Gastric Stimulation Startups Attract Financial Backing

by James Cavuoto, editor

The market for gastric stimulation systems and other neurotechnology devices that treat obesity has attracted the attention of venture capital firms and corporate investors. VC firms’ appetites were no doubt stimulated by Medtronic’s purchase of Transneuronix last year for $260 million plus incentives [NBR Jul05 p1].

The U.S. Centers for Disease Control estimates that 10 million Americans suffer from morbid obesity and that 300,000 die from obesity-related causes each year. The condition is responsible for more than $100 billion in annual medical costs. About 100,000 Americans receive gastric bypass surgery each year, and gastric stimulation devices may represent a potential alternative to that procedure

Earlier this month, IntraPace, Inc., a Menlo Park, CA developer of an endoscopically delivered gastric stimulator, announced that it completed a $30 million series D financing. The company had previously received a $14.6 million C round. The new financing round was led by Vulcan Capital, the investment group of Paul Allen. The company plans to use the funds to complete product development and worldwide clinical studies. “We see great potential in the technology IntraPace is bringing to bear on the obesity market,” said Eric Bell, Vulcan Capital’s representative. “As obesity has grown to become a worldwide health crisis, solutions provided by IntraPace have an opportunity to improve the lives of millions of patients.”

In addition to Vulcan Capital, other participants include new investor, L Capital Partners, and existing investors, DFJ ePlanet, Oxford Bioscience Partners, Toucan Capital, Guidant Corp. (now Boston Scientific), Johnson & Johnson Development Corporation, CB Health Ventures, Halo Fund II, and The Angel’s Forum. In conjunction with the financing, Eric Bell of Vulcan Capital and Ting Pau Oei of L Capital Partners will join the IntraPace board.

Ting Pau Oei, Partner at L Capital Partners, commented that, “we are thrilled to be an investor in IntraPace, Inc. This investment is an excellent example of our commitment to invest in companies with first class management teams and transformational technologies directed towards addressing one of today’s most challenging medical problems, the treatment of obesity and metabolic disorders.”

“IntraPace is finalizing pre-clinical refinements to begin clinical trials in 2007,” said Chuck Brynelsen, IntraPace CEO. “We are looking forward to a successful clinical trial showing definitive weight loss results in implanted patients. As with our series C financing this funding round was heavily oversubscribed by both current and new investors. We believe that this is evidence of the increasing interest in developing solutions for the treatment of obesity which has become a major health issue in the United States.”

Last month, EnteroMedics, the St. Paul, MN developer of a vagal nerve blocking device to treat obesity, received a $45 million series C round, complementing a $17 million series B round it raised in 2004. The round was led by InterWest Partners, Onset Ventures, and Pacific Asset Partners, with Bay City Capital, Aberdare Ventures, Charter Life Sciences, and MPM Capital also participating. The company’s Maestro Obesity Management System, which uses VBLOC therapy, delivers very high frequency, low power electrical signals through laparoscopically implanted leads to block vagal nerve transmission. The delivery of energy to the nerves is intermittent and the effects on the nerves and end organs are intended to be reversible.

“We’re very encouraged by the progress EnteroMedics has made in the development and clinical evaluation of VBLOC therapy. The company’s innovative multi-mechanism approach has the potential to deliver a compelling alternative to the millions who are challenged by obesity,” said Ellen Koskinas, a partner at InterWest Partners, who will join the EnteroMedics board.

GI Dynamics, a gastric stimulation device developer in Watertown, MA, raised a $12 million series B round in 2004, backed by Advanced Technology Ventures, Angel Healthcare Investors, Domain Associates, Polaris Ventures, and others. Leptos Biomedical, a Redwood City, CA developer of a neuromodulation device to treat obesity, has received two rounds of venture capital investment, from Thomas McNerney and Partners, Technology Partners, and Spray Venture Partners. The Leptos device stimulates the sympathetic nervous system.