Morgenthaler Ventures, ATV To Merge Life Sciences Teams, Form New Fund

10/31/11Follow @xconomy

Morgenthaler Ventures and Advanced Technology Ventures, a couple of longstanding and diversified venture firms, have decided to split off their life sciences investment teams and merge them into a new independent biotech fund, Xconomy has learned. The news was reported earlier today by Fortune’s Dan Primack.

The new life sciences fund, which doesn’t have a name yet, will include biotech partners at Morgenthaler and ATV in the San Francisco Bay Area and in Boston, according to sources familiar with the matter. It’s unclear how much money the new fund will attempt to raise, or when it is expected to close. A spokeswoman for Morgenthaler declined to comment, as did ATV general partner Mike Carusi.

The merger of two venerable life sciences investors is another sign of how tough it has become for biotech VCs to raise new funds in a down economy, and in the shadow of white-hot IT investments like Facebook, Groupon, and Zynga. Earlier this year, one well-known biotech VC firm, Prospect Venture Partners, said it was giving up on its bid to raise a new fund. Even though biotech still pulled in 30 percent of the $21 billion in venture capital in 2010, it suffers from a perception as “The Rodney Dangerfield of Venture Capital” as a couple of VCs put it in a blog post in July.

Morgenthaler, founded in 1968, has more than $3 billion in venture capital and private equity under management in information technology and life sciences firms. Its last fund, worth $400 million, was raised during the height of the financial crisis, in November 2008.

ATV, founded in 1979, has more than $1.6 billion in capital under management for companies in information technology, healthcare, and cleantech. It announced in February 2008 that it raised its most recent fund, worth $303 million. Back in June, Fortune reported that ATV had cut its costs by letting go its investment staff below the level of general partner.

The two funds have a history of syndicating their life sciences investments together, with at least some success. Morgenthaler and ATV got returns from investments they made in Mountain View, CA-based Ardian, the developer of a device for treating uncontrolled high blood pressure. That company raised a total of $66 million in venture capital, and was acquired by Medtronic last November for $800 million up front, plus commercial milestones. The firms have also invested together recently in South San Francisco-based Calithera Biosciences, and San Francisco-based Second Genome.

One of ATV’s biggest hits of the past year came when Daiichi Sankyo agreed to acquire Berkeley, CA-based Plexxikon, a cancer drug developer, for $805 million up front, plus another $130 million in milestone payments. Plexxikon raised $67 million in its 10-year history.

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