Orange County’s medical products industry doesn’t attract the same attention as the more glamorous high-tech sector, but it’s still getting its share of attention from venture capitalists.
For the second quarter of 2000, venture capital firms made 10 investments totaling $53.2 million in local biotechnology, medical device and healthcare services companies, according to statistics provided by PricewaterhouseCoopers LLC.
That’s about 17.5% of the $303 million invested in Orange County during the same quarter. Most of the other venture funds went to technology companies.
Still, the second quarter investments in medical technology companies were far better than the total of four investments totaling $5.1 million in the first quarter and an improvement from the eight investments totaling $44.9 million in the second quarter of 1999.
“We’re seeing lots of activity,” said Don Milder, a partner in the healthcare-focused Versant Venture Capital of Newport Beach. “There’s been a shift clearly in the last nine months where healthcare has made a bit of a comeback. It’s not coincidental with the Internet moves toward rational behavior. Previously, the Internet had sucked the air out of the universe. Now there’s an appreciation for the traditional sectors such as healthcare.”
The biggest investment in the second quarter was $16 million in fourth-round funding for LifeMasters Supported SelfCare Inc. of Newport Beach. LifeMasters is a provider of disease management services utilizing telecommunications and the Internet for chronic diseases involving the heart, lungs or diabetes. Costa Mesa-based InnoCal was the lead investor.
Another large investment was $11 million in third-round funding provided by Brentwood Venture Capital and others to C & C; Vision Inc. of Aliso Viejo. The company makes advanced lens implants that eliminate the need for bifocals.
Other big investments in the second quarter included $5 million for fourth-round funding for Alsius Corp. of Irvine, which makes pumping devices and catheters to treat strokes, and $4 million in second-round funding for AccentCare Inc. of Irvine, which provides home-based healthcare for the elderly.
There was only one investment in biotech: $7.2 million in fourth-round funding for Atairgin Technologies Inc., a developer of lipids-based screen for daily detection of female cancers.
While there was only one biotech deal, the amount is double the three previous deals in Orange County and it compares to no deals in the second quarter of 1999.
Compared to its neighbors, Orange County fares better than Los Angeles but trails San Diego.
For the trailing 12 months ended June 30, OC had 27 deals totaling $134 million, compared to 13 deals worth $94 million for Los Angeles. But San Diego is clearly the star of medical technology, with 66 deals totaling $477 million.
OC’s strength is in the healthcare and medical device arenas, getting 14 deals totaling $77.6 million in the former and nine deals totaling $41.4 million in the latter.
“The companies that have proven their uptake and have introduced their products and ramped up are being rewarded well,” Milder said. “At this point, it’s not a wild open public market, but it’s fairly rational in terms of rewarding healthcare companies.”
By contrast, San Diego’s strength is biotech. San Diego recorded 28 deals totaling $171.2 million in that area.
Jim Ingraham, a San Diego-based partner who specializes in life sciences for PricewaterhouseCoopers, said OC lacks a critical mass of top-level scientists who are willing to become entrepreneurs.
“It’s not a hub of biotech,” he said. “Orange County could become a big biotech hub like San Diego, but it needs a few successes to grow the talent and to go forth and multiply.”
Ingraham noted that OC is doing well in medical instruments and healthcare, which he said are considered less difficult to pull off than biotech plays. He said the business models for health services and medical instruments are simpler to understand than those in biotech. Overall, he said he is seeing more venture capitalists return to life sciences.
“Notwithstanding some of the hurdles, this train is leaving the station,” Ingraham said. “The numbers prove it. We’re not going to see this industry fail. It will continue to flourish and some will end up with very healthy returns.”
Milder agreed, saying that he’s seeing plenty of healthcare funds receiving money.
“A number of healthcare-focused venture funds have raised follow-up funds,” he said. “It’s clear there will be venture funds for outstanding healthcare projects. It’s looking pretty good.” n
