PhillyDeals: When companies' growth is mostly 'virtual'

Commerce Bank founder who now runs London-based Metro Bank, with his wife, Shirley, and pup Duffy. He's raising capitalfor expansion.
Commerce Bank founder who now runs London-based Metro Bank, with his wife, Shirley, and pup Duffy. He's raising capitalfor expansion. (Vernon Hill,)
Posted: February 23, 2012

Pennsylvanians worried about the state's chronic slow growth have long promoted subsidized incubators, tax-break zones, regional venture-capital investments, and other programs to encourage high-tech start-up firms, on the theory that this promotes local hiring and contracting.

But these days, a lot of medical inventors and investors never expect to get to the point where they're building gleaming labs or factories or hiring HR directors and staffing up. They still hope to do good, and maybe get rich.

Take Vascular Magnetics Inc. The start-up was created in 2010 during a brainstorming session at the University City Science Center that joined medical-business veterans with Penn, Drexel, and Children's Hospital of Philadelphia professors and their bright ideas. The company is housed in the Science Center's newest building at 3711 Market St.

On Wednesday, Devon Park Bioventures, of Wayne, said it would invest $7 million in Vascular Magnetics, which is building a prototype magnetic catheter and drug-delivery system for blood medicine to fight peripheral artery disease, a condition that raises the risks for strokes, heart attacks, and leg amputations for aging diabetics, smokers, and others.

Vascular Magnetics' founders and owners have no plans to build a lab, factory, or sales force. "We'd get crushed like a bug," the company's only full-time employee, cofounder Richard S. Woodward, told me.

In fact, there are no plans to hire more than two people, ever. "Our plan is to run mostly in the virtual mode" and improve the system until it attracts investment from giant vascular-disease-fighting companies such as New Brunswick-based Johnson & Johnson's Cordis Corp. division, Abbott Laboratories' Vascular unit, Covidien, Medtronic, or one of the big European vascular-treatment makers, Woodward added.

"It used to be that as a venture-capital investor, you could take companies to the clinical-trial stage, then go public" and raise millions more to prepare and start production, Marc Ostro, a partner at Devon Park, told me.

But these days, "doing an initial public [stock] offering is extremely difficult because the vast majority of public investors aren't buying IPOs, based on their losing a lot of money in previous IPOs," Ostro said.

"It's changed the life-science venture-capital job. It takes too long to invest in start-ups. You have to put a lot more money in privately" to get a new company to where it may be profitable. Of course, in Vascular Magnetics' case, he said, "We like the market, and we like the people there, a lot."

Woodward, a onetime Pharmacia executive-turned-emerging-drug- company consultant, founded Vascular Magnetics with the man who developed the technology, Robert J. Levy, a pediatric cardiologist, who heads the heart-research lab at Children's.

As part of the deal, Devon Park general partners Christopher Moller, a Penn-educated immunologist and investor at TL Ventures, and Ostro, founder of Liposome Co. and a former aide to billionaire investor Kenneth Dart, will join Vascular Magnetics' board.

It's such a "virtual company," Woodward said, that he rarely has to go to his "virtual" West Philadelphia office. "I'm mostly working in my basement office in South Jersey," he told me. "It's a lot easier to go down there at 8 a.m. and come up at 6, and have my wife make my lunch."

More money

Vernon Hill, the Commerce Bank founder who now runs London- based Metro Bank, confirms a story in Britain's Sunday Express that his Metro Bank P.L.C. is trying to raise more "growth capital" to expand into England's home counties.

Anthony Thomson, the British banker who chairs Metro (Hill is CEO), told the Express that their "privately owned bank may need to tap existing and new investors for new funds to continue its rapid expansion, ahead of its planned [IPO] on the London Stock Exchange in 2014."

The bank raised 52 million pounds (about $80 million) in 2010.

Contact columnist Joseph N. DiStefano at 215-854-5194, or @PhillyJoeD on Twitter.

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