Local execs offer details of landing big investments
Published: Thursday, February 14, 2013 at 9:13 p.m.
Last Modified: Thursday, February 14, 2013 at 9:13 p.m.
They are among the wealthiest investment deals ever for local companies, bringing in a combined $70 million in venture capital over the last couple of years to develop medical devices and biomedical treatments for injuries or disease.
Executives from three companies described the nitty-gritty details that went into landing the big investments Thursday — the years of work, countless hours spent with lawyers to structure a deal, meeting deadlines for goals to continue receiving money or to land more before running out.
The Northeast Chapter of the BioFlorida trade association held the "Equity Financing for Life Science Companies" presentation at the Hilton University of Florida Conference Center on Thursday.
Sue Washer, president and CEO of Applied Genetic Technologies Corporation of Alachua, said it typically takes eight to 12 years and $700 million to develop new treatments and go through several rounds of animal and human clinical trials before getting approval from the Food and Drug Administration.
"That $700 million is part of why health care is so expensive," she said.
AGTC is developing five products to treat genetic diseases. In November, the company announced it had secured $37.5 million in venture capital funding, believed to be the largest private venture deal ever for a local company.
"That will carry us through the next three years of financing," she said.
The company has raised $91.8 million total, including $81.1 million in venture capital and $10.6 million in grants.
Investors love grants, she said, because the money does not dilute the investment and approval helps validate that the science is working.
Washer said there are not a lot of milestones between phase 1 and phase 3 human clinical trials, so raising money in between is challenging.
"When you raise money for phase 1, you've got to raise enough to get all the way there," she said.
Otherwise, companies can partner with big pharmaceutical companies.
The end game for most biotech companies is to be acquired by big pharma, or to sell public stock, she said.
Gainesville-based Xhale has raised $22 million in private equity over two rounds and is now working with a Wall Street investment bank to raise a third worth $30 million, according to CEO Richard Allen.
The company expects FDA clearance within a month on a monitor that is an alternative to finger pulse oximetry monitors and has already launched a breath-based monitor used to detect whether people in clinical trials are taking their medicine.
Allen said medical device companies typically start with funding from the founders or grants and will then get money from early-stage venture funds called angels or wealthy individuals, and then potentially from a venture capital fund. Allen cautioned that no matter how carefully early investments are crafted, venture capital "crams down" early investors to dilute their investments.
He emphasized the importance of a strong leadership team in landing investments.
"That's the thing at the end of the day that's going to make or break you," he said.
Alachua-based AxoGen had taken out bank loans to bridge its funding gaps when the company landed $20.8 million in venture capital funding last fall used in part to pay off the debt.
Chief Fiscal Officer Greg Freitag described the uniquely structured deal through which AxoGen pays off the investment through royalties on its gross revenues over eight years.
The company is already selling peripheral nerve repair products and revenues have been growing at a 60 percent annual rate, he said.
Freitag said there are fewer venture capital firms now, but they are offering more money.
"The raise is harder to do, but if you get the money, you get a lot more of it," he said.