley Health, with their software managing nearly $3 billion in medical spending. Several hospitals have completely revised their budget system around Mezzia software, replacing Excel and paper-intensive cash flow management systems. NameProtect Inc.
: CEO Mark McLane said that ActiveIP
, the Madison firm's new software for brand information monitoring, provides the perfect structure for detecting counterfeit data. McLane said NameProtect has worked closely with the Secret Service Cyber Crime division, helping detect 500 phishing scams related to false tsunami charities and supplying support outside the firewall to customers like Microsoft and Mastercard.TeraMedica Inc.
: A Milwaukee-based provider of healthcare technology, TeraMedica reported they have successfully reorganized their base of services under the new brand Evercore. Jim Prekop, CEO of TeraMedica, said a newly expanded sales force has helped them build new connections with hospitals and handle more than 1.5 million clinical records and image studies on an annual basis.OpGen Inc.
: The Madison-based producer of genetic mapping software has pursued a "double-barreled" revenue strategy, providing their service model to researchers while developing disposable genetic mapping units to analyze samples. CEO Joe Shaw predicted marketing these units to clinical laboratories would yield exponential revenue growth for the company, especially when combined with subscription fees for OpGen's genetic map library.Deltanoid Pharmaceuticals
: DeLuca said that Deltanoid has successfully licensed a Vitamin D-based treatment for psoriasis and currently has compounds for osteoporosis in Phase II of study. These successful projects have allowed Deltanoid to continue its work testing and evaluating university innovations, securing successful patents and making sure that a significant royalty rate is in place. Deluca said several investment bankers have contacted the company to explore both IPO and acquisition strategies.Zystor Therapeutics
: A recent transplant from Missouri to Wisconsin, Zystor reported that tests of its therapeutics for lysosomal storage diseases have improved their targeting and have been successfully tested in animal models. The market is wide open, according to Dan Broderick, chairman of Zystor's board of directors and a managing director of Mason Wells. Only three of the 40 known LSDs can be treated, and these treatments are estimated to be a $4 billion annual market opportunity.