Numbers mixed on biotech, pharmaceuticals, health care

Venture capitalists are still spending money on small biotech, pharmaceutical, and health-care services companies, but not all the numbers point up, according to the MoneyTree Report from PricewaterhouseCoopers L.L.P. and the National Venture Capital Association, based on data provided by Thomson Reuters.

The national report indicates that the biotech sector had fewer deals and less money invested in the second quarter of 2011 than a year earlier. The medical-device and equipment sector had more deals and got more money in the same period. The health-care services sector had more money invested, but fewer deals.

In all sectors, venture capitalists invested $39 million less in the Philadelphia metropolitan region in the second quarter than a year earlier, according to the report.

Tracy T. Lefteroff, global managing partner of the venture-capital practice at PwC U.S., said bigger life-sciences companies were buying those smaller companies in the last year.

"The exit market for both biotech and medical-device companies has been active over the past year, and this has encouraged VCs to put more money back to work in this space," Lefteroff said in a statement.

That is certainly the case for Yaupon Therapeutics Inc., a privately held specialty-pharmaceutical company in Malvern, which announced Thursday that it had raised $14.4 million to continue work on a gel used on the skin to help treat a rare form of lymphoma.

Yaupon recently submitted a new-drug application with the U.S. Food and Drug Administration for the product, which is relatively late in the funding phase for venture capitalists.

The new money comes from previous investors Vivo Ventures, Palo Alto Investors, and Burrill & Co., plus new investor Aperture Venture Partners.

Yaupon chairman and chief executive officer Steve Tullman said the new financing would allow the company to continue through the FDA approval process, which likely would end in eight to 12 months, and arrange manufacturing and other aspects of bringing the gel to market. The company has 21 full-time employees and five full-time consultants.

"We invested in one of the best teams in the biopharma space," said Eric Sillman of Aperture Venture Partners. He suggested a larger company would eventually seek to buy Yaupon to fill its drug pipeline.

"Most likely, it will be one of the large pharma companies that commercializes this rather than Yaupon, given big pharma company needs for new growth, but these guys could commercialize it on their own."

Aperture had invested in Ception Therapeutics, which Tullman ran. In 2009, Cephalon paid $100 million for an option to buy Ception, then exercised the option in 2010 for $250 million.

The economy is difficult and the health-care business also has uncertainty, but Tullman said Yaupon has a good product, data to support the application, and an experienced management team, so it is able to attract investment.

"It's doable," Tullman said, "even in times like now."