A federal court ruling issued before the Thanksgiving holiday appears likely to end nearly three years of patent litigation between Histogen, a San Diego regenerative medicine startup, and Carlsbad, CA-based SkinMedica, which provides cosmetics and skin-care products.

“We are happy to now have this matter officially behind us,” Histogen founder and CEO Gail Naughton says in a statement issued today by the San Diego startup.

The Nov. 21 ruling issued by U.S. District Judge Janis Sammartino concludes that Histogen is not infringing on two key SkinMedica patents. “The cloud has lifted for us,” Histogen spokeswoman Eileen Naughton Brandt told me this afternoon.

A spokeswoman for SkinMedica declined to comment today.

In its patent infringement lawsuit, SkinMedica alleged that Histogen and its cosmetics subsidiary, Histogen Aesthetics, were infringing on the patents covering its “NouriCel” product line and related proprietary technology for culturing human cells in growth media.

Histogen is focused on the long-term development of living tissue skin grafts and related products that would require regulatory approval. To generate revenue in the meantime, however, the startup formed Histogen Aesthetics to develop its own brand of skin care and dermatology products. Histogen says it also has begun early tests of a hair replacement product made of growth factors and other compounds expressed by fibroblasts, the cells that form connective tissue.

In her 14-page ruling, Sammartino distinguishes between SkinMedica’s patented process for growing a three-dimensional matrix of living human cells and Histogen’s approach, which encourages living cells to grow on the surface of microscopic beads. The cell-covered beads eventually clump together, and also grow into a three-dimensional matrix. By drawing a clear distinction between the two processes, Sammartino rejects SkinMedica’s arguments that the two approaches were equivalent.

The judge’s Nov. 21 ruling was preceded by a related ruling in May that addressed the meaning of more than a dozen disputed terms used in … Next Page »

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When Big Pharma veteran Robert Doman joined tiny Wilmington, MA-based Dusa Pharmaceuticals (NASDAQ: DUSA) in 2005, he found a company struggling to capitalize on a massive market opportunity. Dusa had won FDA approval in 2000 for a drug-device combination to treat actinic keratoses (AK), pre-cancerous skin growths. There are about 5 million cases of AKs treated each year—a number that’s growing more than 6 percent a year, says Doman, Dusa’s CEO.

But Dusa’s device—which uses blue light to activate a drug called aminolevulinic acid HCl—wasn’t catching on with dermatologists. “The initial launch didn’t go well because it didn’t have good [insurance] reimbursement,” Doman says. And Dusa had just “a handful” of sales reps, he says. The company lost $20 million in 2005.

Contrast that scenario with today, and it’s clear Dusa has gained some respect in the dermatology market. The company, which will be announcing its third-quarter earnings this morning, is expected to bring in about $44 million in revenues this year. Sales of the treatment, which the company brands Levulan Kerastick, have grown 34 percent on a compounded annual basis over the last five years. Dusa turned profitable last year, and in the first six months of this year it was cash-flow positive to the tune of $4.5 million.

Doman has spent the last six years building Dusa’s salesforce up to include 45 reps, and working to ensure physicians would get properly reimbursed for doing the procedure.

Doman estimates Dusa has grabbed about 5 percent of the market for AK treatments—not bad, but he wants much more. So later this month, Dusa will be starting a Phase 2 trial in more than 200 patients that’s designed to prove the company’s device can not only remove large quantities of AKs quickly, but it can also prevent them from recurring.

Dusa’s treatment was originally developed as a rather involved two-step process. Dermatologists must apply the drug to the AK lesions and then send patients home … Next Page »

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Talk to biotech VCs, and you’ll hear a lot of moaning about how tough the FDA has become, how grim the IPO markets are, and how hard it is get insurers to pay for new products. Nobody in this club can brag about backing investment supernovas like Facebook or Zynga. But none of that has discouraged Menlo Park, CA-based Sofinnova Ventures and its backers from going all-in for biotech.

Sofinnova Ventures is announcing today it has pulled together its eighth venture fund, with a total of $440 million in new capital to invest, bringing its total money under management to $1.4 billion. The firm, founded in 1974, has a long history of investing a majority of its dollars in information technology, and as recently as 1997, put 85 percent of its money there, and the rest in life sciences. But based on the team, its track record, and its strategy, Sofinnova has gradually shifted so that it now invests all of its money in drug development, says Mike Powell, a general partner with Sofinnova, and former group leader of drug delivery at Genentech.

Biotech hasn’t exactly been the hot investment trend lately, as CB Insights reported declining investment in life sciences in the most recent quarter, and a couple of VCs recently called biotech “the Rodney Dangerfield of venture capital.” Sofinnova is challenging this notion; Powell says the firm had to raise the $400 million ceiling of this fund to accommodate all its limited partners who wanted in. The firm, like most VCs, doesn’t disclose its returns, but it has been able to generate returns through a number of recent IPOs—Trius Therapeutics (NASDAQ: TSRX), Amarin Pharmaceuticals (NASDAQ: AMRN), and Anthera Pharmaceuticals (NASDAQ: ANTH)—and a few acquisitions—Vicept Therapeutics (by Allergan) and Movetis (by Shire).

The decision to go all-in on life sciences, Powell says, “is driven by returns. The partnership is focused on sectors where we think we’re going to make money. When fund after fund, you make more in one sector than another, it’s natural that you move more toward that sector.”

He adds that Sofinnova’s limited partners—pensions, endowments, institutional funds—were not afraid to bet on a specialized drug-development-only fund, as opposed to a more diversified healthcare fund that includes devices, diagnostics, or health IT. “The LPs are not only behind it, they encouraged us to do it,” Powell says. “Drugs account for a small fraction of the cost of healthcare, and the amount of benefit you get from drugs is huge.”

Mike Powell of Sofinnova Ventures

Sofinnova is well aware of the complaints that many VCs are making about how tough and unpredictable the FDA has become, which they say has added more time, money and risk to the biotech drug development model. Powell brushed off those concerns. “The Sofinnova position is that the FDA is tough but predictable, and we focus on the second word,” Powell says. “We know they are tough, everybody knows that. But if you listen to what they say carefully and take their suggestions seriously, you can navigate the FDA and get where they want to go.”

Sofinnova is seeking not only to mitigate its regulatory risks, but also its technology risks, by avoiding most of the raw but promising areas of biotech (like, say, stem cells). The firm plans to invest in new drug development ideas being spun out of Big Pharma companies, which are typically already primed to enter the second or third phase of clinical trials needed for FDA approval, Powell says. Sofinnova will often look to make Series A founding investments in companies, but these will not be the really raw, two-guys-in-a-garage-with-a-bold-idea kind of company. Many of these startups will be spinoffs that come with intellectual property and senior management talent from a larger company that’s downsizing or re-prioritizing its research portfolio, he says.

Sofinnova will seek to diversify its fund by … Next Page »

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Today marks the debut of Lotus Tissue Repair, a Cambridge, MA-based company that’s developing a treatment for a rare, genetic disease called dystrophic epidermolysis bullosa (DEB). The disease may not be well known, but the folks behind the startup certainly are. Lotus has closed a $26 million Series A financing round led by Boston-based Third Rock Ventures. Co-founders include Philip Reilly, a Third Rock partner and a clinical geneticist by training, and Mark de Souza, a veteran of Cambridge biotech Dyax (NASDAQ: DYAX).

DEB only affects about 300 people in the U.S., but it ends up being a death sentence for many of those patients. The disease, which emerges during childhood, is caused by a deficiency or malfunction of a protein called collagen type VII. DEB causes painful skin blisters that can result in fingers and toes getting fused together. Sometimes the blisters erupt in the esophagus, making it difficult for patients to eat. And the disease puts its victims at high risk of developing squamous cell carcinoma—a deadly skin cancer. “These children suffer terribly, then they develop a fatal cancer in their adult years,” says Reilly, who specializes in finding opportunities in rare diseases for Third Rock. “And there is no effective therapy.”

Lotus was co-founded by University of Southern California (USC) dermatology professors Mei Chen and David Woodley, who licensed their technology to the startup. Chen and Woodley developed a genetically engineered form of collagen type VII called rC7, which they believe could be given to DEB patients to keep the disease in check. The researchers have performed a number of animal studies showing that the protein replacement treatment specifically zeroes in on wounded skin, healing it in a potent and long-lasting manner.

Chen and Woodly recently received grant money to start the first human trials, which will begin at USC shortly, de Souza says. The company has not yet determined the timeline for the complete clinical-trial program, but with the new source of cash, he says, “We’ll be able to move forward quickly.”

DEB is so rare that it’s considered an “ultra-orphan” disease, de Souza says. But USC’s early research indicates that rC7 might also work in other skin disorders that are much more common, such as diabetic foot ulcers—a key consideration in determining the technology’s promise as a commercial product. “The pre-clinical evidence shows that collagen VII plays a role in accelerating healing, so we think there’s a huge upside in treating other types of chronic wounds,” says de Souza, who is … Next Page »

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Sunnyvale, CA-based Miramar Labs, which has developed a laser-based device for treating “axillary hyperhidrosis” (excessive sweating), has raised $35.8 million in Series C financing, according to a report today from Dow Jones VentureWire. New investors Aisling Capital and Cross Creek Capital led the round, which was joined by existing investors Domain Associates and Morgenthaler Ventures. The company plans to use the funds to begin marketing the device—which the FDA approved earlier this year—to dermatologists.

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SonoSite looked like it was out of ideas. Why, after all, would the maker of portable ultrasound machines spend $89 million of hard-earned cash to buy back shares a couple months ago? That’s one of those time-honored financial engineering tricks that companies often do when they don’t have any promising new products to boost sales, and they need some artificial means of inflating their stock price.

Since Xconomy’s lens is fixated on innovation in the Northwest, I figured it was safe to turn the page on SonoSite, as just another maturing company doing its best to sell what it already has. Then the Bothell, WA-based company (NASDAQ: SONO) surprised me. Last week, SonoSite paid $71 million to acquire Toronto-based Visualsonics.

It was a bold move to obtain a new kind of ultrasound technology that’s five times more sensitive than anything on the market, and which can be used to offer extremely high-resolution images in places where ultrasound could never go before—to watch a developing fetus, a tumor, or a blood vessel forming inside a lab mouse, for example. Conventional ultrasound machines, like those sold by Siemens, Philips Healthcare, and General Electric, typically use a frequency range that provides good pictures when you get 3 centimeters or more below the skin, but aren’t useful just beneath the skin. SonoSite, which has sought for the past 12 years to match or beat the big boys with its miniaturized ultrasound technology, is now seeking to miniaturize this powerful and sensitive new breed of ultrasound, to keep a technical advantage over its rivals and to crack open entirely new markets.

“It’s gotten me very jacked up,” says SonoSite CEO Kevin Goodwin.

Kevin Goodwin

Visualsonics has been pursuing this idea of ultra high frequency, microscopic-level ultrasound for more than a decade. The company was founded in 1999 by Stuart Foster at Sunnybrook Health Sciences Center in Toronto. Over the years, Visualsonics showed it could make a system that uses five times the frequency currently used in conventional ultrasound systems (40MHz versus 8MHz). That frequency range essentially allows the Visualsonics ultrasound system to see biological structures as narrow as the width of a human hair (30 microns).

The initial market for Visualsonics has been in preclinical biology labs. The company developed a $200,000 cart-bound ultrasound system, complete with probes, disposable products needed to operate the machine, and software to help analyze the images. It was a completely new market for ultrasound, and something that has caught on with academic researchers. Suddenly, they could do animal experiments with, say, a cancer drug and examine its anti-tumor effect over and over after repeat doses, rather than dissect the mouse. Other non-invasive forms of imaging, like CT scans, magnetic resonance imaging (MRI), or positron emission tomography (PET), weren’t practical because of cost and hassle factors. Ultrasound, in the way Visualsonics offered it, made sense. The company generated $30 million in sales over the past 12 months, and turned a $5 million operating profit.

“Simply put, we like the business, we like the technology, we like the management team,” Goodwin told analysts on a conference call last week to explain the deal.

From a strictly financial point of view, in today’s numbers, this deal looks hard to justify. SonoSite is coming off a bad year in 2009. Annual revenue—for the first time in SonoSite’s history—declined … Next Page »

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One of Vancouver, BC’s big biotech success stories, QLT, was clobbered by Genentech a few years ago in the market for treating age-related macular degeneration, the leading cause of blindness among elderly people. But during its heyday, QLT spawned a few cool R&D projects, and now some of them are being packaged into a new spinoff, Valocor Therapeutics.

Valocor emerged from stealth mode yesterday with a technology license from QLT for dermatology drug candidates, plus an undisclosed amount of seed financing from the Working Opportunity Fund managed by GrowthWorks Capital. Valocor is led by a quartet of founders, including Julia Levy, one of the driving forces behind QLT’s light-activated verteporfin (Visudyne), a drug for macular degeneration.

The idea at Valocor is to take some of what QLT learned about light-activated drugs, and apply it to the skin. The lead program will explore whether the company can develop a light-activated lotion that destroys the glands that produce excess skin oil that clogs up pores and causes acne. If this technique can clear up pimples, without damaging the underlying skin tissue, Valocor expects it could tap into a huge potential market that’s currently underserved. Roche’s isotretinoin (Accutane) is an effective oral pill for severe acne, but has long been controversial because of its link to birth defects. If Valocor’s treatment can offer a similar effect in a safer product, it could have a viable new option for 5 million people in the U.S. who seek medical treatment for acne each year.

“There’s a huge need because of the lack of innovation in dermatology,” says Valocor CEO Dan Wattier. “Big Pharma basically walked away from dermatology 25 years ago. And these are big markets.”

Dan Wattier

The story of how Valocor set sight on those markets can be traced back about five years. QLT was riding high then on sales of Visudyne, and was looking for new applications of light-activated drugs that could be effective in localized organs, like for urology or dermatology. Then in July 2006, Genentech won FDA approval for a new treatment, ranibizumab (Lucentis), that blew away eye disease specialists and made the QLT product look obsolete. Predictably, QLT’s sales and market share plummeted, forcing it to unload some of its R&D projects and secondary products, Wattier says. (If you want to see QLT’s pain, check out these annual financial trends.)

One of those projects that got shelved during the cost-cutting effort was a drug called lemuteporfin. There were reasons to put it on the back burner. It had failed to show an advantage over placebo in a trial of patients with enlarged prostate.

But the R&D guys saw another use for it, as a light-activated acne treatment. And it made some sense from a marketing standpoint. Acne is currently treated with over-the-counter lotions for a lot of people. Dermatologists often use ultraviolet light to zap the microscopic sebaceous glands that produce too much skin oil. Sometimes they prescribe oral antibiotics to kill bacteria that congregate around the hair follicles and clogged-up pores, Wattier says. But both of those treatments are only temporary, and in the case of antibiotics, over-use can lead to bacterial resistance. Roche’s Accutane, as mentioned above, can be extremely effective, but risky.

Here’s how Valocor plans to tackle this problem. The company has developed an alcohol-based lotion that gets prepared at the doctor’s office. It’s inactive until it comes into contact with a certain wavelength of light, Wattier says. The drug gets absorbed just a couple of millimeters into the skin, where the sebaceous glands are, and the light is focused there, but not deep enough to go below the epidermal layers or into the bloodstream, Wattier says. The goal is to essentially destroy the sebaceous glands, stopping them from secreting excess oils. Since this drug doesn’t go into the blood like Accutane, it shouldn’t … Next Page »

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What do an online music marketing service, a maker of a platform that helps employers target job ads to potential candidates based on what they read, and a developer of treatments for Alzheimer’s disease all have in common? They’re all New England companies that pulled in financings worth less than $1 million in April, or what we like to call under-the-radar deals.

We got the data on their financings from our private company intelligence platform partner CB Insights, who also supplies us with a list of bigger monthly venture transactions. (Massachusetts companies pulled in $203 million across 21 of these $1 million-plus equity deals in April.) The under-the-radar deals are often too small for us to write about when news first breaks of them, but we think rounding up the deals as a group each month helps to paint a richer picture of what startup investing looks like in the region. And often the companies that make the list are the ones that are ramping up to exit stealth mode and hit the market.

There were five equity deals on April’s under-the-radar list, with the biggest financing, at $502,512, going to Waverx, a Waltham, MA-based maker of dermatological treatments. Two other companies brought in funding with options-based transactions. The April under-the-radar list shrank from March, when there were 16 such transactions, but it still includes a dynamic mix of life sciences companies, software makers, and Internet startups.

One interesting company on the April list was Hire Reach, a Cambridge, MA-based tech startup that’s revamping the employee search process. The company is using algorithms to get a picture of engineering job candidates based on the blogs and articles they read, and provide more targeted job ads to them. It pulled in $401,000 in equity-based funding last month.

Meanwhile, a $265,000 equity deal went to Playsmrt, a stealthy Bedford, MA-based company led by Beth Marcus, a serial entrepreneur who sold her joystick technology company EXOS to Microsoft in 1996. The company doesn’t have a website, but I actually caught up with Marcus last week to discuss the women’s CEO group she’s a member of. She told me that her venture is working on making the Internet safer for kids to browse.

We did happen to report on one of the financings on the list when it happened: the $376,950 that went to Nimbit, a Framingham, MA-based online music marketing service. (Earlier this year, the company also donated a year of its retail service as a prize for our Battle of the Tech Bands event). The April transaction capped off a $1.75 million Series A-1 round of funding, the company’s CEO Bob Cramer told me.

Read below for the full list of April’s sub-$1-million transactions in New England:

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A patent infringement lawsuit filed last month against Histogen has triggered a funding crisis at the San Diego biomedical startup, which was forced to lay off all 36 of its employees at the end of January.

Histogen founder and CEO Gail Naughton told me this afternoon the suit filed by rival SkinMedica of Carlsbad, CA, prompted a group of angel investors to withdraw their planned $2.4 million investment in Histogen at the end of January. The ensuing funding crisis has been playing out behind the scenes at Histogen, even while Naughton reported promising findings on the startup’s experimental hair regrowth treatment last week at the 4th Annual Stem Cell Summit in New York.

“The lawsuit really took us by surprise, particularly because it was an infringement suit that was filed when we don’t even have a product on the market,” Naughton told me. “It really cut us off at the knees.”

Since then, Naughton says she has been working on two fronts to find new funding for Histogen. But losing the early stage funding, which had been set to close on Jan. 29, necessitated the immediate layoff of all Histogen employees, she said. About 20 employees have volunteered to continue working despite the layoffs, which were first reported today by The San Diego Union-Tribune.

“I’m not trying to take advantage,” Naughton told me. “They are an unbelievably engaged and passionate group of people who really believe in what we’re doing, and I’m very grateful.”

Privately held SkinMedica provides both prescription-based and cosmetic skin-care products to dermatologists and others to improve the health and appearance of skin. SkinMedica’s suit alleges that Naughton, Histogen, and its cosmetics subsidiary, Histogen Aesthetics, are infringing on two SkinMedica patents covering its “NouriCel” product line and related proprietary technology for culturing human cells in growth media. SkinMedica acquired the patents in 2003 from Naughton’s previous company, San Diego-based Advanced Tissue Sciences, which filed for bankruptcy in 2002 after spending 14 years developing living tissue skin patches.

Naughton denied that Histogen or its subsidiary are infringing on SkinMedica’s patents.

Naughton says she’s been meeting over the past four weeks with a whole new group of investors, whose primary interest is in the potential use of ReGenica, Histogen’s lead product in development, as a hair regrowth product. Histogen says ReGenica is made from proteins and other molecules secreted by human fibroblast cells grown in proprietary bioreactors that mimic the embryonic environment. Last week, Naughton reported early results from a clinical trial that suggests that injecting ReGenica into the scalp promotes hair growth. She says she also has been having simultaneous discussions with four pharmaceutical companies about forming a partnership to help bring certain Histogen products to market.

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Privately held SkinMedica of Carlsbad says it has filed a patent infringement lawsuit against new San Diego startup Histogen and Gail Naughton, its founder and CEO. The lawsuit, which was filed in federal court in San Diego, alleges that Histogen and its affiliated Histogen Aesthetics business infringe on two SkinMedica patents related to proprietary conditioned cell media technology. SkinMedica says its complaint asks for unspecified relief for the “misapprorpiration of SkinMedica trade secrets and confidential information by Histogen.”

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San Diego’s Advanced Tissue Sciences tried for 14 years to develop living-tissue patches for healing burns, wounds and chronic sores. But the business went into bankruptcy liquidation in late 2002, a victim of regulatory delays and more than $300 million in debt.

Since then, former CEO Gail Naughton says she’s been invited to speak many times about the hurdles that Advanced Tissue Sciences was unable to overcome and what she would have done differently. “After talking about what I would do differently a number of times,” Naughton says, “I decided to go out and actually do it.”

The result is Histogen, a San Diego-based life sciences company that Naughton founded last year. Naughton says the technology underlying Advanced Tissue Sciences has been reborn—with significant advances—and that Histogen intends to avoid the business pitfalls that crippled the predecessor company.

“Many of us worked for Gail at Advanced Tissue Sciences,” says Robert Kellar, Histogen’s vice president of research and development. “So we joke around by saying ‘We’re putting the band together again.’ ”

After raising more than $5.3 million from private investors in May, Naughton says Histogen plans to raise another $1.4 million from investors by the end of the year. The startup also has secured a $1.4 million loan.

A key difference at the new company is the creation of a subsidiary, Histogen Aesthetics, which is adapting the in-house expertise in fibroblasts, the cells that form connective tissue, to develop skin and hair care products. By focusing at the outset on the cosmetics, dermatology, and plastic surgery industries, Naughton says Histogen can generate immediate revenue to support the long-term development of living tissue skin grafts and other medical products that require a protracted regulatory approval process.

The company’s first cosmetics product is called ReGenica, a liquid made from fibroblast-secreted proteins, growth factors, and other products. It is intended for use in anti-aging skin treatments and to promote healing after cosmetic laser skin resurfacing.

Last week, Histogen said it also plans to evaluate whether ReGenica injected into the scalp will stimulate hair regrowth in a clinical trial of 24 patients. “Our hypothesis is that it helps to stimulate resident stem cells to become hair follicles,” Kellar says.

Naughton says Histogen already has used its expertise in culturing and growing fibroblast cells to develop products derived from human tissue cells that can be used as a growth medium by stem cell researchers. With such products already generating sales, she says Histogen can generate cash to offset at least some losses it expects to endure while it spends years working toward getting approval to sell its therapeutics products.

It was that prolonged march through the desert that eventually killed Advanced Tissue Sciences, which endured a three-year FDA delay amid mounting debts in getting the company’s Dermagraft skin patch for diabetic ulcers to market. Even after getting regulatory approval, Naughton said the reimbursement rate that insurers set for the treatment covered only a fraction of the company’s actual cost to make the patch. Today reimbursement rates are more favorable, Naughton says.

Histogen intends to use its same proprietary human “extra-cellular matrix” to develop a variety of other medical products—coatings for orthopedic implants and stents, patches for repairing torn shoulder ligaments and other tissue, and even “retentive” enemas for treating sores in the large intestine and Crohn’s Disease.

“So basically we’ve learned and we’ve brought the best and brightest people back at Histogen,” Naughton says. “The team that did it before is back together again, with decades of experience.”

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Judgment day was harsh for CombinatoRx. The Cambridge, MA-based company reported this morning that its experimental arthritis drug, Synavive, failed in a mid-stage clinical trial for patients with osteoarthritis of the knees. The company’s stock crashed 72 percent.

The drug didn’t show a statistically significant improvement over a placebo when 279 patients were asked about the pain they feel while walking on a flat surface, the company said today in a statement. CEO Alexis Borisy, an Xconomist, called the results “disappointing” and added that they “contain some observations that are difficult to reconcile.” CombinatoRx (NASDAQ: CRXX) fell $2.21, or 72 percent, to $0.83 at 10:22 am Eastern time.

This trial was a huge deal for CombinatoRx, as we wrote last week in a preview of the data release. The company has no marketed products, and has spent $220 million through the end of June on building a pipeline of drug candidates. The company’s medicines are unusual, because instead of developing new drugs from scratch, it uses computer screening methods to find novel treatments that combine conventional pharmaceuticals in new ways to improve their effectiveness. Osteoarthritis, the painful joint disease that affects an estimated 20 million people in the U.S., also has been crying out for something innovative. This is the form of arthritis traditionally associated with old age, degeneration of the joints, and for which people still mostly take over-the-counter pain meds, or possibly Pfizer’s Celebrex.

CombinatoRx is already looking to turn the page on this trial. In the statement, Borisy noted that the company has other drug candidates, namely CRx-401 for Type 2 diabetes and CRx-197 for dermatology conditions, which are expected to produce mid-stage clinical trial results in the next few months. Still, it’s gotta hurt. The company’s VP of communications and investor relations, Gina Nugent, told me a couple weeks ago that a failure wouldn’t represent a “clean out your desks moment” although it might cause people there to cry a little.

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