Small Bone Innovations (SBI; New York) yesterday reported completing a Series B financing, raising a total of $42.2 million.

SBI said that, based on data provided by venture capital news provider VentureSource, this is the largest venture capital investment ever recorded in the field of orthopedic devices.

SBI was formed by Viscogliosi Brothers (VB; New York) and given a global launch into the market early last year at the annual meeting of the American Academy of Orthopaedic Surgeons (Rosemont, Illinois) in Washington.

At the time, VB said that during 2004 it had “quietly“ acquired several U.S. and European companies, technologies and licensing rights in the “small bone“ field. Those acquisitions included Avanta Orthopaedics (San Diego), Envision Manufacturing (Morrisville, Pennsylvania) and Xtremi-T (Lawrenceville, New Jersey). It also secured rights to market Artelon bioabsorbable thumb spacers from Artimplant (Vasta Frolunda, Sweden) and the Actipore porous metal technology from Biorthex (Montreal).

In May 2005 SBI acquired Fixano S.A.S., and in November it reported completing the integration of companies and technologies to create five business units: Arthroplasty; Internal Fixation; External Fixation; Tissue Technology and International Business.

At the time, Anthony Viscogliosi, chairman and CEO of SBI, said: “Following the acquisition . . . of Fixano S.A.S., we began structuring the company to accelerate product innovation and build a comprehensive range of products, working closely with surgeons who share our quest to improve dramatically the quality of patient care.“

SBI has bannered its niche in the orthopedics space as a tight focus on the care of arthritis and trauma in small bones and joints and that it is the only orthopedic firm with this focus.

As a result, Viscogliosi told Medical Device Daily, “Our real competitors are the little guys like us who are slugging it out in the marketplace,“ rather than the big orthopedic players. “On that basis, we have real continued opportunity, a very wide product range and a very deep portfolio.“

An initial public offering would be “appropriate if we need to build the company further,“ Viscogliosi said, without indicating at what point that might happen.

He said that SBI currently is marketing 42 “systems“ and that over the next 24 months it will grow these offerings by 30% while also expanding its global distribution system. He said about 70% of sales are in the U.S.

Viscogliosi said that putting the various components of the company together was “difficult to execute but finally successful,“ and that the result has been to gather together very talented people and a “critical mass“ of products.

The company's emphasis on small bone injuries “alter[s] the quality of life,“ Viscogliosi said. “It is clear that as our population ages, more and more of us will be handicapped by diseases like arthritis that affect the hands and feet.“

The new financing was co-led by NGN Capital, a global, healthcare-focused venture firm, and by 3i, an equity and venture capital firm, each company contributing $12 million to the financing. They were joined by Anspach Investments, Axiom Venture Partners III, TGap Venture Capital Fund and Viscogliosi Brothers, as well as by SBI employees and a group of individual investors, including orthopedic surgeons.

Patrick Power, managing director of Investment Banking at J.P. Turner and Co., called the investors who lined up for the Series B financing in SBI “a Who's Who of global healthcare and medical technology investors. Small bone science has now reached 'critical mass' with the investment community.“

Allan Ferguson, the Boston-based head of Global Venture Capital and head of U.S. Business for 3i, said, “I was pleased to work with my colleagues in Paris, Lyon and Munich on this venture, which clearly underscores the international dimensions of this enterprise. It's worth noting that SBI's products are already being sold in 28 countries. As we see it, that represents the beginning of a truly global business.“

The Series B financing round was officially completed on Dec. 16.

In other financing activity:

• Boston Health Group (San Diego), a subsidiary of Boston Equities, reported that it will provide up to $32 million in equity and debt to PixelOptics (Roanoke, Virginia).

Pixel has developed eyeglass technology that automatically changes focus to correct the near, intermediate or distance vision experienced by presbyopes, those losing near vision after age 45. These eyeglasses are designed “to reduce head tilt, visual distortion and the adaptation period associated with bifocal or progressive addition lenses.“

Ronald Blum, OD, president and CEO of Pixel, said that the funding enables the company to “concentrate on finalizing the development of Pixel's dynamic changing optical power focusing eyeglasses and growing our business.“

Ross James, chairman of Boston Health, said that during 2005 Boston Health “reviewed over 200 healthcare technologies,“ selecting Pixel because of “the size of [Pixel's] target market and because its patent portfolio is one of the most robust we have ever seen. . . . The presbyopic world has been waiting for this product for a long time.“

Babak Nemati, PhD, CEO of Boston Health Group, termed Pixel's technology “the most significant advance in eyeglasses for presbyopes . . . since Benjamin Franklin invented bifocals in 1784.“

Boston Health Group invests in new technologies in medical products and pharmaceuticals.

• Xillix Technologies (Richmond, British Columbia) reported receiving new financing of $5.5 million from Hercules Technology Growth Capital (Palo Alto, California), a debt-and-equity capital provider to technology and life science companies. Xillix, a developer of fluorescence endoscopy for the early detection of cancer, said the funds will be used for general corporate purposes.

Parag Shah, managing director of Hercules, said that Xillix is known for its leadership in the development of its Xillix LIFE imaging technology and its latest FDA-approved technology, Onco-LIFE, which allows doctors the ability to detect cancer at significantly earlier stage then currently possible. “Doctors can now help to extend the lives of their patients using these unique technologies,“ he said.

• Transcend Services (Atlanta) reported securing a four year, $5.6 million credit facility with Healthcare Finance Group, replacing the company's previous $2 million credit facility with Bank of America. The new facility includes a $3.6 million line of credit and up to $2 million in term loans to fund acquisitions.

Transcend also said that Sue McGrogan, a co-founder of the company's subsidiary, Medical Dictation, has invested $300,000 in Transcend through a reduction in an installment payment on the note payable to McGrogan related to the acquisition. McGrogan received 140,815 shares of common stock at $2.13 a share. Transcend has created Internet-based, speech-recognition, voice-to-text systems to receive, type, edit, format and distribute electronic copies of physician-dictated medical documents.

• Zix Corp. (ZixCorp; Dallas), a provider of e-mail encryption and e-prescribing services, has redeemed an additional $5 million principal amount of its convertible notes due 2005-2008 held by one of its convertible notes investors. Also, the company will issue the investor a warrant to acquire 650,558 shares of its common stock at $5.38 a share. This redemption, coupled with previously reported redemption of $10 million principal amount of the convertible notes, leaves only $5 million notes principal amount outstanding.

ZixCorp also reported accelerating the vesting of certain employee stock options covering 422,574 company shares to eliminate future compensation expense it would otherwise be required to recognize.