—Peter Clarke of EE Times reported that San Diego’s Qualcomm (NASDAQ: QCOM) has acquired Andover, MA-based Pixtronix, a startup founded in 2005 to develop Microelectromechanical systems (MEMS) display technology. Qualcomm, which confirmed the deal with EE Times but provided no details or press release about the deal, reportedly spent between $175 million and $200 million for Pixtronix. The Massachusetts company founded by Nesbitt Hagood raised more than $53 million in venture funding, athough the Pixtronix technology has not yet been introduced to the market. Qualcomm has spent years working to refine its own MEMS-based display technology—known as Mirasol.

—More than 200 entrepreneurs turned out to hear TechStars founder and CEO David Cohen talk about the startup accelerator program he helped to launch in Boulder, CO, in 2007. Cohen told the rapt audience during a San Diego Tech Founders meetup that the Internet software community in Boulder “is just totally on fire” compared to five years ago. This was the night after Cohen met with local tech leaders to discuss the steps that helped boost the entrepreneurial ecosystem in the Colorado college town. Xconomy San Diego arranged the dinner discussion, and I plan to have more about our conversation later this week.

—Meteorologist Stephen Bennett and investor John Plavan founded San Diego’s EarthRisk Technologies in mid-2010 with the idea of creating predictive analytics technology that could extend the range of weather long-term forecasts from two weeks to 30 or 40 days. They are now providing their Web-based technology to commodities and energy-trading firms on a subscription-basis. Bennett told me the core business at EarthRisk Technologies is focusing on extreme weather events—heat waves, frigid cold snaps, and storms because extreme events are the ones with the highest impact.

—Mark Heesen of the National Venture Capital Association gave a good-news, bad-news presentation to the San Diego Venture Group last week. Among the interesting bright spots: Corporate venture capital is growing and San Diego-based Qualcomm now ranks as the nation’s second-largest corporate venture outfit. The bad news? U.S. VC firms invested $28 billion in startups last year, but only … Next Page »

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It’s that outlook time of year, and Mark Heesen, president of the National Venture Capital Association (NVCA), was in San Diego earlier this week, talking about the 2012 outlook for venture capital. Today he’ll make a similar presentation to the New Jersey Technology Council. Next week,  John Taylor, the NVCA’s director of research is set to talk in Florida about the 2012 outlook.

Heesen began his presentation in San Diego by saying, “Be prepared for a roller coaster ride here, because that’s where we’ve been for the past year—and that’s where we’re going.”

In a conversation with Xconomy yesterday, Heesen talked about some of the broader trends he’s charting throughout the United States. Here are some of the takeaways from our talk, and from Heesen’s presentation in San Diego:

—The VC industry continues to contract. Venture capital investments in U.S. startups peaked in 2000, when VCs sank $99 billion into emerging companies of all kinds. There were 1,022 venture capital firms at that time, and they were collectively managing $220 billion worth of invested capital. In 2010, VCs invested more than $20 billion into startups of all kinds. The number of VCs had plunged by almost 55 percent—to 462 VC firms with $177 million under management.

—VCs are raising more capital from their limited partners, but it isn’t enough to sustain current investment levels. In 2011, U.S. venture firms raised a total of $18 billion. That was up significantly from the $14 billion that VCs raised in 2010—but it falls $10 billion short of covering the $28 billion that VC firms invested in 2011. As a result, Heesen says he expects venture investments in U.S. technology and life sciences companies to decline in 2012.

—A handful of VC firms accounted for … Next Page »

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As early stage biotech startups advance their drug candidates into pre-clinical development, many must decide at some point whether to start working with a big pharmaceutical or biotech partner to continue to pursue their program through clinical trials.

It’s no small decision, and a topic of increasing industry interest, especially since initial public offerings (IPOs) by life sciences companies have fared poorly in recent years, curtailing their ability to raise cash and develop new drugs on their own. Of the 12 biotechs that went public in 2011, for example, 10 raised substantially less cash than they wanted to, according to the BIO industry group.

The IPO class of 2010 also was schooled in terms of post-IPO performance, with shares in just four of the 12 biotechs trading higher at the end of 2011 than when the companies began trading. Small wonder, then, if Wall Street traders are asking, “Why buy biotech shares at the IPO when we can get them cheaper later?”

So joining forces with larger drug companies offers a wise alternative strategy, which was evident in a new conference that Biocom organized last year to focus on the nitty-gritty of biotech-pharma partnerships. (The Second Annual Global Life Science Partnering Conference convenes in San Diego on Feb. 1, with an agenda that includes VIP speakers from GlaxoSmithKline, Merck, Vertex, Novartis, Pfizer, Roche, and Bristol-Myers Squibb.)

Under the circumstances, you’d think these times would be ideal for partnership deals. After all, big pharmas are prospecting for new drug candidates outside their own R&D programs, and late-stage venture financing remains tenuous for today’s startups. But to borrow a pop psychology concept, pharmas and biotechs are from different planets. Startups are almost invariably motivated by a need for capital to advance their drug development program. Hooking up with a particular pharma may or may not align with their true strategic desires. Big pharmas, on the other hand, are looking to fill their pipeline with new products, but they have trust issues. The pharmas ask themselves, “Does that biotech want a true drug development partner, or just some tawdry substitute for venture financing?”

Of course, this isn’t something that happens on Match.com. The process of choosing the right partner and negotiating a … Next Page »

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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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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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—Quest Software (NASDAQ: QSFT), the IT software provider on the border between San Diego and Orange Counties, said today it acquired BitKOO, a North Hollywood, CA-based specialist in identity and access management technology. Financial terms were not disclosed. Combined with the recent acquisitions of e-DMZ (privileged identity management), Völcker Informatik AG (provisioning), and Symlabs (virtual directories), Quest says the BitKOO deal extends the strength of its Quest One Identity Solutions business.

—San Jose, CA-based EnVerv, a chip design firm with a San Diego office, said it raised $12 million in a Series B round for its power line communications technologies, which enable electric utilities to use their own power lines to serve as a smart grid communications network. Benchmark Capital led the new round, which was joined by existing investors New Enterprise Associates and Walden International.

—UC San Diego computer security researcher (and San Diego Xconomist) Stefan Savage talked with me about recent research into spam networks and hacking the automotive software used to control cars. Savage said he takes a more holistic approach to protecting computers and networks against malicious intruders. While a great deal of money and effort are devoted to technically “hardening” computer systems against spam, for example, Savage said the payment systems by which advertised goods and services accept consumer credit cards “is a huge weak link that has no cheap substitute.”

—Ford’s Dan Kapp came to San Diego to plug the carmaker’s new plug-in, the 2012 Focus EV. The electric vehicle will go on sale at San Diego Ford dealers during the first quarter of 2012. Ford said … Next Page »

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A 48-percent uptick in new company formations, a funding deal, and two acquisitions made for an encouraging week in San Diego’s innovation economy. This is our roundup of tech sector news.

—The California Public Utilities Commission approved five power purchase agreements that Soitec, the photovoltaic chip maker based Bernin, France, negotiated with San Diego Gas and Electric. The five deals represent a total capacity of 155 megawatts of new solar power for San Diego, according to Soitec. As we explained in April, Soitec says its innovation, which combines concentrating Fresnel lenses and high-performance PV chips, operates twice as efficiently as conventional solar cells. Soitec plans to manufacture its solar modules in the San Diego area, creating about 450 new jobs. Building the solar facility will cost an estimated $500 million.

—Qualcomm (NASDAQ: QCOM) acquired HaloIPT, a UK-based startup developing wireless charging technology for electric vehicles. Financial terms were not disclosed. The technology uses inductive power transfer to charge an electric vehicle (EV). The car parks over an electromagnet, which generates an electric field that transfers energy to the EV power system. A couple days after announcing the deal, Qualcomm said it’s planning to carry out a field trial in London that calls for establishing the wireless EV charging systems for 50 vehicles.

—Cubic (NYSE: CUB), the San Diego defense contractor, conducted a series of local exercises to demonstrate new “combat ID” technology, which is intended to reduce friendly fire casualties among U.S. troops in combat. The technology integrates laser targeting with radio frequency identification tags (RFIDs) and a GPS-based system in a rifle-mounted targeting scope, according to Cubic. The RFID tag, mounted on each soldier’s helmet, transits a coded radio signal that enables users to distinguish between friend and foe combatants.

—The San Diego-based Active Network (NYSE: ACTV) paid $21.5 million to acquire RTP (also known as Resort Technology Partners), a specialized IT company in Colorado that provides online reservation and registration services for Vail and other ski resorts. The Active Network already provides Web-based registration services for … Next Page »

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A comprehensive snapshot of San Diego’s innovation economy shows that 76 technology startups were formed during the three months that ended June 30, a nearly 20 percent increase over the 64 startups established during the same quarter last year.

Counting the 70 new tech companies formed during the first quarter, a total of 146 startups sprouted here during the first half of 2011, according to the latest Connect Innovation Report, which covers innovation activity in the San Diego area during the second quarter of 2011. The full report is available here.

Connect’s innovation report also highlights rising tech employment, a three-fold increase in the total value of M&A deals involving tech companies, and a historic high for patent applications. The report was prepared by Connect, the nonprofit group supporting San Diego innovation and entrepreneurship.

Taken as a whole, the indicators suggest that economic activity was improving for thousands of local life sciences, technology, and defense companies during the first half of 2011. For example, the 146 new companies founded during the first six months of 2011 marked a nearly 48 percent jump over the 99 new companies formed during the first half of 2010.

But the encouraging vital signs measured in the report were taken before this summer, when U.S. markets were unsettled by a variety of political and economic setbacks, both foreign and domestic.

Those broader economic concerns could have been a factor in a nationwide survey of CEO confidence conducted during the third quarter by Vistage International. The survey, which Connect included in its full report, found that small-business CEOs anticipate a slowdown in the pace of economic growth amid record-high economic uncertainty. Generally speaking, that means small companies are more cautious about making investments and slower to hire new workers. The September survey of 1,710 small business CEOs resulted in … Next Page »

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Economists from the UCLA Anderson Forecast and University of San Diego will break out details of their 2012 economic outlook at a conference in downtown San Diego this morning. The study was released earlier today. We have highlights, along with a roundup of last week’s San Diego tech news.

—Job growth in the nation, state, and San Diego remains the biggest concern in the 2012 economic outlook being released today by the UCLA Anderson Forecast. The San Diego economy will “continue to grind along with slightly positive job growth… mirroring the softening forecasted for the nation and state,” according to University of San Diego economists Ryan Ratcliff and Alan Gin, who prepared the local economic outlook for the next three to four quarters. They say, “Unfortunately, this job growth will just barely keep up with the growth of the labor force.” They see unemployment holding steady at 10 percent in San Diego County. The California forecast sees virtually no growth in employment, with the jobless rate stuck at 12 percent. The forecast predicts very modest national economic growth of 2.5 percent to 3 percent, with nationwide unemployment at 8.6 percent.

—Japan’s Sony Corp. agreed to pay almost $1.5 billion to buy Ericsson’s share in Sony Ericsson, the joint venture the two global giants formed 10 years ago to make wireless handsets. The deal could pose ramifications for San Diego-based Sony Electronics, part of Sony’s U.S. operations. By buying out its Swedish partner, Sony is expected to integrate smartphones produced by its new handset business with Sony’s existing expertise in consumer electronics, as well as games, music, and movies.

—In a separate announcement, Sony said its U.S. subsidiary based in New York has acquired Redmond, WA-based Micronics, which is focused on developing “point of care” medical devices. Financial terms of the buyout were not disclosed. This deal also could involve Sony’s operations in San Diego, which has been emerging as a hub for both biomedical diagnostics and wireless healthcare. The Japanese giant said it bought Micronics to accelerate its own R&D in point-of-care diagnostics, and to accelerate the commercialization of Micronics’ other point-of-care devices.

—The Consumer Electronics Association showcased wireless health at its annual industry forum in San Diego last week. The CEA says a study on the role of technology in consumer health and wellness found that consumers are interested in communicating with their doctors via wireless devices. The study says 36 percent of those polled said they would be interested in sending health data to their doctor via a wireless device; 33 percent are interested in managing their health records online; and 32 percent would be willing to consult with their doctor via online video.

—U.S. Chief Technology Officer Aneesh Chopra told a consumer electronics industry forum that government initiatives in technology innovation are leading to a host of success stories in communications, from helping to find lost children to fostering better collaborations among police, fire, and other emergency “first responders,” according to the Consumer Electronics Association. In a keynote speech during the CEA Industry Forum in San Diego, Chopra named Compete.org as a website where entrepreneurs can find information about incentive prize competitions and other challenges the government has established.

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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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Global spending on information and communications technologies is fueling higher valuations for public software companies, according to a quarterly report released by the San Diego-based Software Equity Group. Much of that increased spending, however, reflects an intensifying demand for cloud computing and software as a service (SaaS), as big-company CIOs increasingly accept the notion of outsourcing many programs that were previously installed on corporate networks.

As a result, valuations of public SaaS companies have continued to climb, and more SaaS companies got acquired during the second quarter that ended in June.

For all sectors of the software industry, the Software Equity Group counted 397 buyouts and mergers with a cumulative value of more than $21.3 billion during the second quarter. That was down from a revised tally of 423 mergers and acquisitions during the previous quarter, although the latest quarter’s $21.3 billion worth of deals was almost twice the $11.1 billion total in the previous quarter.

However, that $21.3 billion was skewed by a single mega-deal—Microsoft’s May 10 acquisition of Skype for $8.5 billion. During the same quarter of 2010, the firm counted 378 mergers and acquisitions valued at a total of $17.2 billion.

The firm also counted nine software IPOs, which collectively raised more than $3 billion, at an average of $344 million. That was up sharply from the four software IPOs with an average valuation of $120 million during the previous quarter. The nine companies listed … Next Page »

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Private research organizations employ almost 31,000 people in San Diego County, more than the number of similar employees in any other California county, according to a new quarterly innovation report from Connect, the local non-profit group for technology and entrepreneurship.

Researchers teased that statistic from U.S. Department of Labor data for the third quarter of 2010, the most recent quarter available, according to Steve Hoey, a project leader at Connect who called the new finding “a testament to the strong R&D base we have in our region.” The report ranked Silicon Valley’s Santa Clara County second, with almost 19,000 working at private research institutions. Los Angeles was third with more than 17,000.

Such findings in the report underscore how San Diego has become a hotbed for early stage technology and life sciences companies, despite a decline in the amount of venture capital invested here.

Entrepreneurs started 70 companies in San Diego during the first three months of this year— double the 35 startups formed during the same quarter of 2010, according to Connect’s First Quarter 2011 Innovation Report. The report also shows an uptick in tech sector employment, continuing strength in federal research funding, a sharp increase in patents issued to local inventors, and increasing mergers & acquisition activity. Venture capital investments in San Diego startups, however, continue to decline.

Here’s a breakdown of the report’s major indices:

—The 70 new startups founded in San Diego accounted for nearly 12 percent of the 597 technology and life sciences companies created throughout California during the first quarter. San Diego’s tech startups created more than 130 new jobs, nearly 8 percent of the 1,700 new jobs created by new startups statewide. Twenty-seven of San Diego’s new companies are developing software, an increase that was offset in the life sciences where only 11 new companies were formed. Another 17 were communications startups, with the rest focused on recreational goods, defense, computer, and environmental sectors.

—Communications equipment manufacturing, as usual, represented the largest employment sector of the local innovation economy, with almost 28,000 jobs. San Diego’s life sciences sector and software each accounted for 27,400 jobs, and defense … Next Page »

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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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The University of San Diego today named San Diego lawyer (and Xconomist) Stephen Ferruolo as dean of its law school. Ferrulo has served as chairman of the San Diego office of the Goodwin Procter law firm since 2007, when the international firm set up shop here, and was a partner in the firm’s business law group and a member of its technology and life sciences practice as well as its corporate governance and mergers & acquisitions practice. Before graduating with honors from Stanford Law School in 1990, Ferruolo was an assistant professor of history at Stanford. He also was a Rhodes Scholar at Oxford University, earned his Ph.D. in History at Princeton University, and served on the faculty at Bennington College. He assumes his new duties at the private Catholic university’s law school on Aug. 1.

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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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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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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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San Diego’s CareFusion (NYSE: CFN) says it has acquired Vestara, an Irvine, CA, company with technology that automatically identifies, sorts, and segregates hazardous and non-hazardous pharmaceutical waste for proper disposal. CareFusion, which plans to rebrand Vestara’s EcoRex technology as the Pyxis EcoStation, did not disclose the cost of its acquisition. However, the Health Data Management website reports it was a $17 million deal. Spokesmen at CareFusion and Vestara did not immediately respond to a query seeking confirmation. CareFusion says the disposal of unused meds is becoming an increasing environmental concern, as U.S. hospitals purchase more than 84,000 tons of vials, bottles, and ampules a year.

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San Diego’s innovation economy continues to move mostly sideways, with venture capital investments plunging and employment improving slightly among high technology and life sciences startups, according to a report today from Connect, the nonprofit group for technology and entrepreneurship. The mixed signals also showed San Diego’s merger and acquisition activity soared and federal grants to researchers strengthened during the last quarter of 2010.

A .pdf file for the full report can be downloaded here. My breakdown of the highlights and leading indicators for San Diego’s innovation economy follows:

—Eighty-four high tech and life sciences startups were formed in the region during the fourth quarter of 2010, a 13 percent increase from the same quarter of 2009, when 74 new companies were started. For the year, the report counted 277 new startup companies, which was a 13 percent decline from the 319 startups founded in 2009.

—Mergers and acquisitions jumped substantially across California in 2010 compared to the previous year. The value of reported San Diego M&A deals that closed during the fourth quarter was almost $1.7 billion. The nearly $4 billion in M&A deals reported here in 2010 was more than double the value of deals reported 2009. In Southern California, the M&A market in 2010 totaled more than $40 billion—almost seven times more than what was reported in 2009.

—Combined funding from the National Institutes of Health and the National Science Foundation for scientists in the San Diego area increased in 2010 to $42.5 million per 100,000 residents from $34.4 million per 100,000 in 2009. The report says that makes San Diego one of the state’s top innovation economies, based on federal grants received per capita. Total NIH financing for this region was almost $1.2 billion in 2010, a 28 percent gain from 2009, while NSF support amounted to almost $126 million, a slight increase from 2009.

—In the fourth quarter, San Diego got $278 million in NIH backing, and more than $31 million from the NSF.

— San Diego innovation companies received almost $32 million in Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program grants in 2010, according to new data from the Department of Defense.

—As we reported in January, venture capital investors put … Next Page »

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