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Firm to Invest Tobacco Settlement Dollars in Local Biotech Start-Ups

Posted on: Tuesday, 16 August 2005, 12:00 CDT

Aug. 16--A Montgomery County private equity firm has been tapped to invest $9.1 million of state tobacco settlement dollars into Western Pennsylvania life sciences start-ups.

Commerce Health Ventures, of King of Prussia, a health-focused investment fund run by NewSpring Capital, was chosen yesterday by the Tobacco Settlement Investment Board to take the remaining portion of the $60 million set aside for biotech investment in Pennsylvania.

The board controls spending of Pennsylvania's share of the federal tobacco litigation settlement. In 2003, the board said it would divide the dollars among three venture capital firms across the state, with $20 million slated for each.

Commerce partnered with the Hazelwood-based biotech engine the Pittsburgh Life Sciences Greenhouse to seek out the state funds, and it must match the state money with outside investment dollars 3-to-1, or a total of $27.3 million.

The Tobacco Settlement board is expected to finalize its decision at a meeting in the near future, according to a spokesman for the state.

Commerce Health Ventures beat out Downtown-based private equity firm iNetworks LLC for the remaining chunk after several tension-filled months of lobbying by both groups.

The road to find a manager for the dollars set aside for Western Pennsylvania biotech firms has been a long and difficult one.

North Side-based Birchmere Ventures, originally was expected to get and invest the entire $20 million earmarked for Western Pennsylvania, but in January the venture capital firm told state officials that it could not secure the $60 million in private backing necessary to receive all state dollars. Instead, Birchmere will manage almost $10.9 million.

In March the state began soliciting proposals from new investment firms to manage and match the remaining $9.1 million.

Birchmere was the state's second choice, after its initial selection, Saturn CPP, closed its Pittsburgh office and faltered in its effort to raise matching money in 2003.

Two other state venture firms, Philadelphia's Quaker Bioventures and Wayne, Delaware County-based PA Early Stage Partners, were tapped to invest $20 million each in the eastern and central parts of the Pennsylvania, respectively. Both firms raised enough private money to win their full state allotment.

Commerce has yet to raise all of the matching money required by the state. Commerce partner Brian Murphy said he could not specify how much of $27.3 million in matching dollars the firm already had raised, but said he expected to secure more than the matching amount by the end of the year. "We are currently continuing to fund-raise," Murphy said. "Some of the match will end up coming from new investors who will come into the fund."

Commerce raised $25 million in a separate investment fund of for start-ups in medical devices, health care service and bio-pharmaceuticals in 2003. With these dollars, they have already begun to invest in seven life science companies, five of which are located in Pennsylvania.

Some of the $25 million, Murphy said, will be put toward the matching dollars required to receive the state funds, but he declined to say how much.

Sources close to the Tobacco Settlement board declined to talk on the record about its decision process but said Commerce had developed track record of raising money and delivering a return on investment in bio-focused start-ups.

Murphy said Commerce partnered with Pittsburgh Life Sciences Greenhouse to help the firm identify and vet local life sciences start-ups. The firm hopes to begin investing by the "fourth quarter of this year."

"We're starting to build a pipeline with companies out of the western part of the state," Murphy said.

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Source: Pittsburgh Post-Gazette

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