Medical Device Wrap: Have VCs Had Their Fill? –

While the VC community?s collective hunger for biotechnology plays seems to have spiked significantly since last year, its overall appetite for medical device deals actually has waned.

According to our VentureXpert database, 232 medical device companies have managed to capture a sizable slice of the venture capital pie so far this year, raking in a respectable $1.812 billion. That figure, however, is 19% less than the $2.264 billion VCs pumped into 275 companies in the sector during the first 10 months of 2000.

Regionally, California has seen the majority of the year?s investment activity, with 69 medical device firms snaring a total of $819.53 million from the venture capital pool. Offshore deals drew the next largest chunk of cash, with 43 companies netting a combined $228.5 million, and Massachusetts-based firms came in a not-so-distant third, with 21 companies raising $212.37 million worth of new money.

The year?s largest deal was a $50 million financing for Signature Bioscience Inc., a Hayward, Calif.-based company that has developed a technology to enhance the drug delivery process. SG Capital Partners led the Series D transaction with a $12 million contribution, investing alongside China Development Industrial Bank, Lehman Brothers, Lotus Bioscience Ventures Ltd., IRR, Tallwood Venture CapitalL and Vulcan Ventures Inc. Previous backers Abingworth Management, Atlas Venture, CIBC Capital Partners, Coral Ventures and Prospect Venture Partners also signed on.

Signature Bioscience received a $124.2 million post-money valuation following its latest venture capital infusion. The company has raised slightly more than $70 million since its inception in 1998.

Still, Signature Bioscience?s $50 million take is only half the size of last year?s largest medical device financing. In June 2000, Align Technology Inc. of Santa Clara, Calif., closed a $101 million expansion round at a $350.4 million post-money valuation before completing an initial public offering in January 2001. The $130 million offering was lead-managed by Deutsche Banc Alex. Brown. Align, which specializes in orthodontic devices, is most widely known for developing the Invisalign System, a transparent alternative to braces. The company?s stock price was hovering around $5.00 at close of trading on Wednesday.

Behind Signature Bioscience, 2001?s largest financings included a $49.52 round for Micro Therapeutics Inc., and a $45 million infusion for Cyberonics Inc.

The second quarter was the busiest for the medical devices sector, as 89 deals got done. Seventy-three such firms closed deals in Q1 2001, and 63 transactions were completed in Q3. It seems the pace of medical devices investing may be winding down for the remainder of the year, however, as just seven transactions have closed thus far in Q4.

For the purposes of this report, medical devices firms include makers of medical diagnostics equipment and services, medical imaging devices, diagnostic test products and equipment, manufacturers of pacemakers and artificial organs, and makers and retailers of medical health-related products such as disposable medical products and handicap aids.

Robyn Kurdek can be contacted at: