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In Response to VC Funding Drought, AnVil Closes Shop, MolecularWare Finds a Buyer

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Two and a half years after raising its first round of venture capital funding, informatics firm AnVil has shut its doors and is seeking a buyer for its technology, BioInform has learned. The company had been looking for an additional round of financing, but was unable to close a deal before its initial $3.5 million round ran dry, according to company officials.

Meanwhile, the slowdown in venture capital funding has spurred another bioinformatics firm, MolecularWare, to seek an acquisition partner. The company, which was acquired by life sciences holding company CalbaTech last week, was also seeking a second round of VC financing to sustain itself after raising $2.5 million in August 2001. “The goal of the B round would have been to expand the product and our sales and marketing,” said Richard Kivel, MolecularWare CEO. “It turned out that the CalbaTech group presented us with the opportunity to do just what we wanted to accomplish and do it under the umbrella of what will be a much bigger company. So we’re able to hit the same goals without some of the headaches that come with raising venture capital.”

The fates of the two firms highlight the dwindling options available to small informatics firms in the current economic climate. “In 2000, [venture capitalists] said, ‘Here, I’ve got money and I’ll actually pay you.’ Nowadays it’s a little different. [VCs] say, ‘I might have some money, but I’m probably not going to pay you,’” said James DeOlden, CalbaTech’s CEO. With new business difficult to secure, companies unable to obtain follow-on funding have few choices: slim down, close shop, or find a buyer.

AnVil is currently pursuing all three options. The company’s four-person management team is operating in “virtual mode,” according to David Stone, a partner with AGTC Funds, a Flagship Ventures company that was one of three original investors in the company. Stone, who is also a member of AnVil’s board of directors, told BioInform that “there are some parties who are interested in the team and/or the technology, and some conversations are underway” regarding acquisition opportunities.

According to Richard Gill, AnVil CEO, “Our investors haven’t been putting the money on the table that they promised us, so we had to say if we don’t have money that we’ve been promised, we’re going to take it to a minimum burn and see if we can do some mergers and acquisitions with the technology platform and the people.” Gill said the core management team is maintaining the company’s current partnerships and client projects while seeking a buyer.

Market Mutations

It is often said that successful companies need to adapt to changing market conditions, but too strong a dose of this strategy may have been AnVil’s undoing. The data mining and visualization company, founded in 1999, experimented with three different business models in its short lifetime. The company was launched under a standard bioinformatics business model that combined a consulting services business with shrink-wrapped software sales, and then shifted to a collaborative model in which it tried to share royalties with pharmaceutical partners.

Within the last year it hit upon a model that was relatively unusual in the sector, in which it planned to analyze clinical data from healthcare firms, hospitals, and insurance companies, and extract information that it could then market to pharmaceutical and biotech firms. The problem, according to Stone, was that “the sales cycle for selling these insights in the context of a significant transaction is fairly long.” While AnVil had signed a number of agreements with partners willing to provide their data for analysis, the company simply ran out of cash before it could secure paying customers for the information.

“We just weren’t able to generate enough customer experience to bring new investors in, and existing investors were not prepared to continue the process beyond a certain point,” said Stone.

Strength in Numbers

MolecularWare, originally launched in 1998, has remained faithful to its original business plan of selling its DigitalGenome microarray analysis software suite, but stick-to-it-iveness didn’t make it any easier for the company to raise additional financing.

With the hope for VC funding fading, Kivel said the option of becoming a wholly owned subsidiary under the umbrella of CalbaTech was an attractive option. “We felt that there was more than one way to grow the company,” said Kivel. “Certainly a merger or acquisition was one way, and funding through venture capital means was another.”

MolecularWare will continue to maintain its name, its product suite, and its Cambridge, Mass., office, and will also be able to expand its staff of fewer than 10 and open a West Coast office in Irvine, Calif., where CalbaTech is based. MolecularWare anticipates breaking even by the end of this year, Kivel said.

CalbaTech is a publicly traded firm that is acquiring life science tool companies that are either generating revenues or “require less than $1 million to bring a product to market,” according to a company statement. To date, the company has completed two other technology acquisition agreements: A license to slide-based diagnostics technology from Scottish diagnostics firm QICC; and a DNA isolation and extraction technology developed by J. Zoval, an associate inventor with CalbaTech.

MolecularWare is the first bioinformatics company that CalbaTech has acquired. DeOlden said the company is currently in talks with another “software firm,” but did not disclose further details. Although CalbaTech considered several other bioinformatics acquisition targets, DeOlden said that MolecularWare was “well-suited to continue to grow and adapt to the variety of different things that we saw for them…Some of the acquisitions that we’re working on are going to have to tap into MolecularWare, and MolecularWare is going to have to adapt their software to provide a full service, and they showed us that they were capable and willing to do that.”

DeOlden said that CalbaTech is rolling together several small companies into one entity in the hope that the whole will be greater than the sum of its parts. “Companies that do a million, two million, three million dollars in revenue, they should never go public. But a year and a half from now, I’d like to have six or seven companies underneath CalbaTech’s belt that do $5 million to $15 million in revenue, to collectively provide a bigger product in the market.”

DeOlden explained the strategy as a way to help small companies weather the harsh economic climate. “Right now, companies need to be lean and they need to work together, and that’s what we’re trying to help facilitate,” he said.

But according to Stone, all hope is not lost for bioinformatics firms seeking venture funding. AGTC has most recently invested in discovery informatics startup Genstruct, “and we are endeavoring to keep the overhead low, grow the company as the sales develop, and try once again for a value-sharing approach,” he said

Stepping back and looking at the big picture, Stone said he remains convinced that there are opportunities in informatics. Remarking on the “tremendous investment that biotech and pharma companies are making into research that could be rendered more productive or more efficient or more effective by better informatics approaches,” Stone said, “the unmet needs and the opportunities to apply computer power still suggest that there’s a profitable solution there.”

— BT

 

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