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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Indiana health care investments simmer while national market sizzles

August 14, 2015

If Indiana’s cluster of entrepreneurial life sciences companies were Starbucks patrons, they would be sipping cups of unadorned Pike Place—while the rest of the country would be downing cappuccinos.
 
Indiana’s health care and life sciences startups are posting another solid year in fundraising, according to data released this week.
 
But the Hoosier state, along with most of the Midwest, has missed out on some of the frothier bits of the life sciences market this year, which continued to see a heavy pace of public stock offerings.
 
Like Axovant, which had a market cap of $3 billion after its first day of trading in May, even though it has only one, early-stage drug aimed at Alzheimer’s disease. (Axovant's market capitalization has since come back down to a mere $1.1 billion.)
 
Venture capitalists are pumped up too. During the first six months of the year, they have poured more than $5.5 billion into companies developing biotech products, medical devices or health care services.
 
That’s up 28 percent from the first half of 2014, according to the   produced by Thomson Reuters, PricewaterhouseCoopers and the National Venture Capital Association.

And 2014 was a record year, with overall venture capital activity in biotech, medtech and health care services nearing $9 billion.
 
Also, 121 biotech and medtech companies staged IPOs last year, raking in $8.5 billion in proceeds, according to data collected by EvaluatePharma, a United Kingdom-based market research firm.

But activity in the Midwest and Indiana has dampened this year, according to an Aug. 11 report from BioEnterprise, a Cleveland-based life sciences business development group. Overall investment in a 10-state region tracked by BioEnterprise totaled $507.8 million during the first half of the year, compared with a record 2014 pace at this point of $777.3 million.
 
The number of deals in the Midwest totaled 144 during the first six months up the year, up slightly from 139 at the same point last year.
 
“Midwest healthcare companies continue to attract investment at historic levels,” said Aram Nerpouni, CEO of BioEnterprise, in a prepared statement. “Following an exceptional 2014, the first six months of 2015 are on par with 2012 as the second best start in the past 10 years.”
 
The same was true in Indiana. Venture capital investing totaled $31.3 million during the first six months of the year, down from a record $100.8 million at the same point last year. But that was the highest first-half total since 2012 and one of Indiana’s best ever.
 
Indiana’s haul ranked it fifth in the Midwest, well behind perennial leaders Ohio ($158.6 million) and Minnesota ($100.5 million), as well as Wisconsin ($73.1 million) and Illinois ($69.9 million).
 
Total deals fell to 11 during the first half of this year, from 18 during the first half last year. That still tied for the second-highest number of deals during the first half of the year since BioEnterprise started keeping stats in 2005.
 
“I think this is a good sign,” said Brian Stemme, a project director at BioCrossroads, an Indianapolis-based life sciences business development group. He added, “$31 million is a good number, if you look back four or five years.”
 
But in the case of startup drug companies, Stemme said, investors still prefer to invest in companies that have moved their drugs into at least Phase 2 clinical trials. Then, they like to invest $30 million to $40 million at a time, Stemme said.
 
Several promising drug companies based in Indianapolis—such as Anagin, Apex Therapeutics, Calibrium and Confluence—are all too early in the process to attract that kind of money. Apex raised $280,000 earlier this year from angel investors to help it develop cancer and eye drugs.

A report released Thursday by BioCrossroads noted that the Indianapolis area "suffers from a lack of innovation capital to fuel new businesses and technology development." The report, prepared by Ohio-based consulting firm Battelle, noted that in the three-year period from 2012 to 2014, venture capital funding per person in the Indianapolis region was $80,445, whereas the amount of venture capital per person nationwide is nearly $405,000.

"Indy Metro is falling well short in the formation and growth of innovation-driven businesses which exacerbates our challenges in keeping and retaining talent," wrote BioCrossroads CEO David Johnson, in a prologue to the Battelle report. Statewide venture capital investments were even lower, totaling $26,175 per person over the previous three years.

Indiana companies that have had success this year raising money tended to be focused on medical devices or health care services.
 
Zionsville-based hc1.com led the way with its $14.4 million fundraising round from angel investors. The company is expanding its health care relationship management software from focusing on medical labs to entire hospital systems.
 
Two northern Indiana orthopedic companies—Nanovis and Nextremity Solutions—raised $3 million and $2.5 million, respectively, from angel investors.

In Indianapolis, Wellfount Corp. raised another $1.5 million from two venture capital firms to further develop its Redbox-style service for dispensing medications in nursing homes; SonarMed raised another $1.28 million from angel investors for its airway monitoring device; and AIT Bioscience, which performs contract research lab testing for drug companies, raised $500,000 from existing investors.
 
And one company with Indiana ties did find a way to tap into the flood of money investors have been pouring into publicly traded biotech companies.
 
Assembly Biosciences, whose corporate headquarters is legally in New York after its 2014 reverse merger with publicly traded Ventrus Biosciences, staged a secondary stock offering in March that raised $75 million.
 
Assembly's CEO and four other senior leaders work out of Indianapolis, while it has an 8-person research team working in Bloomington, according to a company spokeswoman. So some of that money is benefiting the Hoosier state, noted Stemme. In its first quarter, Assembly spent $3.8 million on research and development to advance its experimental drugs focused on the hepatitis B virus and infections associated with the superbug Clostridium difficile.

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