Health care companies grab two of three VC dollars in Northeast Ohio

2009 VC ReportCLEVELAND, Ohio — The health care industry has attracted two out of three venture capital dollars invested in Northeast Ohio companies in the last five years, according to the 2009 Venture Capital Report for the Cleveland Plus Region (pdf).

Some $729 million was invested in 69 biopharmaceutical, medical device and equipment, and medical information systems companies from 2005 through 2009, according to a JumpStart Inc. release about the annual report, which will be available in print in February.

JumpStart, Northeast Ohio’s venture development organization, BioEnterprise, the region’s health care company developer, and NorTech, its technology-based economic development organization, have teamed up in the last several years to produce the report.

“Health care continues to be Cleveland’s flagship sector,” said Baiju Shah, president and chief executive of BioEnterprise, in the release about the venture capital report. “The success of regional health care start-ups continues to attract regional and national investors.”

Shah cited the $12 million investment round for Franklin & Seidelman, a subspeciality teleradiology company in Beachwood, in 2009 as an example of a big deal in the sector.

He also cited the $11 million invested by Mutual Capital Partners and River Cities Capital in Akron spinal implant and instrument maker OrthoHelix Surgical Designs Inc. during two rounds in 2009 and 2008, and the $50 million investment led by Polaris Venture Partners and joined by Primus Capital Funds in PartsSource LLC, the fast-growing supplier of replacement parts for hospital imaging and biomedical equipment in Aurora, in 2008.

BioEnterprise didn’t mention perhaps the biggest of health care financing in Northeast Ohio in recent years: the $65 million reverse IPO by Cleveland biopharmaceutical company Athersys Inc. (pdf)  in 2007.

The venture capital report also cited notable “exits” in the health care sector: the up to $200 million acquisition of Theken Spine LLC in Akron by Integra LifeSciences Holding Corp. of Plainsboro, N.J., in 2008, and the $630 million acquisition of Solon pharmacy benefits manager MemberHealth Inc. (pdf) by specialty life and health insurer Universal American Financial Corp. in Rye Brook, N.Y., in 2007.

Many of the health care company investors came from outside Ohio, said James D. Ireland III, chairman of the Venture Capital Advisory Task Force, which led the reporting effort.

“Investors from outside the region and state see potential in the innovative ideas coming out of Ohio and are partnering on deals,” Ireland, who is managing partner of Early Stage Partners LP in Cleveland, said in the report release.

In addition, Ohio Third Frontier-backed projects like the Ohio Capital Fund have attracted health care venture capital firms to Ohio and invested in companies here, Ireland said.

Meanwhile, seed-stage investment in the region hit a four-year high in 2009. “Seed-stage investors in the region are priming the pump for later-stage investors, enabling them to find competitive investment opportunities here,” said Ray Leach, JumpStart’s chief executive, in the release.

Leach was on the advisory board of MedCity News.

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