TECHNOLOGY FUNDING MEDICAL PARTNERS I, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
1994 ANNUAL REPORT
Dear Limited Partner:
The General Partners are pleased to present the 1994 Annual
Report for Technology Funding Medical Partners I. The
report includes an overview of Partnership activity in 1994,
a brief review of financial highlights, a concise status
report on each active portfolio company, and a copy of the
Partnership's audited financial statements for 1994.
At December 31, 1994, the Partnership had nearly doubled its
capital raised from the prior year end to $6,070,066.
Following year end, the total exceeded $7,000,000. The
offering period will extend through April 30, 1995, and the
General Partners expect that the fund will conclude its
offering with sufficient capital to meet its goal of
compiling a strong, diversified portfolio.
Also during 1994, the Partnership increased its number of
portfolio company investments to six emerging companies and
one private venture limited partnership. Adding to the 1993
investment in Periodontix, the latest additions included:
CV Therapeutics ($375,000 equity), an early-stage
biotechnology company developing innovative treatments
focused on the biological mechanisms of chronic
cardiovascular disease;
Khepri Pharmaceuticals ($125,000 equity), a seed-stage
company focused on the discovery and development of novel
drugs based on proteases and protease inhibitors;
Megabios ($325,000 equity), a developer of lipid/DNA
complexes used in gene therapy for the treatment of
inherited and acquired diseases;
R2 Technology ($100,000 equity), a developer of a
computerized mammographic system that aids in the detection
of breast cancer in its earliest stages and has the
potential to significantly decrease the incidence of
misdiagnoses;
RedCell, Inc. ($125,000 equity), a first-stage biotechnology
company seeking to become a leader in the growing field of
red cell-mediated therapy; and
Medical Science Partners II, L.P. ($125,000 equity
commitment), a $30 million private venture capital fund
seeking early-stage life-science investment opportunities in
the Boston, Massachusetts area.
As previously reported, the amounts of the Partnership's
initial investments have been modest due to the fact that
the Partnership is currently raising capital. After the
offering period draws to a close on April 30, 1995, the
average investment amount for new additions should increase
slightly. During the current offering period, uninvested
capital is placed in short-term investments and interest
earned on those funds is distributed to the Limited
Partners. Beginning in January 1994, Medical Partners I has
made quarterly distributions of offering period interest
from short-term investments.
Throughout 1995, Medical Partners I will continue to review
investment opportunities in companies at varying stages of
development over a number of healthcare industry segments.
Although there may be some strong performers early on, the
General Partners anticipate a wait of four to six more years
before significant proceeds from the sale of investments
should be expected to begin generating a future cash stream
for the Partnership.
REGARDING THE FINANCIAL STATEMENTS
In 1994, its first full year of operations, the Partnership
recorded a net loss of $188,769 compared to a net loss of
$113,431 in 1993.
Operating expenses were $196,302 in 1994 compared to $55,975
in 1993. Such expenses are expected to increase as the
Partnership increases investment activities and, through
April 30, 1995, its number of Limited Partners.
Management fees totaled $87,861 in 1994 compared to $61,662
in 1993. Management fees are equal to two percent of the
total limited partners' capital contributions for the first
year of operations through the sixth year. Management fees
are expected to increase as the Partnership continues to
sell Units through April 30, 1995.
Net loss was partially offset by $132,394 in interest income
for 1994 compared to $16,706 in 1993. The 1994 increase
reflected higher cash and cash equivalents balances in 1994
as the Partnership sold more Units.
We hope this information increases your understanding of the
portfolio. We encourage you to review the accompanying
financial statements carefully and discuss them with your
broker or financial advisor if you have any questions.
For the General Partners,
Frank R. Pope
General Partner
Technology Funding Inc.
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PORTFOLIO REVIEW
With six new additions, the Medical Partners I portfolio
included $1.4 million invested or committed in six companies
and one limited partnership through the end of 1994.
Currently, the portfolio is diversified across medical
equipment, pharmaceutical, and biotechnology industry
categories, as well as a similarly diversified venture
capital partnership. The following profiles summarize each
of the current Partnership investments.
CV Therapeutics, added to the Medical Partners I portfolio
in March 1994, is dedicated to discovery and development of
novel, cost-effective treatments for chronic cardiovascular
disease, using new tools of molecular cardiology combined
with the clinical cardiology expertise of its founders. The
company's initial products involve CVT-1, a novel inhibitor
of cholesterol absorption, which should offer significantly
reduced toxicity and side effects compared to existing
drugs. CV Therapeutics is also developing inhibiting
antisense compounds for restenosis, the reclosure of
arteries that commonly occurs following angioplasty. Early
in 1994, the company closed a $16.6 million private
placement designed to provide resources through 1995. Plans
for CVT-1 remained on target throughout the year. A
multiple-dose trial was completed in June 1994 showing no
clinically significant side effects. Liquid and tablet
formulations were completed in November. The company's
manufacturing process was refined and put in place to meet
demand for the Phase II multicenter clinical trials begun in
late 1994. Parameters of the CVT-1 Phase IIA dose-finding
study have been set and 15 investigative sites have been
selected. Patient enrollment began in January 1995.
Khepri Pharmaceuticals was added to the portfolio in
November 1994. Khepri Pharmaceuticals is an early-stage
biopharmaceutical company focused on the discovery and
development of novel drugs based on proteases and protease
inhibitors. Based in South San Francisco, California,
Khepri was formed in September 1992 to exploit a new
understanding of the role of proteases in human disease.
Initial disease targets are small cell lung cancer, asthma,
and diseases characterized by tissue destruction such as
rheumatoid arthritis, osteoporosis, and stroke. Khepri is
in discussions with potential corporate partners to support
the development and marketing of its protease-based drug
programs.
Megabios Corporation, a first-stage biotechnology company
specializing in gene therapy, was added to the Partnership's
portfolio in September 1994. Following that investment, the
company has hired a full-time CEO, raised an additional $1
million in a equity financing, and moved into a new, larger
facility. Megabios has focused on completing its management
team and was negotiating at year end with a highly rated
candidate to head research and development. The company has
demonstrated the ability to deliver gene-based therapeutic
agents through a number of routes of administration
including aerosol, intravenous, and direct injection.
Megabios has formed its first major partnership, with Glaxo,
in the field of fighting cystic fibrosis, and is broadening
its technology platform to collaborate with additional
corporate partners in the coming years.
Periodontix, Inc. is an early-stage biotechnology firm
attempting to develop the first therapeutic agents and
treatments for periodontitis and gingivitis. In August
1994, the company moved into permanent headquarters and
laboratories in Watertown, Massachusetts. The company has
synthesized and evaluated antimicrobial activity of a number
of new peptides based on the natural histatin proteins found
in saliva. The company has identified two that have good
antimicrobial activity even against the microorganism
associated with periodontal disease. In addition, the
company has good leads on several more peptides that are
being synthesized under contract prior to evaluation by
Periodontix in 1995. Periodontix has discovered that there
are both active and inactive forms of the peptide molecules
that have been under study. Further analysis of the
distinguishing characteristics is currently under way, and
the company expects to begin clinical studies of its peptide
compounds in early 1995. Scientific work continues on a
contract basis with Dr. Frank Oppenheim, the inventor, at
Boston University, an institution recognized for its
experience with delivery systems and biocompatible
materials.
R2 Technology was added to the Partnership portfolio in May
1994. The early-stage medical equipment company is
developing computerized mammography systems that assist
radiologists in significantly improving the diagnoses of
mammograms. In July, the company announced a contract with
Lockheed to assess the feasibility of using Lockheed's
neural network, a computer architecture capable of learning
from experience, to aid in the detection of breast cancer in
its earliest stages. R2 has developed two separate systems
for displaying its output for reading mammograms and is
testing them in collaborations with the Palo Alto Clinic in
northern California. The prototype sample of its light-box
viewing system continued to detect about 50 percent of
previously undetected cancers in the test samples being used
for evaluation in 1994. The company has had ongoing
discussions with several FDA consultants in preparation for
its clinical trials filing and is beginning discussions with
insurance companies and health plan providers regarding the
reimbursablity of computed mammography technology.
RedCell, Inc., a first-stage biotechnology company seeking
to become a leader in the growing field of red cell-mediated
therapy, joined the Partnership portfolio in late 1994. The
company's "anchorage" technology capitalizes on the unique
physiology of red blood cells and their continuous delivery
to the body's tissues and organs through the vascular
system, using these cells as the basis for treatment of
diseases. The "anchor" comprising the basis of RedCell's
technology is a synthetic, organic molecule constructed to
function much like an adapter that connects other
physiological elements, including therapeutic drugs.
Following the end of the year, the Partnership participated
in a $4.5 million financing with new investors.
Medical Science Partners II, L.P. is a Boston-area venture
partnership with a focus on healthcare. As a result of its
strong connections with Harvard Medical School and 16
affiliated hospitals, the fund invests in companies that are
formed to commercialize the technologies developed in the
research centers of these institutions. MSP II had its
initial closing in January 1994. During the year, the fund
received several additional commitments, and the size of the
fund increased from $15 million to $25 million. MSP II has
made 16 investments to date totaling $7.9 million and looks
to make five to seven additional investments over its life.
