The unsolicited $5.7 billion offer that Roche made for Illumina will no doubt dominate San Diego’s biotech news for weeks to come. We have it and more.

—Switzerland’s Roche offered $5.7 billion, or $44.50 a share, for San Diego-based Illumina (NASDAQ: ILMN in a hostile bid disclosed yesterday. Roche’s bid to stake a claim in genetic diagnostics by acquiring the market-leading maker of DNA sequencing instruments would be the Swiss pharma giant’s biggest deal since its $46.8 billion buyout of Genentech almost two years ago. Roche is the world’s biggest maker of cancer drugs, which suggests its quest for Illumina represents a significant move to base cancer treatments on each patient’s genome.

—Venture capital investors sank $4.73 billion into 446 biotechs nationwide in 2011, according to the MoneyTree report from the National Venture Capital Association, PwC, and Thomson Reuters. But as Luke pointed out in his BioBeat column, there is an alarming drop in support for early stage life sciences startups. Only 153 biotech and medical device startups got their first round of financing in 2011, the lowest amount of seed investment activity in 15 years.

—At an Xconomy dinner discussion, former Amira Pharmaceuticals CEO Bob Baltera said insufficient access to capital is the biggest driver for decision-makers on both sides of biotech-pharma partnerships. So what are some other key factors? We asked some of San Diego’s life sciences leaders to explore the question in an “on the record” dinner discussion late last year.

—San Diego’s Sequenom (NASDAQ: SQNM) completed its secondary public offering, raising roughly $62 million in gross proceeds (before underwriting costs) in the sale of 14.95 million shares, including additional allotments granted to underwriters. Sequenom said it plans to use the net proceeds for … Next Page »

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There was a whole lot of life sciences news over the past week. Here’s my roundup.

—Carlsbad-based Life Technologies (NASDAQ: LIFE) said it’s taking orders for a benchtop genome sequencer that can to decode an individual’s DNA within 24 hours and at a cost of roughly $1,000. The company priced its new Ion Proton Sequencer at $100,000 to $150,000, which also represents a dramatic reduction compared with the cost of existing DNA sequencers, and might even entice some practicing physicians to buy into the idea of personalized medicine. A cross-town rival, San Diego-based Illumina, also introduced an improved version of its gene-sequencing machine capable of same-day service, although Forbes’ Matthew Herper says Illumina’s HiSeq 2500 is priced at $740,000.

—A $1 million gift to the Tech Coast Angels from the family of slain TCA member and life sciences investor John G. Watson has enabled the angel group to establish a nonprofit foundation to support entrepreneurism in the San Diego region. A financial adviser, who awaits sentencing following his conviction two months ago, murdered Watson in his La Jolla town home. Watson’s sister, Gillian Ison, told the TCA, “John loved investing, innovation, and the entrepreneurial spirit that he discovered when he arrived in San Diego. We believe that a foundation supporting entrepreneurism is the best way to honor his memory and his life.”

—San Diego’s AnaptysBio said it has established strategic alliances with Novartis and an undisclosed pharmaceutical company. The company plans to use its proprietary technology to discover and develop new therapeutic antibodies with multiple cancer-related therapeutic targets. AnaptysBio said the two deals provide global rights to develop and commercialize a limited number of antibodies against each cancer target that AnaptysBio generates.

—In his BioBeat column, Luke previewed the five myths likely to make the rounds at this week’s JP Morgan Healthcare Conference in San Francisco. You could say that Luke inoculated readers from excessive optimism by writing, “Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom.” Is that good, or what?

— Wylie Vale, a Salk Institute scientist, renowned expert on brain hormones, and founder of San Diego’s Neurocrine Biosciences (NASDAQ: NBIX), died on Jan. 3 while vacationing in … Next Page »

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Carlsbad, CA-based SkinMedica says it has acquired Dana Point, CA-based Colorescience, a mineral makeup company that provides cosmetics to remedy and camouflage skin discolorations and other defects while also protecting skin from the damaging effects of the sun. Financial terms were not disclosed.

In a statement, SkinMedica indicates that it plans to operate Colorescience as a subsidiary, and named Josie Juncal to lead the business as vice president of new commercial operations. She previously held roles in product development, marketing, and public relations at SkinMedica.

SkinMedica markets its skin care products to dermatologists and other physicians. Its primary prescription product is an eflornithine hydrochloride cream intended to help women reduce unwanted facial hair. The company was founded in 1999, and has received venture backing from Apax Partners, Domain Associates, EuclidSR Partners, HealthCare Ventures, Montagu Newhall Associates, Montreux Equity Partners, Perseus-Soros BioPharmaceutical Fund, St. Paul Venture Capital, Split Rock Partners and Windamere Venture Partners.

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—San Diego’s Active Network (NYSE ACTV), which provides online event registration and related services, acquired Philadelphia-based StarCite for about $51 million in stock and cash. StarCite, which provides Web-based event management services for companies around the world, has about 300 employees. The Active Network said StarCite will become part of its newly launched “Business Solutions” division, which will serve the events industry.

—San Diego-based Accelrys (NASDAQ: ACCL), which provides scientific enterprise research and development software and services, said it’s paying $35 million to acquire VelQuest, a Boston-area developer of systems that support good manufacturing practices for FDA-regulated industries. Accelrys said the VelQuest acquisition would expand its product line to include software used in pharmaceutical quality assurance and quality control.

—San Diego’s Entropic Communications (NASDAQ: ENTR), which specializes in Multimedia over Coax (MoCA) technology used in home entertainment systems, said it wants to purchase certain assets of Trident Microsystems’ set-top box and system-on-a-chip business. Entropic submitted its $55 million offer as part of a Chapter 11 bankruptcy reorganization that Sunnyvale, CA-based Trident filed last Wednesday. The bankruptcy court in Delaware must approve the Entropic offer, which could happen by the end of March if no other bidders step forward.

—Qualcomm Chairman and CEO Paul Jacobs is set to deliver the opening keynote address tomorrow morning at the annual Consumer Electronics Show in Las Vegas. Jacobs is expected to talk about Qualcomm’s vision for mobile computing as smart phones and tablets increasingly become a mainstay tool for consumer media and entertainment. The three-day show also will serve as a global stage for Sony Electronics, the San Diego-based arm of Sony’s U.S. business. San Diego’s Razer, Entropic Communications, Leap Wireless, Independa, Skin-It, and Marchon 3D, also are displaying products at the show.

—I profiled San Diego-based Verimatrix, a venture-backed company that develops encryption software and related security technologies for pay-TV networks. Verimatrix CEO Tom Munro told me the company has been successful in creating piracy protection software for Internet-Protocol Television (IPTV), and today more than half of the company’s business is in so-called unmanaged networks, such as Netflix, which provides streaming video “Over the Top” (OTT) of a cable- or satellite-based broadband Internet platform.

—The 2011 executive compensation survey showed a 3.7 percent increase nationwide in tech sector CEO pay over 2010. The annual CompStudy survey produced by executive search firm J. Robert Scott and law firm WilmerHale in collaboration with Noam Wasserman, associate professor of business administration at Harvard Business School. The study found that non-founder technology CEOs brought in average base salaries of $242,000 in 2011, up from $233,000 in 2010.

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[Updated 1/5/12 8:05 am. See below.] San Diego’s Active Network (NYSE: ACTV) made roughly 50 acquisitions since it was founded (in 1998), but the company has become more deliberate about its deals since it paused in 2010 to overhaul its Software as a Service technology and prepare for last year’s IPO.

The Active Network provides Web-based event registration and related services, and most of its acquisitions have helped the company expand its business beyond online registration for recreational sporting events to include outdoor activities, online communities, and corporate business events. As CEO Dave Alberga told me in August, the company is now targeting a $10 billion market that wasn’t really apparent before the rise of Software as a Service.

Today the company is announcing its latest deal—the acquisition of StarCite, a Philadelphia, PA-based provider of Web-based meetings management, meetings procurement, and online event registration management. It reflects a more concerted focus by the Active Network on the multi-billion dollar business conference and events industry.

[Updates financial terms] In a regulatory filing this morning, the Active Network values the deal at $57.7 million in cash and stock, including $6.6 million in outstanding debt. StarCite has 300 employees and maintains offices in San Jose, CA, London, Dusseldorf, Shanghai, and Hong Kong to serve its target market of global 2,000-size companies. The privately held company was founded in 1999, and has received at least $15 million in venture funding from the ICG Group (NASDAQ: ICGE), TPG Ventures, and Norwest Venture Partners (NVP).

One intriguing aspect about the deal is that it follows a strategic partnership with the Professional Convention Management Association (PCMA) that the Active Network disclosed a few days before Christmas. As part of this new alliance, the Active Network says it’s providing its … Next Page »

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2011 was a year of bigger deals and fewer exits for venture-backed companies, according to data being released today by Dow Jones VentureSource.

VentureSource says that venture-backed companies netted $53.2 billion through a total of 522 deals of all kinds in 2011—mergers, buyouts, and IPOs. That was a 14 percent decline in the number of deals, and a 26 percent increase in capital raised when compared to 2010.

The median price paid for a venture-backed company was $71 million in 2011, a 77 percent gain over the median price of venture-backed M&A and buyout deals in 2010. VentureSource says companies raised a median of $17 million in venture financing to reach an M&A or buyout deal, which was a 12 percent slide from 2010.

The financial information service says 45 venture-backed companies raised $5.4 billion through initial public offerings in 2011. That’s significantly more capital than the $3.3 billion that 46 venture-backed companies raised in 2010. But the difference is due mostly to two IPOs in 2011, Groupon and Zynga, which together raised $1.7 billion.

“The IPO market saw some gains through the first half of the year, but the momentum was not strong enough to survive the volatility in August,” says Zoran Basich, editor of Dow Jones VentureWire, in a statement released today. “During 2012 we’ll get a sense of whether the last two years of flat IPO activity is the new normal for the industry or if there’s room to grow.”

During the fourth quarter of 2011, 10 IPOs raised $2.4 billion. Currently, 60 U.S. venture-backed companies are in IPO registration. Thirteen of those companies filed during the fourth quarter.

Connecticut-based Renaissance Capital, which tracks all IPOs, says 24 Internet companies went public in 2011—the highest number in a decade.

Renaissance Capital also counted 260 IPO filings in 2011, just one less than the 259 IPO registrations filed in 2010. But Renaissance also notes that 67 companies withdrew their IPOs in 2011, which is the second-highest number of withdrawals since 2003. The peak occurred in 2008, when 103 companies withdrew their IPOs.

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Mingle, a San Diego Internet holding company founded in 2005, says it’s expanding its online recruiting business, Climber.com, with the acquisition of Affinity Circles, a Sunnyvale, CA-based startup built around alumni organizations and other social networks.

While financial terms of the deal were not disclosed, Mingle CEO Michael O’Brien sized the deal for me, saying Affinity Circles had five employees while Mingle now has about 40, following several years of explosive growth. “This is a neat deal for us,” O’Brien says. “It means we’ll probably hire another 20 to 30 people for Affinity Circles in 2012 if we hit all the necessary milestones.”

O’Brien’s move into online career services seems like a logical extension from his previous San Diego startup, financialaid.com, an online student loan services business he co-founded six years ago. Financialaid.com’s founders sold their business to San Diego’s Education Lending Group for $40 million in cash and stock in October, 2004. Three months later, the Education Lending Group was itself acquired for $381 million in cash by the CIT Group, a New York banking and financial services company.

But O’Brien says he didn’t plan to move immediately from student loans to career services. Rather, he says he first started Mingle—and Climber.com was one of its first products. O’Brien says he also put two other Internet companies under the Mingle banner, a student loan business and a natural language search tool, but neither survived. “Our original business plan focused on a single customer acquisition cost with multiple products to cross-sell. Thus, the mingling of businesses,” O’Brien says.

He adds that Mingle has been “operationally profitable” since 2010, after raising about $3 million from … Next Page »

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Last week was the storm before the calm, as a warm front of high-tech news moved through the San Diego region before the Thanksgiving holiday. We’ve got the details here.

—San Diego-based DriveCam said it raised $85 million through a private placement that will be used mostly for its acquisition of RAIR Technologies. As I explained a couple of years ago, DriveCam puts its video data technology on the dashboards of fleet vehicles. Brookfield, WI-based RAIR provides technology that helps U.S. Department of Transportation-regulated fleet operators manage driver qualification requirements, vehicle inspection requirements, hours-of-service logs, and scoring for compliance, safety, and accountability. A New York private equity firm, Welsh Carson Anderson & Stowe, provided the $85 million in investment capital.

—The San Diego Venture Group awarded top honors—and $10,000 in startup capital—to San Diego-based SwoopThat at its annual PitchFest event. More than 70 early stage startups applied for the PitchFest competition, which ended last week in final presentations by SwoopThat, Gamer Grub, and Deal Current Network. SwoopThat helps college students at 2,347 schools nationwide save both time and money by purchasing their textbooks through Web-based technology that matches buyers with sellers of used textbooks. SwoopThat also operates a search engine that provides price comparisons for over 15 million products.

—A model fuels consortium formed six years ago by San Diego-based Reaction Design has developed software that can accurately simulate the formation of soot particulates during internal combustion. The modeling software was developed in anticipation of new engine exhaust regulations aimed to dramatically reduce the size and number of soot particles in gasoline and diesel-powered engines. As I had previously explained, Reaction Design develops software that models gaseous chemical reactions.

—A new San Diego startup, Swarmology, said it has raised $1.2 million as part of its emerging Web-based business, which mines social media as part of an integrated marketing approach for healthcare clients. Pharmaceutical and health IT executive Malcolm Bohm founded Swarmology to analyze online conversations about specific health concerns.

—Austin, TX-based car2go, a subsidiary of Daimler North America, announced the debut of its all-electric car-sharing program in San Diego—the first in North America. The company began deploying 300 zero-emission smart “fortwo” electric-drive vehicles here Friday, and said they are now in service.

—First, IBM’s Watson beat the best players on TV’s Jeopardy! game show. At last week’s SuperData Summit, IBM executive Christine Kretz said the company is now working on … Next Page »

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In financial results for the quarter ending Sept. 30, San Diego’s Active Network (NYSE: ACTV) said it paid $21.5 million in cash to acquire RTP, an Avon, CO-based IT company that provides online registration services for Vail and other ski resorts.

While the deal is consistent with the Active Network’s basic strategy, it is the first acquisition the company has made in winter sports as well as the destination resorts market, according to Alan Cole, a senior general manager at the Active Network. The San Diego company provides online registration services for a variety of sports leagues, marathons, and other recreational sports, as well as reservation services for campsites, community activities, business conferences, and other events.

The Active Network has more than 2,600 employees, and processed more than 70 million online transactions last year for 47,000 customers around the world, including Ironman, Cisco, Hewlett-Packard, and the US Tennis Association.

RTP began in 1998 as part of Vail Resorts, providing IT services as well as a point-of-sale commerce engine for Vail and several other Rocky Mountain ski areas. The business was later spun out of Vail Resorts, and now provides software as a service that enables skiers to book resort accommodations, buy lift tickets, ski school classes, and register for other activities. RTP says it also has integrated a host of other services for its customers, including back-office administration and reporting; customer relationship management; RFID access control; interactive marketing; website development; mobile apps and promotions; and augmented reality mobile application development. The integrated set of technologies captures customer transactional data for analysis and marketing.

RTP currently serves 20 of the top 30 ski resorts in North America, including the Aspen Skiing Company, Intrawest, and Powdr Corp., as well as Europe’s SkiStar, and VERBIER-St-Bernard.

Cole says RTP also has begun to develop other interesting opportunities in unrelated markets, including online registration services for Colonial Williamsburg, the destination resort in Williamsburg, VA, and for several water-parks, which he did not identify.

It was the Active Network’s second quarter as a public company. The company narrowed its third-quarter loss to $1.4 million (from a loss of $10.9 million during the same quarter last year) loss on total revenue of $89.6 million, (a 23 percent increase over the $73.1 million generated during the same quarter last year.

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Between the formation of the new $100 million West Health Investment Fund and the new wet-lab space Johnson & Johnson is hosting for as many as 20 startups, you’d have to say it’s been a good week for life sciences innovation in San Diego. Get briefed here or get left behind.

—San Diego’s Gary and Mary West, who provided $90 million to establish the West Wireless Health Institute, established the $100 million West Health Investment Fund to invest solely in startups that promise to drive down the cost of health care. Don Casey, the fund manager and West Wireless CEO, vowed that the fund would not cause a “balloon squeeze,” where innovation moves the cost from one part of the health system to another.

—Johnson & Johnson has refurbished part of its Pharmaceutical Research & Development facility in San Diego to provide lab and office space for as many 20 life sciences startups. Each startup will have to make monthly payments to stay at the Janssen Labs at San Diego, but J&J says there is no “quid pro quo,” and each tenant will get office space and access to a common area with wet lab research equipment that would be difficult for a company to afford on its own.

—Anadys Pharmaceuticals (NASDAQ: ANDS), the San Diego-based biotech developing antiviral drugs for treating hepatitis, agreed to an all-cash buyout offer worth $230 million from Roche, the Swiss pharmaceutical giant. Roche’s offer to pay $3.70 for each Anadys share was a 256 percent premium over the previous trading day’s close of $1.04. Anadys had just released encouraging results from a mid-stage clinical trial of its lead hepatitis C drug.

—Venture capital firms invested $6.95 billion in 876 deals throughout the United States—including $202 million in 21 venture deals in the San Diego area—during the three months that ended Sept. 30, according to the MoneyTree Report. The third-quarter survey from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters also highlighted a shift in VC activity, with a pullback in funding for life sciences. That was also true in San Diego, where nine life sciences companies got $26 million, or 13 percent of total VC investments here.

—Following a two-year setback, San Diego’s Sequenom (NASDAQ: SQNM) rolled out a laboratory-developed blood test that can determine with … Next Page »

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Buyouts and mergers of Web companies that offer online “daily deals” have accelerated sharply over the past five months, driven by a rapid decline in valuations and a surplus of Groupon clones, according to a report issued today by CB Insights, a New York data services firm.

CB Insights counted 22 global mergers and acquisitions in the sector during the second quarter that ended in June—more than double the M&A activity that took place during the first three months of 2011, when nine companies offering online discounts for local goods and services were involved in M&A transactions. An additional 22 M&A deals disclosed in July and August have brought the five-month total to 44—before the third quarter has even ended. (Disclosure: CB Insights will share with Xconomy a portion of the revenue from any copies of the report that it sells to our readers. Nobody involved in the writing or editing of this post was involved in negotiating this arrangement or was aware of it before publication.)

The five-month surge in M&A activity far outpaces the 28 transactions done over the previous 15 months (from the beginning of 2010 through the first quarter of 2011), according to CB Insights. The data reinforces a report yesterday from Dow Jones VentureWire, which said the industry is undergoing a shake-out. Citing data from Yipit.com, which aggregates daily deals, VentureWire reported that 170 of 530 daily deal sites across the country—nearly a third—have shut down or been sold so far this year.

“Looking past just the headline M&A transaction numbers, it becomes apparent that things are not going swimmingly in the daily deal space,” CB’s analysts write in their 17-page report. Valuations also have declined sharply since the first quarter, based on the way daily deal sites are valued according to “price per subscriber,” which fell 36 percent and “price per voucher sold,” which fell 40 percent during the current quarter.

The CB report attributes the declining valuations to … Next Page »

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Pleasanton, CA-based Ellie Mae (NYSE Amex: ELLI), which provides software used by mortgage lenders to underwrite home loans and related transactions, says today it has acquired Del Mar DataTrac, a privately held competitor in San Diego. In a statement, Ellie Mae says it agreed to pay $17.2 million at closing, with another $8 million in total cash payments due over the next three years.

Del Mar DataTrac has more than 200 customers that use its mortgage origination software to process and fund home loans, manage secondary marketing transactions, and provide other services. The specialized company sells its software mostly to small-to-medium-sized mortgage lenders. Combined, the two companies say their software could potentially process 30 percent of all U.S residential mortgages this year.

The deal marks the culmination of the second successful turnaround at Del Mar DataTrac for TVC Capital, a small San Diego private equity firm, and Jeb Spencer, a TVC co-founder and managing partner. The local investment firm paid about $7 million in 2001 to acquire Del Mar DataTrac, and Spencer served in a leadership role while the company grew dramatically during the mortgage industry boom. TVC sold Del Mar DataTrac in 2005 to Fiserv, the Wisconsin financial services giant, for an estimated $24 million.

Del Mar DataTrac fared poorly under Fiserv, however, as home prices nationwide peaked in mid-2006 and colossal losses in the subprime market drove a collapse of the nation’s housing and mortgage industries. TVC Capital bought the company back from Fiserv for an estimated $4 million in early 2008.

Ellie Mae says Del Mar’s operations will remain in San Diego. Spencer, who was Del Mar’s chairman, has joined Ellie Mae’s board of directors, and Del Mar president Rob Katz has been named Ellie Mae’s executive vice president of product strategy.

Ellie Mae CEO Sig Anderman says he founded the mortgage management software company in 1997 to automate the loan origination process and streamline the business for its customers. “So the addition of the impressive Del Mar team and customer base is a big milestone for us.”

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The wireless news out of San Diego seems to have picked up in recent weeks, with Qualcomm playing a central role in most of the developments. Our briefing is ready for you now.

—The world’s largest wireless chipmaker agreed to buy San Diego-based Rapid Bridge’s LiquidCell technology, used to accelerate chip design, but Qualcomm (NASDAQ: QCOM) did not disclose the price. The Rapid Bridge asset sale is expected to close by Sept. 25, the end of Qualcomm’s fiscal year. EE Times London Editor Peter Clarke said “LiquidCell is a library consisting of a metal-programmable sea-of-transistors that can be configured into millions of usable elements supporting more than 160 functions from the 750 standard cells. The metal programmability allows designers to iterate designs, produce derivatives and meet industry-standard specifications through respins that only involve a few metal layers.”

—The success of Qualcomm’s succession is the subject of a story in The New York Times today. The Times notes that co-founder Irwin Jacobs passed the mantle of CEO to his son Paul six years ago, and that last year Qualcomm (NASDAQ: QCOM) accounted for 41 percent of the total market share in terms of smartphone chip revenue, according to one analyst’s estimates. Qualcomm also holds nearly 61 percent of the market share for application processors used in smartphones powered by Google’s Android operating system.

—The Department of Energy awarded funding to two San Diego companies, Genomatica and General Atomics, that is intended to advance technologies for bio-based fuels and chemicals that can be easily “dropped into” existing oil refinery and petrochemical production facilities. Energy Secretary Steven Chu said Friday that Genomatica would get as much as $5 million to enhance the commercial profitability of integrated bio-refineries used to produce 1,4-butanediol (BDO), an intermediate chemical. Genomatica has genetically engineered bacteria to make BDO. Chu said General Atomics would get up to $2 million to reduce the cost of fermentation processes needed to make algae-based biofuels.

—Analog Analytics, a San Diego-based white label provider of social coupon technology for old media newspapers and broadcasters, has been growing revenue at a monthly compounded rate of roughly 50 percent, according to co-founder and CEO Ken Kalb. I profiled the company, which counted nearly 1.9 million page views for all its sites from … Next Page »

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[Updated 5/24/11 9:25 am. See below.] San Diego’s Prometheus Laboratories, a specialty pharma and diagnostics company in registration for an IPO, has instead agreed to a buyout offer from Nestlé Health Science, a new subsidiary of Switzerland’s Nestlé S.A.

[Updated with estimated buyout range.] Financial terms of the deal were not disclosed in a statement today. Zurich-based analyst Jean-Philippe Bertschy of Bank Vontobel estimates that Nestlé may have paid from $567 million to more than $1 billion for Prometheus, according to a Bloomberg report.

As I reported last summer, Prometheus has focused its business on detecting, diagnosing and treating gastrointestinal diseases and disorders in the United States, and planned to change its name to Prometheus RxDx. The company was generating most of its revenue from budesonide (Entocort EC), a glucocorticosteroid prescribed for mild to moderately active Chron’s disease. The company also was integrating its marketing and delivery of pharmaceuticals with its high-value diagnostic testing capabilities for cancer and gastrointestinal diseases.

Prometheus, which filed for an IPO in December, 2007, updated its filing last summer and again about three months ago. The privately held company has nearly 500 employees and is profitable, with annual net income of more than $48 million on revenue of nearly $519 million in 2010, according to its latest IPO filing.

Nestlé says its Health Science subsidiary was established almost six months ago to provide “science-based nutritional solutions” to improve health care. In the statement from the companies, Nestlé Health Science CEO Luis Cantarell calls the Prometheus acquisition “a strategic move into gastrointestinal diagnostics. Prometheus’s leading edge diagnostics technology and outstanding sales force will help us to develop an integrated approach to personalized healthcare.”

Prometheus CEO Joseph Limber says the Nestlé deal will enable the company to accelerate its development of diagnostic technologies and potentially expand into other therapeutic areas.

Prometheus was founded in 1995 with equity funding from DLJ Merchant Banking Partners, SPVC (managed by Split Rock Partners), Sprout Group (sub-advised by New Leaf Venture Partners), Apax Partners, Pamlico Capital and Brentwood Venture Capital.

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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.

Stephen Bloch

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.

As other reports on this deal have noted, Shire’s buyout offer for Advanced BioHealing was announced just a day before … Next Page »

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Our roundup of San Diego’s biotech news is short, but we had some important developments over the past week. Your update begins now.

— Westport, CT-based Advanced BioHealing, which makes Dermagraft bio-engineered skin patches in San Diego, agreed to a $750 million buyout offer from Shire (NASDAQ: SHPGY), the Irish pharmaceutical drug maker. The deal was announced the day before Advanced BioHealing was scheduled to go public through an initial public offering.

—San Diego’s Amylin Pharmaceuticals (NASDAQ: AMLN) filed suit in federal court in San Diego against Eli Lilly (NYSE: LLY), claiming that Lilly violated the companies’ 2002 agreement covering the marketing of the diabetes drug exenatide (Byetta). Amylin filed the suit a few months after Lilly formed a new partnership with Boehringer Ingelheim to market a rival diabetes drug. Lilly says it remains committed to its Amylin partnership and will vigorously defend itself against the lawsuit.

—Xconomy New York editor Arlene Weintraub talked with Pacira Pharmaceuticals (NASDAQ: PCRX) CEO Dave Stack about the turnaround at the company, which is based in Parsippany, NJ, with manufacturing and R&D operations in San Diego. Stack, an MPM Capital partner, hopes to emulate the success he had at The Medicines Company at Pacira with a long-acting version of the painkiller bupivacaine (Exparel), although he says this has been his most-difficult job, ever. Pacira is the latest reincarnation of DepoTech, a San Diego company that developed a controlled-release drug-delivery technology called DepoFoam.

—Xconomy national med tech editor Tom Lee reported on the changing global market for implantable cardio-defibrillators (ICDs). He found the pacemakers have matured into a commodity market, where price/volume players like Germany’s Biotronik and Italy’s Sorin Group, are challenging traditional players like Medtronic, Boston Scientific, and St. Jude Medical.

—Carlsbad, CA-based AutoGenomics withdrew its nearly three-year-old IPO filing. The company says it might now raise capital through a private stock placement.

—Luke’s BioBeat column featured a talk with Stelios Papadopoulos, the longtime life sciences investment banker, who explained that investor expectations for life sciences deals have been tempered through years of experience. “We have a pretty good idea of what can happen, in terms of how much money it takes, how long it takes, what the FDA process is about,” Papadopoulos says. “It’s a pretty difficult proposition. There was a time in the early ’90s, people believed every year there would be one or two new Genentechs. They were looking for it. Now we realize the next Genentech occurs maybe once every 10 years, not once a year. People have come to accept that.”

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Much of San Diego’s tech news came out of the mobile industry last week, along with a dash of cleantech and a dollop of software. In other words, a feast for the hungry reader.

—The big deal of the week came when Hillsboro, OR-based RadiSys (NASDAQ: RSYS) announced an agreement to acquire privately held Continuous Computing, a San Diego company that provides wireless infrastructure equipment based on the Trillium set of software protocols. Radisys agreed to pay a total of $105 million when the deal for Continuous Computing closes, with an additional payment of either $15 million or payments based on the sales of certain Trillium products until 2014.

—Illinois Gov. Pat Quinn and Motorola Mobility Chairman and CEO Sanjay Jha announced Friday that the corporate headquarters for the Motorola spinout will remain in Libertyville, IL. Jha, who was previously Qualcomm’s chief operating officer, was considering a move to San Diego, Silicon Valley, or Austin, TX. Gov. Quinn said Illinois is providing a business investment package to Motorola to help keep approximately 3,000 jobs in the state.

—Power efficiency, security, integration, and simplicity were the watchwords that Qualcomm’s top executives used to explain their strategy during a town hall meeting at Qualcomm (NASDAQ: QCOM) headquarters last week. As the complexity of wireless networks multiplies, Qualcomm chairman and CEO Paul Jacobs said, “The key is really going to be making all these things simple [for the user].”

—A large-scale denial-of-service-attack distracted Sony system administrators in San Diego from network intruders who gained … Next Page »

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There were 394 software buyouts and mergers around the world during the first three months of 2011, with the cumulative value of all deals totaling $8.3 billion, according to a M&A tracking report from the San Diego-based Software Equity Group.

That was down from the 421 M&A deals that amounted to a total value of $12.7 billion during the previous quarter. But the total value of M&A activity during the first quarter was an improvement compared to the first quarter of 2010, when the Software Equity Group counted 431 transactions and a cumulative total of just $4.6 billion. Average valuations were roughly twice as high, year-over-year, while the number of deals was nearly 8.6 percent lower.

The firm’s quarterly software industry equity report is viewed as a key barometer for global M&A activity by some industry investors who closely follow company valuations. The quarterly report, which can be downloaded for free, is put together by the Software Equity Group, a boutique investment-banking firm and M&A advisory serving the software and technology sectors. The firm also prepares a more comprehensive annual report, which costs almost $600 per copy.

The quarterly report includes indexes that track the value of public software companies, public Internet companies (so it doesn’t include Facebook), and public software-as-a-service companies. The median valuation of public software companies during the first quarter was 2.7 times trailing 12-month revenue—the sixth consecutive quarter that the median valuation of all companies in the index has been at or above two times 12 months revenue, according to Brad Weekes, a Software Equity Group associate.

Some other highlights that Weekes points out:

—Trailing 12-month revenue growth for the overall index during the first quarter was 13.5 percent—the highest growth rate since the fourth quarter of 2007.

—EBITDA margins, which the financial industry defines as Earnings Before Interest, Taxes, Depreciation and Amortization, edged down slightly to 18.8 percent as public software companies reinvested in sales, marketing, and operations to capitalize on growth opportunities of the improving economy.

—The median valuation of public software-as-a-service companies was 4.8 times trailing 12-month revenue—the highest median valuation among SaaS companies since the second quarter of 2008. The median growth rate for trailing 12-month revenue among SaaS companies jumped to 19.6 percent in the first quarter, from 16.7 percent in the fourth quarter of 2010.

—Among public Internet companies, the median valuation was 2.8 times trailing 12-month revenue during the first quarter. It was the second consecutive quarter that the median valuation of Internet companies has exceeded the multiple for all public software companies. “We believe this differential will continue and grow for the next four quarters, as investors continue to shift their attention from public on-premise software companies to public Internet and SaaS providers,” Weekes said.

—Internet companies in the Software Equity Group’s Internet Index closed the first quarter with a 21.5 percent median rate of revenue growth. The median EBITDA margin for public Internet companies was 18.1 percent during the quarter, just slightly below the 18.8 percent median EBITDA margin of public software companies, but well above the 10.2 percent median EBITDA of public SaaS companies.

Enterprise Value (EV) is defined as a company’s capitalization minus cash and short-term investments, plus total debt, preferred equity, and total minority interest. TTM is trailing twelve-month revenue. EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization.

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Almost two months ago, Kevin Kinsella of San Diego’s Avalon Ventures, fired off some shots heard ’round the world, saying that Big Pharma’s hardball acquisition tactics and mercenary business practices have been pushing biotech ventures to the point of extinction.

In Paris, France, Antoine Papiernik of Sofinnova Partners responded by contacting me and saying, in effect, “So what?”

So what if the balance of power is skewed in favor of Big Pharma? So what if pharma companies walk away from buyout deals after months of negotiations? They do it because they can. And so what if biotechs are accepting buyout offers with unfavorable terms? It just reflects how weak biotechs and their venture capital backers have become.

Sofinnova Partners was established in 1972 as the first venture capital firm in France. Papiernik, who joined the firm in 1997, has invested in life science companies that have gone public on stock exchanges in Zurich, Stockholm, Milan, and Belgium. He received his MBA from the Wharton School of Business at the University of Pennsylvania.

And how did Kinsella react?

Antoine Papiernik

“It’s like the French do,” he told me with a shrug and a brief fluttering of his lips, a snort-like gesture of dismissal that he says the French call “buffo.”

“He basically took refuge in the notion that, ‘Oh, times are tough. They’ve been tough before. They’ll get better, and then they’ll get tough again,’ ” Kinsella says. “But if it was just sort of the normal warp and woof of our industry and its relations with pharma and so forth, I wouldn’t have said anything because that’s not remarkable,” Kinsella says. “That’s a ‘dog bites man story,’ and who cares? But this is a ‘man bites dog story’—or maybe it’s more of a Pharma bites biotech story.

“Papiernik’s point of view is very Darwinian, and that’s fine,” Kinsella says “But it doesn’t go to the issue that I was trying to point out, which is that it’s not just a matter of entities at the margin that are going extinct. It’s the core of the [biotech] ecosystem that is threatened.

“He seems to be saying that the weak will be left by the wayside and the strong will survive,” Kinsella adds. “But after a certain point of damage to the ecosystem, the strong won’t have anything to eat either.”

Kinsella maintains that venture-backed biotechs are backing away from developing drugs for chronic diseases of aging—the toughest categories of metabolic disease, cancer, and neuro-degenerative disorders—because the costs and time required for extended pre-clinical development and extensive clinical trials have moved beyond the scope of venture capital, or even venture capital syndicates.

Venture biotechs are instead focusing … Next Page »

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The past week was big for life sciences news in San Diego, with acquisitions, funding deals, and important advances in new antibiotics grabbing much of the attention. We’ve got it rounded up for you here.

—An FDA advisory panel voted 13-0 in favor of recommending approval of a new antibiotic that San Diego’s Optimer Pharmaceuticals (NASDAQ: OPTR) developed to combat C. difficile, a dangerous bacterial infection people usually get in hospitals. The panel’s recommendation means Optimer’s drug, fidaxomicin, will likely be approved by the FDA, though the agency is not required to follow the recommendation. The company has spent nearly $200 million developing the drug over the past decade.

—The day after the panel vote, Optimer announced an agreement with Lexington, MA-based Cubist to co-promote fidaxomicin, sales of which could reach $250 million a year, according to some analysts. Optimer could pay Cubist as much as $47.5 million over the two-year period covered by the agreement. After the deal was announced Optimer shares fell by 81 cents, or almost 6 percent, to close at $12.99 a share.

—Orexigen Therapeutics reported Monday that its experimental diet pill, naltrexone SR/bupropion SR (Contrave), didn’t affect the blood pressure of people who took the drug as part of a late-stage study. Orexigen presented its data at the American College of Cardiology conference in New Orleans, saying normal 24-hour blood pressure patterns were seen in 182 obese people who took the drug. The results were important because the drug failed to win FDA approval in February, and the agency said Orexigen needed to do more studies of the drug’s effects on heart function.

—While there is no shortage of ideas for new ways to fight dangerous bacterial infections, Luke wrote in his BioBeat column that the lack of innovation in the antibiotics field is worrisome. By coincidence, several San Diego leaders in antibiotics R&D are holding a news conference this afternoon at the Sanford-Burnham Medical Research Institute on antimicrobial resistance to … Next Page »

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