Essex Woodlands raises almost $1B for life science investments

Essex Woodlands Health Ventures announced today that it brought in $900 million for its eighth fund, one of the largest sums ever raised by a health care-focused venture firm, according to the Wall Street Journal — even more impressive considering how the economic downturn has frozen capital and many life science companies’ IPO hopes.

Based in Palo Alto, Calif., Essex had initially anticipated h itting the billion-dollar mark with this fund, though it says the lower amount raised still recommends its strategy of investing in a broad mix of biotech, pharmaceutical, medical device and health care service companies. This approach has paid off in the past, with the $485 million acquisition of Dow Pharmaceutical Sciences by Valeant Pharmaceuticals, and Medicis Pharmaceutical’s purchase of LipoSonix for $300 million, including milestones, last July.

Essex began raising money for this fund in December 2007, unaware that the downturn would dry up its limited partners’ cash supplies. The firm extended its fundraising round into February in order to squeeze what it could out of its existing contributors, who ponied up in the end. Considering how much valuations have dropped, $900 million could go a long way.

Essex typically invests in companies that can prove rapid expansion and revenue growth — those that are already pretty healthy, basically. It says it will distribute chunks as high as $75 million to its existing portfolio, as well as new companies. While it will consider early-stage opportunities, it’s one firm that hasn’t seriously eyed small seed-funding opportunities (a recent trend among Silicon Valley venture bigwigs).

To give you a taste of the variety of its holdings, Essex’s portfolio includes Xanodyne, maker of pain medication for women; Light Sciences Oncology, a provider of targeted radiation therapy; Abiomed, maker of a heart support device; SleepMed, a company that helps diagnose sleep disorders; and iKnowMed, a knowledge-sharing platform for physicians.

Today, Essex manages $2.5 billion, and is one of the oldest venture firms focused solely on life science markets — founded in 1985. It has invested in more than 100 health carecompanies in that time. It competes with other funds in this sector, including MPM Bioventures — which was also able to raise $900 million, back in 2002 in similar financial conditions — Clarus Lifesciences and Domain Partners.