pegasus_logo2.jpgPegasus Biologics, an Irvine, Calif., maker of flexible-but-strong tissue substitutes designed to speed muscle-tendon repair or wound healing, raised $20 million in a third round of funding.

Despite the word “biologics” in its name — a term that is often synonymous with protein-based biotechnology drugs — Pegasus isn’t a drug company. Nor is it strictly a medical-device maker. Instead, the company has devised “bioimplants” made from equine pericardium — horse heart, in other words — that surgeons can use to help stitch together damaged tendons or other wounds. (Technically speaking, a “biologic” is any product derived from living organisms, and so covers everything from protein drugs pumped out by genetically engineered bacteria to actual human or animal tissue. It’s just that you don’t tend to see as much of the latter as the former.)

Currently, Pegasus sells one type of bioimplant for tendon and ligament repair, and a second for use in wound healing, particularly in diabetic ulcers. Each consists of a cell-free collagen matrix intended to provide a “scaffold” for the regrowth of surrounding tissues. The company is also currently developing a bioimplant for repair of the dura mater, the outermost membrane surrounding the brain and spinal cord, and another intended for use in reconstruction of the anterior cruciate ligament, or ACL, an easily injured ligament in the knee. Generally speaking, Pegasus considers its bioimplants an attractive alternative to other animal-derived biologic tissue or to human tissues, whether patient-derived or procured from cadavers.

Onset Ventures led the funding round, joined by fellow new investor Affinity Capital Management and existing investors Three Arch Partners and Frazier Healthcare Ventures. Pegasus previously raised $10 million in a mid-2005 second round.

Leslie Bottorff, an Onset general partner, will join the Pegasus board, as will Gary Restani, president of medical-robotics company Hansen Medical. Onset normally invests in earlier-stage companies, but Bottorff told me that Pegasus was attractive because it was sitting on a “largely untapped” market for surgical-repair bioimplants. Bottorff said that competing animal-tissue products are generally stiffer and more difficult for surgeons to work with, and that human tissue always carries the risk of transmitting disease or producing an inflammatory immune reaction.

Bottorff said the current financing should carry Pegasus to profitability, after which it might be a good candidate for an initial offering or potential acquisition.