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February 4, 1999

UPMC, Pitt partners in venture capital fund investing in biomedical start-up


UPMC Health System — together with six other investors, including Pitt — has joined with the U.S. Small Business Administration to form a venture capital fund that will invest in biomedical start-up companies.

The $60 million fund will invest in as many as 15 early-stage companies over the next five years, officials said at a Jan. 21 news conference.

They said the fund, called Caduceus Capital Partners, will promote development of the region's biotech industry and give UPMC a presence in the global market.

The fund will give preference to regional start-up companies but will not limit its investments to western Pennsylvania.

Jeffrey Romoff, UPMC Health System president, said it will be "natural" for Caduceus-backed companies outside the region to want to do clinical trials at UPMC and collaborate with researchers at Pitt and Carnegie Mellon.

Pitt and CMU are investing $1 million and $500,000, respectively, in the fund. UPMC is providing $16 million, the largest private commitment.

In the best-case scenario, Romoff said, outside start-up companies will decide, upon achieving success, to move their operations to western Pennsylvania to take full advantage of the region's research and clinical strengths.

Caduceus is the first venture capital fund sponsored by an academic medical center to receive a Small Business Investment Company (SBIC) license, said Scott Lammie, executive vice president of UPMC's diversified services division.

"We're excited about this because it is the first of its kind under the SBIC program where we have all the strategic partners aligned to develop both research and business interests regionally, nationally and internationally," Lammie said.

William Golden, one of the new fund's two managing directors, said: "I see western Pennsylvania as having a tremendous resource base that has perhaps not been fully exploited by the venture capital community in this country." Golden, a venture capitalist from Boston, will co-manage Caduceus with George Sing, of New York. Golden said he and Sing will make investment decisions for Caduceus but will listen to advice from academic physicians and researchers here.

"We have to be very selective in how we invest our money," Golden said. Investing in start-up companies is risky; national statistics indicate that only one or two of every 10 companies in which Caduceus will invest will take off, Golden noted.

"At the same time," he said, "we will be looking at virtually every promising start-up company coming out of the western Pennsylvania area" as candidates for Caduceus investment.

The fund already has invested in one local company, Golden said: Stentor, which produces medical imaging software developed by UPMC radiologist and University faculty member Paul Chang.

Pitt Chancellor Mark Nordenberg said the new fund will increase opportunities for University researchers to market their inventions and technologies.

"This fund will build upon an incredibly strong base of academic research, and it will position our faculty scientists to move their work to the next stage, maximizing its positive impact on people here and on people at a distance," Nordenberg said. "Obviously, we all also believe that this fund presents real potential for capitalizing on existing strengths in ways that will give a boost to the regional economy." Of Caduceus's $60 million in funding, $20 million is coming from private investors. The federal Small Business Administration will provide $40 million in matching funds.

In addition to UPMC Health System, Pitt and Carnegie Mellon, the other sponsors are: Mellon Ventures, the venture capital subsidiary of Mellon Bank Corp.; PNC Equity Management Corp., part of PNC Bank Corp.; Sanderling Ventures, a venture capital firm based in Menlo Park, Calif.; and TVM Techno Venture Management, of Munich.

— Bruce Steele

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