Multiple Pathways to the Exit: Canaan’s Bloch on Advanced BioHealing Buyout

The $750 million sale of Advanced BioHealing to the Irish drug giant Shire Pharmaceuticals, announced on Tuesday, has been hailed as a rare win for regenerative medicine, with an extraordinary 15x return for Canaan Partners, the venture firm that helped to found the company just five years ago.

But as I noted in a 2009 profile of Advanced BioHealing’s San Diego operations, the development of the company’s bio-engineered human skin substitute extends back quite a bit further—almost 20 years—to San Diego’s Advanced Tissue Sciences (ATS). After pioneering the technology in the 1990s, Advanced Tissue Sciences filed for bankruptcy liquidation in 2002, having raised hundreds of millions of dollars from venture investors, and later from shareholders as a public company. ATS sold the global rights to Dermagraft and its San Diego manufacturing facility to the British company Smith & Nephew in 2003.

Smith & Nephew was ready to sell the Dermagraft business to Canaan by 2006—after spending three years and millions of dollars more in a second bid to commercialize the technology.

Stephen Bloch, the Canaan general partner who pulled the deal together, tells me that as much as $300 million in total might have been invested to commercialize Dermagraft before he entered the picture in 2006. In other words, roughly $300 million of capital that was invested to develop the technology and win FDA approval was basically written off before Canaan stepped in to restart the business for the third time.

Stephen Bloch

Bloch told me by telephone that in the ensuing years, venture investors sunk about $40 million to re-capitalize the business. He also confirmed that Canaan’s $15 million investment is expected to yield a roughly $225 million payout, “cash on cash,” as he put it, in the Shire acquisition. Safeguard Scientifics, which invested about $11 million in venture capital, is expected to see a roughly $140 million return. Other investors accepting congratulations for their prescience are CDIB Bioscience Ventures, Channel Medical Partners, Horizon Technology Finance, Red Abbey Venture Partners, and Wheatley Partners.

As other reports on this deal have noted, Shire’s buyout offer for Advanced BioHealing was announced just a day before

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.