Earlier in December, Xagenic scored something that few diagnostics startups were able to accomplish in 2013: significant early-stage venture financing.
We're talking about an $18.8 million Series B round, to be exact, after an impressive $10 million Series A in January 2012.
You've heard reports all year about how med tech startups in general, and diagnostics startups in particular, have struggled to nail down significant early financing--a crucial ingredient to bring a promising idea through clinical testing, validation studies, regulatory approval and ultimately, to market. These days, however, investors lean heavily toward late-stage operations with a product on the verge of approval, or companies already revving up for commercial sales. Healthcare reform in the U.S. and reimbursement pressures around the world have put greater emphasis on making sure a device or diagnostic can really make its mark with customers, prove its value and improve the standard of care. So with the development risk all but eliminated, the assumption is that companies have met those milestones, and investors are much more confident that their money will be put to effective use on attainable goals.
Xagenic attracted healthy Series A and B rounds, bucking the trend, thanks to detailed work to provide investors with what they need to be assured their concept is a workable, functional idea that will perform as envisioned. The 2008 economic crash, ironically, also helped, delaying the company's launch, but giving inventors and the company principals more time to hone their diagnostic technology and their concept.
Shana Kelley, chief technology officer of the University of Toronto spinout and molecular diagnostic technology developer, told FierceDiagnostics that a large Series B financing wasn't easy because investors remain wary.
"It is very difficult to find groups willing to look at early-stage diagnostics," she said.
But Xagenic did, attracting an investor syndicate including Domain Associates, CTI Life Sciences Fund and the Ontario Emerging Technologies Fund. To get there, Kelley explained, the executive team focused hard on coming up with a detailed development and commercialization plan that could pass the toughest investor scrutiny.
Xagenic, which launched in 2010, "hit the ground running" with its Series A, Kelley said, with a "very well-vetted commercialization plan." That, combined with significant clinical progress in 2012 and through 2013, gave Xagenic the ability to "come to investors with a fairly mature technology and product under development that helped them see the light at the end of the tunnel," she said. The money will help Xagenic keep on track for an FDA approval in 2015 for its automated AuRA platform and also fuel new partnerships, a massive clinical study, and development of diagnostic tests for AuRA that target infectious diseases.
Here's what investors have been drawn to: AuRA is designed to be completely automated in order to help physicians' offices and clinics handle molecular diagnostic testing without needing outside laboratories, generating results within 20 minutes. In theory, the timing is excellent, because healthcare systems want cost-effective treatments, and cheaper and easier-to-use molecular diagnostic and genetic testing will become a more routine part of daily medical care.
Still, it took a long time for Xagenic to raise its impressive Series B. Execs started talking about the Toronto company's fundraising efforts in January 2013, at the annual J.P. Morgan Healthcare Conference in San Francisco. Kelley said it took about 11 months to get a syndicate together and close the deal.
Kelley said that researchers first developed the technology in 2006-2007 and in 2008 began to first consider spinning it out into a startup. The economic crash delayed those dreams, but it also gave the Xagenic team two extra years of development on their technology, allowing the founders to bring it to a level at which they could be certain it would work as envisioned, adding more vital supporting data to the investor pitch.
It was "a little bit of extra runway," Kelley explained. "It didn't feel great at the time, but in retrospect it really helped." -- Mark Hollmer (email | Twitter)
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