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Domain Bankrolls Healthcare Hopefuls

Domain Bankrolls Healthcare Hopefuls

By VITA REED

Laguna Hills-based Volcano Therapeutics Inc. has joined some pretty good company.

The startup developer of a catheter to detect arterial plaque recently landed $24 million in funding from the Laguna Niguel office of Domain Associates LLC, a Princeton, N.J., venture capital firm that’s among the pioneers of medical technology investing.

Domain counts some of the industry’s biggest names as investments since its 1985 founding, including: Amgen Inc. of Thousand Oaks; Immunex Corp. of Seattle, which is being bought by Amgen for $16 billion; U.S. Bioscience Inc., now part of MedImmune Inc. of Gaithersburg, Md.; Dura Pharmaceuticals Inc., now part of Ireland’s Elan Corp.; and what’s today Irvine-based Sicor Inc.

“With regard to the market, we always are looking for the big ideas,” said Olav Bergheim, Domain’s Laguna Niguel-based venture partner.

Volcano, which was started last year by a group of researchers from the University of Texas Health Science Center at Houston, is one of 12 Orange County startups in Domain’s 59-company portfolio.

Others include Irvine-based defibrillator maker Cardiac Science Inc., Lake Forest-based heart device developer 3F Therapeutics Inc., Irvine-based eye laser maker IntraLase Corp. and Irvine eye drug developer Ista Pharmaceuticals Inc.

Domain is in the midst of investing its fifth fund, which closed in early 2001 and raised $475 million.

“I think it is right on schedule,” Bergheim said of the fund. “In fact, we have invested north of $100 million out of that fund.”

In all, Domain counts some $940 million under management, Bergheim said. Companies that received funding and advice from Domain’s partners account for more than $56 billion in stock market value and $5.5 billion in annual revenue, according to the firm.

Domain was formed 17 years ago, but its roots date back to 1981. That’s when London-based Rothschild Asset Management Inc. started Biotechnology Investments Ltd., now 3i Biotechnology Investment Trust. James Blair, Domain’s co-founder and general partner, worked with Rothschild in the 1970s and ’80s.

Bergheim, a Norway native, spent nearly 30 years in healthcare at small and large companies. He was at Baxter International Inc. for 18 years, including a stint running the company’s Irvine-based cardiovascular business, now Edwards Lifesciences Corp.

Bergheim, who joined Domain in 1995, also recently served as chief executive of Laguna Niguel-based Chimeric Therapies Inc., a portfolio company that’s working on ways to boost organ transplant receptivity.

Kenneth Charhut, chief executive of portfolio company Orqis Medical Corp., a Lake Forest startup working on treatments for heart failure, worked with Bergheim at Baxter.

“This is one that Olav found,” said Brian Dovey, a Domain general partner who works out of Princeton, of Orqis. “He’d seen the principles of their work.”

Domain provided Orqis’ $4 million first funding round in 1999 and a new round last year.

The firm has stuck to healthcare investing, even during the Internet frenzy of the late 1990s.

“I remember when we raised Domain IV, we had to explain to our investors why we had not jumped into IT investments,” Bergheim said. “We didn’t go to the IT side because we didn’t actually know that. We know life science.”

By the time came to raise money for the fifth fund, Bergheim said Domain had to reassure investors it didn’t plan to invest in information technology.

“We had to spend the same half-hour in the beginning of our presentation on why we would not invest in IT because everybody now has gotten scared of that,” he said.

Despite the big bang of some biotech public offerings, Bergheim says Domain’s backers,pension funds, insurance companies and university endowments,are looking for steady growth and stable returns.

“If you are a speculative investor that hopes for a big, sudden swell, you should not invest into healthcare,” he said.

The firm’s limited partners “have been with us for many, many funds and they are coming back with us over and over again,” Bergheim said.

Biotechnology, medical device and healthcare service companies have been getting a bigger share of the venture capital pie recently.

In the first and fourth quarters, healthcare companies grabbed 18% of all U.S. venture capital, up from 8% in the fourth quarter of 2000 and 6% in the fourth quarter of 1999. That’s according to the MoneyTree survey by Price-waterhouseCoopers, Venture Economics and the National Venture Capital Association.

Connections are key for Domain, according to Berg-heim.

“We, like everybody else, receive up to 1,200 deals in the mail per year,” he said. “I would say that’s not our deal source. Our most important deal sources are friends and long-term acquaintances we have in this business.”

IntraLase, which makes laser devices for eye surgery, came about as a result of Domain’s networking. The firm provided $6 million of a $22 million round of funding that IntraLase raised in 2000.

Randy Alexander, IntraLase’s chief executive, said he had worked with Domain’s Dovey before the investment. Dovey in turn referred him to Robert More, another Domain general partner.

“I’m very pleased with Domain as an investor and business partner,” Alexander said.

Alexander described Domain as “being helpful, yet not interfering with the management. They’re very knowledgeable about medical devices.”

More doesn’t have a seat on IntraLase’s board but has what Alexander called “board observation rights.”

“He attends meetings, but he’s not a board member,” he said.

Most of Domain’s portfolio companies are based on the West Coast, between Seattle and San Diego. Others are in Connecticut, Colorado and Massachusetts.

Before investing, Domain looks at the management, technology and targeted market of prospective companies, Bergheim said.

“Of course, we are looking for management that understands the uniqueness of a startup business,” he said, “and that the management is right for the right period of time in the company. Sometimes, the early, early stage of a company needs different management than a more mature stage.”

Domain seeks “first or dominant” positions in technology, Bergheim said.

“We are less interested in something that is a ‘me-too,'” he said. “We are more interested in something that is a leapfrog, if you will.”

Domain backs companies in various stages. Public offerings are just one exit strategy, Bergheim said.

“An IPO is clearly an exit option, but I would say that it’s not the only one we have,” he said. “We are building companies, and mergers and acquisitions are an important part of that. We’re very involved in those processes, too.”

Domain has had several well-known companies it invested in go public, including Amgen, Ista and Gensia Inc., the precursor to Sicor.

Bergheim demurred when asked about Domain’s hits and misses:

“I’m always very careful about trying to single out a particular company,we have several that we are proud of.”

He did say Domain had done a “terrific job” with Trimeris Inc. of Durham, N.C., which discovers and develops fusion inhibitors, a class of antiviral drug. Trimeris received money from an earlier Domain fund.

Trimeris’ stock jumped from around 39 to 50 late last month after positive human test results came out on an AIDS drug it’s co-developing with the U.S. arm of F. Hoffmann-La Roche Ltd.

Trimeris went through some tough times, Bergheim said.

“When we go into an investment, we stay with the company until we know what the final fate is of that company,” he said.

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