By Rebecca J. Kaufman (as published in Tech Journal South)

Investment in medical device companies continues to drive record venture capital investment in the life sciences sector nationally.

Medical devices are attractive to investors who appreciate the shorter path to market, availability of experienced management and solid prospects for the relatively short term in the active M&A market. The sector includes a wide variety of technologies including vitro diagnostics, surgical tools, biological materials, implantable devices, equipment to screen and diagnose disease and imaging technologies.

The venture community’s interest in the device space is good news for the Southeast, which is rich in medical device investment opportunities. The landscape varies across the region, including pockets of small and large companies, capital sources and areas of technical expertise.

The Memphis area is home to a number of large, well-known medical device companies including Medtronic Spinal & Biologics and Smith & Nephew Orthopedics. Nationally, Memphis is the second-largest producer of orthopedic devices and a leader in musculoskeletal research. Venture capital investors have flocked to Memphis for access to early stage companies formed with experienced management teams. The activities of MB Ventures, a Memphis-based fund with particular expertise in devices in the musculoskeletal market, have spurred development in the area.

A significant percentage of the Southeast’s resident life sciences venture capital is found in North Carolina, including Intersouth Partners, Hatteras Ventures and the Aurora Funds. The Raleigh-Durham area is home to a number of medical device companies, including InnerPulse, which has raised more than $85 million since 2003 including a $50 million C round in January 2007. The company is developing a percutaneous implantable defibrillator with support from investors including Johnson & Johnson Development Corp, Medtronic, Delphi Ventures and Frazier Healthcare Ventures. Other medical device companies with venture-backing in the Raleigh-Durham area include Hyperbranch Medical Technologies, which is commercializing dendritic polymers for medical surgical applications with funding from H.I.G. Ventures and the Aurora Funds, and nContact Surgical, which is developing new tissue coagulation devices with funding from Intersouth Partners. Affinergy, a Duke University spin-out pursuing development of novel biomaterials has $5 million in investor funding and has negotiated partnership agreements with Boston Scientific, Synthes, DuPont, and MTF. Other pockets of activity exist across the greater Raleigh-Durham area, with Trans1 spurring growth of the medical device market in Wilmington, NC. Trans1 is developing novel technologies in the spinal column space, which is a focus of considerable investor interest at the moment.

In Georgia, Atlanta is an epicenter of medical device activity. The engineering expertise of Georgia Tech supports much of this activity, with a current emphasis in the area of wireless monitoring of biological information. CardioMEMS, a graduate of Georgia Tech’s Advanced Technology Development Center, is focused on the development of wireless medical pressure sensing for cardiovascular applications. The company has raised more than $50 million in venture capital since its launch in 2001, from groups including Arcapita, Easton Capital Partners, and Boston Millennia. Biomaterials are also a focus at Georgia Tech, home to the Petit Institute for Bioengineering and Bioscience. Carticept, a Georgia Tech spin-off, is developing medical device technology for the treatment of cartilage damage and osteoarthritis under the leadership of CEO Tim Patrick, a serial entrepreneur. Patrick was CEO of Proxima Therapeutics, Inc. when it was acquired in 2005 for $160 million plus an earn out by Cytyc Corporation. Carticpet is backed by New Enterprise Associates and Domain Associates, a prior investor in Proxima. The convergence of drugs and miniaturized delivery systems provides yet another theme, as developed by companies such as Altea Therapeutics, with funding from venture groups including Domain Associates and Venrock Associates.

“Over the last few years Georgia Tech has experienced a significant increase in innovations related to medical devices,” notes Lee Herron, Associate Director, ATDC Biosciences. “Not surprisingly, this increase parallels an increase in collaborative activity with clinical partners including Emory University, St. Joseph’s, Piedmont and Children’s hospitals. In response, we have put into place programs, processes and infrastructure to support technology commercialization. These activities cover the continuum from invention to commercialization.” The infrastructure to support the growth in medical device in Atlanta continues to expand. Recently, a bioscience park adjacent to the Georgia Tech campus, Technology Enterprise Park, welcomed its first tenants – Altea Therapeutics and CardioMEMS.

Georgia Venture Partners is responsible for much of the early stage activity in Atlanta, including investments in AerovectRx, Aruna Biomedical, BioFisica, Cytodome, Scientific Intake and Stheno. “GVP was specifically founded to address the lack of seed capital in Georgia, with a charter to help get new companies off the ground and positioned to attract national capital,” says Thomas H. Callaway, Founder and President, Georgia Venture Partners. “We find that being located between the Georgia Tech engineers and Emory clinicians allows us fertile ground for the formation of medical device companies.”

Medical device companies also dot the Florida landscape. Although it can be difficult to identify a hub in the state, where activity is geographically dispersed, there is a good bit of activity in the Gainesville area. AxoGen, Inc. is commercializing human allographs for peripheral nerve repair and regeneration based on technology developed at the McKnight Brain Institute of the University of Florida. The company has completed a $7.75 Series B financing with participation from groups including Accuitive, Cardinal Partners, De Novo Ventures and Springboard Capital II. Axogen CEO Jamie Grooms is the former founder of Regeneration Technologies (RTI). AxoGen is a resident of the University of Florida’s Sid Martin Biotechnology Incubator, home to a number of promising start-ups. Bioheart, Inc., based in Sunrise, has raised more than $50 million to fund development of cellular therapies for cardiovascular application from investors including St. Jude Medical, Abbott Laboratories and Tyco International.

Southeast BIO, a non-profit organization devoted to the growth of the industry in the region, has reported an increase number of medical device companies that have submitted applications this year to present at its Annual Investor Forum, as well as its BIO/Plan competition. “This year approximately one third of the presenting companies at our Investor Forum will be from the medical device industry,” observes Stephanie D. Adams, Executive Director of Southeast BIO. “In addition, four of our ten Finalists in the BIO/Plan competition are medical device technologies. This represents a significant increase from previous years and reflects the growing interest in medical device from venture capitals in the Southeast.” Southeast BIO hosts an annual life sciences venture capital forum, now in its 9th year, which attracts venture capital investors from the region and across the country (http://www.sebio.org/).

Accuitive Medical Ventures, a larger fund with $230 million under management and offices in Atlanta, is also active in the Southeastern device market. Accuitive has a unique relationship with the Innovation Factor, an Atlanta-based medical device incubator, which also counts Versant Ventures and SV Life Sciences as members of its investment consortium. Gerard van Hamal Platerink, a partner with Accuitive, is pleased with the progress that the Southeast is making in generating biomedical technologies: “I think we have some of the finest biomedical research minds and institutions in the country based in the Southeast so it stands to reason that compelling technologies and companies will be originated here.”

Rebecca is Chairman of Southeast BIO and Counsel at King & Spalding LLP.

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