MENLO PARK, Calif. – As a former internist who had diagnosed many patients with cancer, venture capitalist Ross Jaffe wanted to back a company that worked on early detection technology to give patients better treatment options and increased odds for survival.
Toward that end, Dr. Jaffe’s information technology and health-care focused firm, Brentwood Venture Capital, recently backed Windy Hill Technology Inc., an 18-month-old Silicon Valley company that is developing a device to detect breast cancer and pre-cancerous cells much earlier than a mamogram would.
Dr. Jaffe had been aware of Windy Hill and its innovative technology, so when he learned the company was shopping around for additional venture backers, he stepped right up.
Brentwood, which closed on a $300 million fund last November, invests two-thirds of its money in IT and one-third in health care. At least half of the health-care deals are device-related, estimated General Partner Bill Link, but the firm also backs drug delivery enterprises and diagnostics companies.
Brentwood has backed cancer-related companies in the past, including Biopsys Medical Inc., a breast cancer diagnostic device company that was bought by Johnson & Johnson. The group also has backed FeRx Inc., a drug delivery company focused on cancer patients, and Prometheus Inc., a company that makes diagnostic tests for gastrointestinal disease. The latter two companies are based in San Diego.
Windy Hill stands out from other health-care companies because it believes there are no competitors using the same approach to detecting cancer. And if the device works, it will have a potentially enormous market of women who are at risk for breast cancer.
At a time when interest in health-care investing severely lags behind high-tech deals, Dr. Jaffe and other VCs like him understand the volatility of the public market and believe that it will once again embrace the health-care industry. VCs find early-stage companies such as Windy Hill attractive partly because it will take them longer to go public or to be sold, thereby giving the public market more time to rediscover health care.
Windy Hill and its backers remain mum about details of its technology, citing the need to protect intellectual property rights while the company files for a number of patents, said Annette Bianchi, a former general partner at Weiss, Peck & Greer Venture Partners, which has backed Windy Hill since its earliest days.
Windy Hill in May closed a $14 million round of financing, bringing in Brentwood and Ms. Bianchi’s new firm, Pacific Venture Group, as new limited partners.
The company raised $3.2 million in 1998 from Weiss Peck, Three Arch Partners and Institutional Venture Partners in a combined Series A and B seed round of financing, said Windy Hill Chairman and Chief Executive Howard Palefsky. The money will be used for clinical trials, slated to start within six months, as well as for manufacturing and pre-marketing activities, Mr. Palefsky said.
Windy Hill, which has about 20 employees, was founded by breast cancer surgeon and author Susan Love, and Julian Nikolchev, who founded Conceptus, a spin-out of Target Therapeutics, which Mr. Palefsky helped to start.
The company initially is targeting women at high risk for breast cancer. The device will detect cancer or mutated pre-cancerous cells 10 years earlier than such abnormalities would normally appear on a mammogram or as a physically detectable lump on the breast, Mr. Palefsky noted. The technology will offer younger women an alternative to mammograms, which tend be less accurate for them because their breast tissue is of the same density as a tumor, Ms. Bianchi said.
Dr. Jaffe envisions two potential lucrative exits – if the public market becomes more favorable to health-care companies, he expects the appetite for the company’s stock to be strong. Then again, Windy Hill’s technology could be an attractive acquisition for a large health-care company.
Unlike IT companies, which can and often do go public at a relatively young age based on interest in their ideas, health-care companies take much longer to reach an IPO because drugs and devices must successfully complete clinical trials and secure approval by the Food and Drug Administration.
To succeed, Windy Hill must produce positive clinical results and then face the task of convincing women and their doctors of the value of their new approach to detecting breast cancer. Clinical tests should take about three to six months, after which Windy Hill plans to apply for permission to market the device both in the United States and Europe. If all goes well, Mr. Palefsky anticipates bringing Windy Hill’s technology to market in 2000.
Mr. Palefsky knows of no competitors pursuing the same approach to breast cancer detection as Windy Hill, but other companies are working to improve imaging techniques to detect tumors. Dr. Jaffe views Windy Hill’s technology as complementary to other diagnostic techniques and sees great potential in the company’s success because it appeals to a large market – detecting and preventing breast cancer.
Brentwood’s health-care investments are overseen by three general partners – Mr. Link, Brian Atwood and Dr. Jaffe. Three other G.P.s and three venture partners manage information technology deals.