It was a busy week for local technology news.

—Two teams from San Diego and a third from Northern California demonstrated their development of advanced chemical sensor prototypes that are tiny enough to be found inside ordinary cell phones. The U.S. Department of Homeland Security is funding the Cell-All program, with a goal of basically creating an anti-terrorism app for cell phones that would enable authorities to crowd-source chemical detection.

—MaxLinear has filed for its initial public stock offering. The Carlsbad, CA-based fabless chipmaker, which specializes in designing semiconductor-based television receivers, intends to raise about $100 million through its IPO. The market may be de-frosting a bit, with 47 IPOs so far in 2009, compared with 45 last year, and 272 in 2007.

—ProQuo, a San Diego-based Web 2.0 company that was founded in 2007, was quietly shut down after taking in a total of $15 million in venture capital from Menlo Park, CA-based Draper Fisher Jurvetson and San Diego-based Mission Ventures. ProQuo was never able to validate its business model; its website offered consumers a way to remove their names from mass-mailing lists for free, and the company planned to sell its optimized lists back to mass marketing companies.

—San Diego’s wireless industry group, CommNexus, celebrated the opening of EvoNexus, its free high-tech incubator, by announcing the selection of three more startup companies: EcoATM, MicroPower Technologies, and TetraVue. CommNexus CEO Rory Moore says EvoNexus is believed to be the first incubator that is completely free for startups—that is, it doesn’t even require an equity stake in participating companies, as most incubuators do.

—Jitterbug, the San Diego wireless provider that puts an emphasis on simplicity, has acquired MobiWatch, a Waltham, MA-based startup developing mobile personal emergency response services. A regulatory filing shows that Jitterbug’s parent, GreatCall, provided 630,000 shares of common stock to MobiWatch and its shareholders in a deal valued at $107,100.

—San Diego-based Networkfleet is using its technology to help companies that operate fleets of vehicles go green by monitoring engine emissions and ensuring that vehicles are operating efficiently. Co-founder Diego Borrego told me the company also expects to be a player as consolidations sweep through the fleet tracking industry.

—EcoDog, a Vista, CA, cleantech startup that has developed a device that helps homeowners sniff out savings in their electric utility bill, was named best of show at GadgetFest, the annual fall competition sponsored by CommNexus, the San Diego wireless industry group. EcoDog founding CEO Ron Pitt won over the crowd when he declared, “My product is the only product up here tonight that saves you more money than it costs.”

—San Diego-based cleantech startup EESG is looking to raise $1.2 million to expand the 10-employee company’s sales staff, purchase inventory, and ramp up public relations and marketing. The company’s founders told me they have raised about half so far, including $300,000 from Longboard Capital Advisors, a green investment firm based in Santa Monica, CA.

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Raytheon Company (NYSE:RTN) said yesterday that it has wrapped up its buyout of Cambridge, MA-based BBN Technologies for about $350 million. The amount of the purchase was not disclosed when the Waltham, MA-based provider of defense systems first announced the deal last month. Wade put the buyout in perspective and explained what BBN has meant to the development of the Internet and the Boston innovation scene over the past several decades.

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When I wrote about MP3.com founder Michael Robertson in December, the San Diego serial entrepreneur had just launched Gizmo5, an updated version of his free VoIP (Voice Over Internet Protocol) software and peer-to-peer network for making Internet-based phone calls. In my headline, I asked, “Michael Robertson is Calling, But Will Anybody Answer?”

Ten months later, it looks like Skype might just pick up. Citing “multiple sources,” TechCrunch’s Michael Arrington reports that Skype is in negotiations to buy Robertson’s Gizmo5, with the price tag “in the $50 million range.” I queried Robertson about the report last night, and he responded, “I can’t comment on the skype acquisition rumors.”

EBay, which paid $2.6 billion to acquire Skype four years ago, is now trying to sell the company to an investor group. But as TechCrunch notes, Skype doesn’t have all the corners of its core technology tacked down. That technology is now the subject of separate patent lawsuits filed against Skype and prospective buyers Mike Volpi and Index Ventures. As Arrington points out, the IP suits put Skype’s core technology at risk, which puts its service at risk, which is why acquiring Gizmo5 and its competing peer-to-peer technology makes sense.

Aside from any funding that Robertson has personally sunk into Gizmo5, the startup got $6 million in venture capital about three years ago in a round led by New York’s Dawntreader Ventures. Robertson also tells me that Gizmo5 currently has about 6 million subscribers. Skype has more than 405 million registered users.

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I’ve been predicting for a while that the marketing agencies and website developers that don’t have deep technical capabilities in search engine optimization will be left by the side of the road. Now we’re seeing it come to pass with Adobe’s $1.8 billion buyout of Omniture. [Adobe Systems announced the acquisition on Sept. 15, and U.S. antitrust regulators recently granted an early termination of their review.]

When Adobe’s chief marketing officer, Ann Lewnes, says marketing is the new finance, she’s not talking Orwellian double-speak. She means the digital age is driving the corporate marketing function to become accountable for spending in a far more rigorous and precise way than the “Mad Men” days of estimating “reach and frequency.” And that’s what Adobe’s Omniture acquisition is really all about.

This merger is intended to develop creative content in a holistic way and to measure the value of that content—whether it is video, web pages, mobile content, or social media content. This deal represents a way to “close the loop” in terms of creating digital content and measuring its impact.

Precisely measuring how people use a website is what we do at San Diego-based Covario. We view this deal as a brilliant strategic move for Adobe—one that could change the rules of the game for digital media, from creation to measurement to monetization. It represents changes in technology that will finally and irreversibly mark the end of an era.

This is what we see coming in the new Adobe media world:

—Video developers and agencies will build Adobe Flash creative content with Omniture tracking codes implanted from the beginning. This will enable them to track online views of that content across the web, and perhaps even begin to …Next Page »

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Sciele Pharma, an Atlanta, GA, pharmaceutical company owned by Japan’s Shionogi & Co., says it is acquiring San Diego-based Victory Pharma for $150 million. Sciele specializes in the sales, marketing and development of branded drugs for cardiovascular diseases, diabetes, women’s health, and pediatrics.

The acquisition adds Victory’s lead product, a once-daily sustained release formulation of the pain reliever naproxen sodium (Naprelan), to a Sciele drug portfolio that includes fexofenadine HCL (Allegra) for hayfever and nisoldipine (Sular) for hypertension.

The deal announced yesterday comes less than three months after Victory raised $45 million in a secondary venture round headed by Essex Woodlands Health Ventures of Palo Alto, CA. Victory, which also was backed byAmpersand Ventures of  Wellesley, MA, acquired its lead drug product in 2006, and has been developing its own drug candidates for managing pain as well as nausea and other side effects of pain drugs.

In a statement, Sciele’s president and chief operating officer, Ed Schutter, says, “The acquisition of Victory is another important step in the implementation of Sciele’s strategic plan to further diversify our product portfolio and generate additional growth for Sciele.” Sciele’s parent company has targeted the pain market as a therapeutic area, and Sciele says Shionogi plans to accelerate “development of its drug candidate for the alleviation of opioid-induced adverse effects” without clarifying if that means taking on Victory’s drug development.

Victory, which generated $57 million in sales last year, has 182 employees, including 120 sales representatives. The transaction is expected to close before June 30.

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With patents counted, investments disclosed, and financial results reported, San Diego wireless giant Qualcomm seemed to dominate the Xconomy news last week. There were plenty of other developments, though, in life sciences, robotics, and other sectors of the innovation economy. Read on!

—By necessity, a few interesting nuggets got left out when we compiled our list of the top 25 patent winners in the San Diego region in 2008. San Diego’s Qualcomm (NASDAQ: QCOM), of course, ranked No. 1, with 283 patents issued. One interesting nugget we noticed later is that rival Broadcom (NASDAQ: BCRM), which is based in Orange County, (and therefore wasn’t on the list for this region) obtained twice as many patents, and ranks No. 25 in the world, with 643 patents issued. Information on the global top 35 is here. See our San Diego list here.

—Modu, a modular mobile phone maker based in Kfar-Saba, Israel, got $7 million in venture funding, according to a report in Calcalist, an Israeli daily newspaper. A U.S. spokesman for modu had no information on the deal, and Qualcomm later declined to comment.

—One of our most widely read stories last week was based on the responses we got from San Diego biotech leaders after New York-based Pfizer (NYSE: PFE) announced its $68 billion deal to acquire Madison, NJ-based Wyeth (NYSE: WYE). Among other things, they said it could slow down or stall buyouts of smaller biotechs by Wyeth and Pfizer. Read the full responses here.

—The global market for paid search marketing on the Internet has soared from about $500 million in 2001 to an estimated $20 billion this year. That likely explains why San Diego-based Covario, which provides analytical software and services to help customers optimize their search engine marketing, has been thriving. Coincidentally, Covario is holding its annual invitation-only conference on interactive marketing and digital advertising this week in La Jolla.

—San Diego security software developer Websense (NASDAQ: WBSN) acquired Defensio, which offers a spam filtering Web service. Websense wasted no time integrating Defensio’s software into its own ThreatSeeker Network.

—Biocom chief executive Joe Panetta laid out his agenda for lobbying on behalf of San Diego’s life sciences industry. Panetta told Luke he is planning to make at least one trip a month to Washington this year.

—A critical test phase is drawing near for the Fire Scout, a robotic helicopter under development in San Diego by Northrop Grumman (NYSE: NOC). The Navy plans a final round of operational tests this year for the “Vertical Unmanned Aerial System,” which is intended to provide “situational awareness” for a Naval battle group.

—The 11th-hour flap over the Feb. 17th deadline that requires U.S. TV stations to turn off their analog broadcast equipment and switch to all-digital broadcasting may seem far-removed to many people. But efforts to delay the change to June 12 created a crucial issue for San Diego’s Qualcomm. The wireless giant has spent hundreds of millions of dollars gearing up to use the 700 MHz spectrum being vacated by analog TV broadcasters for its MediaFLO TV service for mobile phones, which is set to launch in 80 markets on Feb. 18th. The House voted last week against the delay, which was good news for Qualcomm. But CEO Paul Jacobs suggested the measure isn’t dead.

—Sequenom (NASDAQ: SQNM), the San Diego medical diagnostics company, reported that its new technique that tests for Down syndrome was almost 100 percent accurate in a recent study.

—Billionaire investor Carl Icahn increased his stake in San Diego’s Amylin Pharmaceuticals to 8 percent from about 7.3 percent. Icahn disclosed in a filing with the Securities and Exchange Commission that he intends to nominate five new directors to Amylin’s board, apparently to push for a sale of the company.

—San Diego’s Slacker, which provides customized music online and for wireless devices, has raised $5 million in bridge financing. The startup did not discuss the deal, which increases its total venture funding to $58.5 million since the company’s founding in 2004.

—The San Diego Venture Group invited three out-of-town venture capital partners to provide their outlook on the industry in 2009. With only six IPOs in 2008, chairman Dixon Doll of the National Venture Capital Association called for overhauling the venture industry. Among the changes Doll outlined is a proposal to promote new investment vehicles that provide a late-stage alternative to IPOs by matching a company’s VC investors with buyers in private stock placements. The industry group is expected to unveil its proposals in coming weeks.

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San Diego-based Gen-Probe (NASDAQ: GPRO) says it’s buying Tepnel Life Sciences, a British medical diagnostics company, for about $132.2 million. Gen-Probe chairman and CEO Hank Nordoff says the buyout expands Gen-Probe’s focus on nucleic acid tests by adding Tepnel’s expertise in genetic tests for cystic fibrosis, Down syndrome and inherited levels of high cholesterol. Gen-Probe’s tests are used mostly to screen human blood donations and diagnose human diseases.

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The best part about last week’s deals and biztech news was that so much of it amounted to the first act in a continuing drama. Will the deal go through? Will that drug get approved? Stay tuned…

Who needs TV soaps when a corporate buyout drama is unfolding before your very eyes? Will San Diego’s Sequenom prevail in its buyout offer for Massachusetts’ Exact Science? Could it turn into a hostile takeover? Luke wrote the first installment of the saga-to-be here.

We keep hearing VCs say the traditional business model for venture capital is broken, which may just be another way of saying they were investing too much money for insufficient returns. Now, San Diego-based Forward Venture says it’s adapting to the new reality by paring its operations and going virtual.

Anadys Pharmaceuticals of San Diego reported an experimental drug did a better-than-expected job in killing the hepatitis C virus, and Wall Street sent the company’s shares soaring 80 percent Thursday.

Novato’s BioMarin agreed to pay La Jolla Pharmaceuticals $15 million up front for rights to an experimental lupus drug in a deal that could be worth as much as $289 million in cash and stock purchases.

MP3.com founder Michael Robertson launched a new Internet site called TuneRoom that delivers free digital music to cell phones, and he used the announcement to perform last rights for the iPod.

Anaphore, a La Jolla biotech developing protein therapeutics, raised $25 million in a Series A round of venture funding led by 5AM Ventures, Versant Ventures, and Apposite Capital.

Drug development companies are adopting some innovative strategies to lower the costs, reduce risks, and improve their odds for success. Among the more interesting is La Jolla-based Huya Biosciences International’s multi-faceted approach for in-licensing prospective drugs from China.

A final-stage clinical trial of San Diego’s Orexigen Therapeutics’ experimental obesity drug helped patients lose an average of 20 pounds, or 9 percent of their body weight, but Wall Street apparently expected them to be even bigger losers for Orexigen to be a winner, as the news sent shares down about 15 percent.

And finally, Carlsbad’s Callaway Golf Co. said last week it acquired uPlay, a crosstown maker of high-tech electronic distance-measuring devices. Financial terms were not disclosed. The devices combine GPS technology with aerial and satellite photography to display hyper-accurate layouts of the hazards, distance, and overall layout of each hole on a golf course—so players will know precisely whether to use the 7 iron or the wedge from the bunker to the green.

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Fund-raising by private equity firms slowed dramatically during the last three months of 2008, so much so, in fact, that an analysis shows an 18 percent overall decline among fund-raising by U.S. firms compared to 2007—all of it due to the Q4 meltdown.

An analysis published today in the Dow Jones Private Equity Analyst newsletter found that 99 funds raised about $43 billion during the fourth quarter, a roughly 57 percent decline from the nearly $100 billion raised by 208 funds during the same period in 2007.

Fund-raising by private equity firms in 2008 had been running at a pace slightly ahead of the industry record set in 2007 until the fourth quarter—when fund-raising by private equity firms slowed to a virtual standstill. Based on statistics from the LP Source database, the analysis found that 363 U.S.-based private equity funds raised $265.6 billion in 2008—18 percent below the $325.8 billion raised by 506 funds in 2007. The analysis focused on private capital invested with venture capital firms, buyout and corporate finance funds, mezzanine funds, and secondary funds, also known as funds of funds. No hedge funds were included.

“While 2008 was still easily the second-best year on record, the decline we saw in the most recent quarter may steepen in the coming months,” newsletter managing editor Jennifer Rossa said in a statement. The economic crisis triggered by the Lehman Brothers bankruptcy in early September hit the buyout industry particularly hard, as fund-raising declined 26 percent to $181 billion raised among 143 buyout funds—a level comparable to 2006. At the nine-month mark, the buyout sector was down just 3 percent compared to 2007.

Overall venture capital fund-raising, which was up about 4 percent at the nine-month mark, fell by 25 percent for the year in 2008, with $24.7 billion raised across 150 funds nationwide. It was the lowest fund-raising total for the venture industry since 2004.

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Venture-backed companies are no doubt ready to put 2008 in the past. Year-end reports show a dismal number of initial public offerings and M&A deals last year, after a flurry of tech companies canceled plans to go public and buyout activity slowed to its lowest level in five years. 

Thomson Reuters and the National Venture Capital Association released their Exit Poll survey this morning, showing a scant six venture-backed companies completed IPOs in 2008. That’s the worst year for public offerings since an equal number of public debuts were recorded in 1977. Another tidbit of bad news is that five of those six companies are trading below their initial offering price.

The deal figures are similar to those reported Friday by Dow Jones VentureSource .

What’s more, there were two fiscal quarters without a single VC-backed IPO in 2008, which was the first year to have two quarters with zero IPOs since 1975. Forty venture-backed companies pulled their registrations for IPOs last year, another sign of the poor climate for public offerings. (We noted how slow IPO activity was in the Boston area last summer.)

The total number of venture-backed company M&A deals was 260, the first year since 2003 that the total was less than 300, according to the report. During the fourth quarter of 2008, M&A activity by sector was dominated by IT-related deals, which totaled 30, while life sciences and health care deals numbered just four, the report says.

There was only one venture-backed firm with ties to one of the three main markets covered here at Xconomy to appear on the report’s list of 2008 IPOs, Pennsylvania-based CardioNet (NASDAQ:BEAT), which has offices in its former home city of San Diego. (Apparently, Merrimack, NH-based GT Solar International (NASDAQ:SOLR) didn’t qualify as venture-backed, even though it completed an IPO last year.)

Here’s the NVCA and Thomson Reuters’ list of venture-backed IPOs in 2008:

— ArcSight (NASDAQ:ARST), a Cupertino, CA-based provider of compliance and security management software, completed a $61.8 million IPO.

— BioHeart (NASDAQ:BHRT), a Sunrise, FL-based biotech firm developing cellular therapies, had a $5.8 million maiden public offering. (Yep, that’s $5.8 million.)

— CardioNet (NASDAQ:BEAT), a provider of patient-monitoring software, wrapped up an $81 million IPO.

— IPC The Hospitalist Company (NASDAQ:IPCM), a provider of care services in hospitals, completed an $83.2 million IPO.

— MAKO Surgical (NASDAQ:MAKO), a Ft. Lauderdale, FL-based medical devices firm, raised $51 million in its public debut.

— Rackspace Hosting (NYSE:RAX), a San Antonio-based provider of IT services and Web site delivery, had the largest venture-backed IPO last year, valued at $187.5 million.

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Innovation never sleeps, but the pace of San Diego business and technology news yawned a little over the Christmas and New Year holidays. Still, there were plenty of noteworthy developments to round up for the first Monday of 2009. Oh, and by the way, Happy New Year!The end of December brought news from faraway China that the world’s largest telecom market is starting a long-delayed upgrade to 3G, or third-generation, wireless technologies. That could be good news for San Diego’s Qualcomm (NASDAQ:QCOM), which said it signed a licensing agreement with China’s largest cell phone maker, Beijing Tianyu Communications Equipment Co.

Was anyone surprised when Dow Jones VentureSource announced that liquidity events for venture-backed companies fell to their lowest level in five years in 2008? The data shows that only seven venture-backed companies in the entire country completed IPOs, raising a total of $551 million. San Diego’s CardioNet, which raised $54 million in March, was the region’s sole IPO of the year. And for all of Southern California, the data show only 27 buyouts, generating a total of $919 million.

San Diego venture capitalist Kevin Kinsella became “The Big Man in Town,” and left the rest of us feeling like a “Rag Doll,” after becoming a major financial backer of Jersey Boys, the smash Broadway hit. Our account of how it all happened is here.

San Diego’s Volcano (NASDAQ: VOLC), which makes vision systems for detecting artery blockages and other problems, says it plans to buy Axun, a privately held laser maker in the Boston area, for $21.5 million.

Christmas came a little early for San Diego’s CalciMedica, which got …Next Page »

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Eric DeMarco, the CEO of San Diego’s Kratos Defense & Security Solutions, (NASDAQ:KTOS) is showing he learned the lessons of rapid growth during his years at former San Diego defense contractor Titan Corp.

Today Kratos announced it’s merging its Kratos Government Solutions division with Digital Fusion, a small defense contractor in Huntsville, AL, that trades over the counter, in an all-stock deal valued at more than $34 million. The deal with Digital Fusion, or DFI, follows Kratos’ acquisition of San Diego’s SYS Technologies earlier this year and Haverstick Consulting late last year.

DeMarco gained experience with many similar buyout deals while working as Titan’s CFO and COO during a growth-through-acquisition strategy that carried Titan from annual revenue of $138 million to roughly $1.5 billion. L3 Communications acquired Titan in 2005 in a deal valued at roughly $2.65 billion, including assumed debt.

DeMarco left Titan in 2003 to join San Diego’s Wireless Facilities, an ailing communications company that he subsequently changed into Kratos, a defense IT and engineering company.

With the DFI deal, DeMarco continues to transform Kratos from a collection of small defense companies into a mid-tier defense contractor. DFI brings Kratos about 280 employees and contracts in missile defense, aerospace, sensors, computerized modeling, and unmanned aerial vehicles.

If shareholders of both companies approve the deal, Kratos will have about 2,250 employees.
Under the agreement, which has been unanimously approved by the boards at both companies, DFI’s stock will be converted into Kratos stock. The deal calls for Kratos to provide 1.7933 shares of its stock for each DFI share.

Kratos says it will issue about 25.4 million new shares of its common stock, which closed yesterday at $1.35 a share after the deal was announced. Upon closing, DFI shareholders will own approximately 20 percent, and current Kratos shareholders approximately 80 percent, of the combined company.

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Bain Capital, the Boston-based asset management firm co-founded by Mitt Romney, has suspended a joint effort with China’s Huawei Technology to acquire Marlborough, MA-based 3Com for a proposed $2.2 bilion in cash, 3Com reported today. Bain and Huawei withdrew their joint filing with the U.S. government’s Committee on Foreign Investment in the United States, which has proved unwilling to okay the deal. According to PE Week and other reports, U.S. legislators were concerned about Chinese ownership of 3Com, whose TippingPoint subsidiary makes security software for the government; apparently, Bain, Huawei, and CFIUS were unable to settle on “mitigation” terms under which TippingPoint would be excluded from the merger. “We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,” Edgar Masri, 3Com’s president and CEO, said in a statement.

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