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Life sciences venture capital dips again

August 3, 2013

Venture capital investments in Indiana life sciences companies continued to lag those of other Midwestern states in the first half of the year, totaling just $11.7 million, according to the latest data released by BioEnterprise, an Ohio-based life sciences development group.

Venture capital surged in the first half of 2012, to $51.6 million in Indiana. But the pace of activity here fell off sharply in the second half of last year, and remained sluggish into 2013.

Kissinger Kissinger

Five Hoosier life sciences companies attracted venture capital from January through June.

Warsaw-based orthopedic startup Nextremity Solutions pulled in $10 million from New Jersey-based Rockport Venture Partners in June.

Indianapolis-based Diagnotes Inc., which is developing a mobile app to allow doctors to securely exchange patient records, pulled in $1 million in April. The money came from BioCrossroads, StepStone Angels and the Indiana Innovate Fund.

Also raising money was Indianapolis-based Fast Biomedical ($550,000), West Lafayette-based Medtric Solutions ($100,000) and West Lafayette-based Microfluidic Innovations ($80,000).

In spite of those successes, Indiana lagged most of its neighbors in life sciences venture capital. The number of deals in Indiana ranked sixth out of 11 states. The amount of money raised ranked seventh out of 11.

Ohio continued to be the leader of the Midwest, with 38 life sciences companies pulling in investments of nearly $155 million. Minnesota companies also did well, with 45 firms attracting $69 million in funds.

“You should be benchmarking against Ohio and Minnesota,” said Brian Williams, a former Indiana venture capitalist who is now a health care consultant at PricewaterhouseCoopers. “You’ve got to dream bigger dreams.”

Williams said that if Indiana wants to build a life sciences cluster, its public officials need to invest more resources in it rather than focusing most of their economic development efforts on warehouses and call centers.

“We have a finite amount of resources and if we choose those things to invest in, then we have to acknowledge that those are a short-term benefit,” Williams said. But life sciences “requires a long-term vision,” he added. “It’s the difference between catching the fish and learning how to fish.”

Pete Kissinger, an entrepreneur who has founded multiple life sciences companies, also said the state needs a longer-term vision on the growth of life sciences.

“We are in a spiritual recession in the life science business sector and have been for a good five or six years,” Kissinger wrote in an email. “We still do not have a tradition of funding young companies, although several smart things were tried and seem to have been reversed.”

Kissinger cited a pullback by the state-funded Indiana Economic Development Corp. from funding life sciences companies and to a slowdown in Indiana activity by various venture capital firms that were funded by a fund-of-funds raised by Indianapolis-based BioCrossroads, a life sciences development group.

Brian Stemme, a project director at BioCrossroads, noted that life sciences investing has fallen off nationally, as the U.S. Food and Drug Administration raised new hurdles for approving products at the same time federal health care reform, the recession and federal fiscal challenges have pinched reimbursements for medical products.

“We’re part of a broader trend,” Stemme said.

Life sciences venture activity remained decent in Indiana in 2008 and 2009, with $75 million being invested here each year, according to the BioEnterprise data. But then the money dried up, with only $25 million coming in 2010 and just $14 million in 2011.

Last year seemed to mark a turnaround, but then the pace of deals tailed off again.

Kissinger, who is now trying to raise money for his new firm Phlebotics Inc., is still hopeful about the life sciences in Indiana.

“Disease is not going away and we have marvelous tools developing, albeit at a slower pace than would otherwise be expected,” he wrote.•

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