June 3, 2010

VentureWire

Zeltiq Snaps Up $25M Series D For Cosmetic Fat Reduction

Zeltiq Inc. said it has snapped up $25 million in Series D financing to ramp up sales of a system that helps consumers lose their love handles without surgery.

The company, which uses cool temperatures to kill fat cells noninvasively, raised the round from new investor Aisling Capital, which led the financing, and previous backers Advanced Technology Ventures, Frazier Healthcare Ventures and Venrock.

The technology will not replace surgery needed to treat people who are very overweight, but it can help get rid of smaller fat pockets that persist despite exercise, according to the company.

This financing, closed in late May, brings Zeltiq's total backing to about $50 million and should enable it to break even in the fourth quarter, Chief Executive Gordie Nye said. As a result, this should be its final venture round, he said. Valuation is undisclosed.

Zeltiq, which soon expects to earn 510(k) clearance to market its system for fat reduction, will have to contend with Medicis Pharmaceutical Corp., which bought venture-funded LipoSonix Inc. in 2008 and is advancing that company's technology toward the U.S. market. Instead of cold, the LipoSonix system uses high-intensity focused ultrasound to destroy fat cells.

But Zeltiq, based in Pleasanton, Calif., is betting that patients and clinicians will embrace its treatment, which is based on the principle that fat cells will undergo programmed-cell death, or apoptosis, when exposed to certain cool temperatures. Zeltiq is not revealing the temperatures used in its treatment. Surrounding tissue is not affected, so the procedure does not hurt, Nye said.

The system, which it calls CoolSculpting, is already available as a fat-layer treatment in Canada, Europe and certain other markets. In the U.S. it is now cleared for various applications related to skin cooling during dermatologic treatments.

A typical patient looking to treat abdominal fat would need one to three, one-hour treatments. Results become apparent in about four to six weeks, Nye said. Some 5,000 people have been treated through clinical studies and commercial use. Experience shows that the therapy has a strong, long-lasting effect, Nye said.

"If you've got a fat layer that we can access by way of our applicator, that fat layer will be reduced, on average [of] 20%, time and time again," Nye said.

A typical abdominal procedure is likely to cost a patient $1,500 to $2,000, depending on where it is performed. While not cheap, it is less expensive than many other cosmetic procedures. As a result, Zeltiq expects to fare well despite the weak economy, according to Nye.

Zeltiq makes money initially by selling instruments to physicians. But sales reps also sell a card, which is needed to perform the therapy, that records the number of treatment cycles. The more cards the physician practice buys, the more procedures it can perform. This will give Zeltiq recurring revenue and will give doctors incentive to perform the treatment, which will be profitable for doctors, Nye said.

"We want them to fall in love with how profitable the procedure can be in their practice and how happy their patients are going to be," Nye said.

Aisling Managing Partner Andrew Schiff was not immediately available for comment, but in a statement he said the firm has not seen another system that combines efficacy, safety and patient comfort as well as Zeltiq's does.

Schiff is joining the Zeltiq board.