Devices & Diagnostics

Illinois keeps lead among Midwestern states for healthcare VC

Illinois kept its lead among nine states and one region in pursuit of venture capital dollars for Midwest healthcare startups so far this year. Midwestern states won a total of $572 million for their healthcare companies since the beginning of the year, according to the BioEnterprise Midwest Health Care Venture Investment report.

Illinois kept its lead among nine states and one region in pursuit of venture capital dollars for Midwest healthcare startups so far this year.

Midwestern states won a total of $572 million for their healthcare companies since the beginning of the year, a far cry from amounts in pre-recessionary years. However, the number of companies financed — 111 — has been relatively stable.

Venture capital had just begun to flow to Midwestern biopharmaceutical, medical device, and health IT and services companies when the financial crisis hit. In 2007, 104 companies had raised more than $1 billion by the beginning of the fourth quarter.

“Funding for health care is reduced due to the recession and concerns surrounding the impact of health care reform on innovation,” said Baiju R. Shah, president & CEO of bioscience development organization BioEnterprise, in a written statement. “Given the broader environment, it is encouraging to see so many Midwest health care companies attracting capital.”

But the investment climate is beginning to warm, according to a panel of healthcare investors assembled a week ago by BioEnterprise.

A year ago, the U.S. economy was mired in a slump, credit markets were frozen to small businesses, and there was lots of industry uncertainty over health reform. Now, the economy’s starting to improve, credit markets have begun to thaw, and uncertainty over health reform has given way to uncertainty about its impacts.

Doug Schillinger, managing director of Utah-based DW Healthcare Partners, said he’s been surprised by how many high-quality potential deals have come across his desk this year. Finding solid senior management talent to grow those companies remains a challenge, he said.

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A Deep-dive Into Specialty Pharma

A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.

In the first three quarters of this year, eight Illinois healthcare companies attracted $147.7 million in venture capital investments. 30, according to the latest BioEnterprise Midwest Health Care Venture Investment report (pdf). Ohio was second with 38 companies attracting $89.2 million and Western Pennsylvania, third, with $79.7 million for 19 companies.

The biggest deals in Illinois came in the first half of the year: $43 million for Chicago-based NeuroTherapeutics Pharma and $40 million for Schaumburg-based Sagent Pharmaceuticals.

The VC leader board for Midwestern cities in starts with Chicago, Illinois, with ALL of the state’s healthcare venture dollars in the first three-quarters of the year. Pittsburgh, Pennsylvania, is second, raising $79.7 million for 19 companies, and Minneapolis, Minnesota, is third, with $78.5 million for 10 companies.

For those of you keeping track of Cleveland, Ohio, which is home for BioEnterprise, the city came in fourth with $77.6 million for 25 companies.