Multiple Pathways to the Exit: Canaan’s Bloch on Advanced BioHealing Buyout
The $750 million sale of Advanced BioHealing to the Irish drug giant Shire Pharmaceuticals, announced on Tuesday, has been hailed as a rare win for regenerative medicine, with an extraordinary 15x return for Canaan Partners, the venture firm that helped to found the company just five years ago.
But as I noted in a 2009 profile of Advanced BioHealing’s San Diego operations, the development of the company’s bio-engineered human skin substitute extends back quite a bit further—almost 20 years—to San Diego’s Advanced Tissue Sciences (ATS). After pioneering the technology in the 1990s, Advanced Tissue Sciences filed for bankruptcy liquidation in 2002, having raised hundreds of millions of dollars from venture investors, and later from shareholders as a public company. ATS sold the global rights to Dermagraft and its San Diego manufacturing facility to the British company Smith & Nephew in 2003.
Smith & Nephew was ready to sell the Dermagraft business to Canaan by 2006—after spending three years and millions of dollars more in a second bid to commercialize the technology.
Stephen Bloch, the Canaan general partner who pulled the deal together, tells me that as much as $300 million in total might have been invested to commercialize Dermagraft before he entered the picture in 2006. In other words, roughly $300 million of capital that was invested to develop the technology and win FDA approval was basically written off before Canaan stepped in to restart the business for the third time.
Bloch told me by telephone that in the ensuing years, venture investors sunk about $40 million to re-capitalize the business. He also confirmed that Canaan’s $15 million investment is expected to yield a roughly $225 million payout, “cash on cash,” as he put it, in the Shire acquisition. Safeguard Scientifics, which invested about $11 million in venture capital, is expected to see a roughly $140 million return. Other investors accepting congratulations for their prescience are CDIB Bioscience Ventures, Channel Medical Partners, Horizon Technology Finance, Red Abbey Venture Partners, and Wheatley Partners.