Orasi Medical said it raised $3.5 million from undisclosed investors.

The Edina-based company, a spin-off from the University of Minnesota, is developing software to help drug companies test compounds designed to treat neurological diseases like Alzheimer’s. Orasi says it’s talking to pharmaceutical manufacturers to design clinical drug trials that will use the software.

“In light of the difficult financial markets today we are very pleased with investor response to the Orasi offering,” CEO and co-founder Shawn Lyndon said in a statement.

“Pharmaceutical companies face a very difficult task in measuring the effect of neurological drugs,” he said.  “The Orasi products provide a novel approach to measuring treatment effect earlier and more accurately than current practice. This round of capital allows the company the opportunity to substantially advance this technology.”

Not so subtle message to Gov. Tim Pawlenty and state legislators:

TIME TO PUT UP OR SHUT UP.

Maybe I’m just little cranky today (gorging myself all night on Dancing with the Stars, Americal Idol, and the Red Sox/Yankees game will do that to you) but seriously, Minnesota is looking more foolish by the second.

VitalMedix, a promising local start-up that is developing a hemmoragic shock drug that keeps you alive even when you lose prodigious amounts of blood, will likely move to Wisconsin because the company can’t find enough angel investors to fund its studies.

What does this have to do with the good folks in St. Paul? Thanks to its generous early stage investment tax credits, Wisconsin boasts considerably more angel investors than Minnesota, a fact that may prove too tempting for Minnesota start-ups like VitalMedix who are struggling to raise money from hometown investors.

What does have Minnesota have to offer by comparison? A one hour legislative debate on whether cocoa bean mulch is dangerous to dogs.

The year started off promisingly. After years of sitting on the sidelines, Gov. Pawlenty proposed a four year, $20 million tax credit for investment in regional investment funds and even called a press conference to support it.

Sure, it contained unnecessary restrictions, or as I call it, shameless political pandering, (50 percent of credits to green start-ups. No more than 3 funds may serve more than 15 counties. No more than 5 funds may invest in businesses in the metro area), but heck, at this point, we’ll take anything from the man.

But true to form, the momentum has disappeared faster than you can recession. The credits are included in the Senate tax bill but not the House and there’s no guarantee that they will see the light of day.

Of course one can argue that cash-strapped state, which is facing a $5 billion black hole of a budget, can’t afford the credits. But the state didn’t do anything even when we had money. So if not now, then when?

VitalMedix would love to know. Like many start-ups, VitalMedix is struggling to raise cash. But what makes this particular company so important? Well, for one thing, the company recently spun out from the University of Minnesota, meaning YOUR TAX DOLLARS helped create this start-up.

More importantly, VitalMedix has developed a potential blockbuster drug and that’s not just my opinion. The drug keep patients suffering from catastrophic injuries (gun shot wounds, car accidents) alive long enough to reach a hospital. The company may yet fail but that’s the nature of venture capital: high risk, high reward.

People, including many in the legislature,  like to rag on the U’s Office of Technology Commercialization. And not without some justification. For years, the U has done a lousy job turning its research into successful, viable companies. But thanks to hard work of Tim Mulcahy, Doug Johnson and Jay Schrankler, the school has actually produced a company with real prospects. And now we’re going to see it leave for Wisconsin?

Of course, there’s always the naysayers who say venture money always finds good companies. In other words, VitalMedix’s inability to get funding probably means it’s not worth funding.

Oh please.

Frankly, that argument is getting a little bit tiresome. Yes, VC always flows to good companies. But where is that VC coming from? Certaintly not Minnesota, where investors are not interested in funding anything that doesn’t have to do with an implantable cardiac device. There’s plenty of VC firms on the coast that love biotech. Problem is, they prefer companies move to their regions. Because VitalMedix is a U start-up, the company has tried very hard to find local investors so it can remain a Minnesota company.

How is Minnesota supposed to develop a biotech/drug industry when there’s no one willing to finance these start-ups? And believe me folks, with all due respect to the Earl Bakkens of this world, the future of medical technology is biotech or at least a combination of biologics and medical devices.

Even if a Minnesota investment tax credit becomes law, there’s no gurantee VitalMedix won’t still move to Wisconsin. But shouldn’t we at least make their decisions a little more difficult?

Draths Corp. is looking for a new CEO. The Plymouth-based start-up makes bio-based industrial materials from sugar extracted from non-petroleum renewable feedstocks like corn and sugarcane.

Not sure what happened to former CEO Jim Millis except that he left the company during its last round of fundraising- precisely the time when you need a CEO. Draths recently raised $7.9 million from Khosla Ventures, CMEA Capital, and TPG Growth.

Until they find a new leader, Draths is keeping a very low profile. The company won’t even say when it expects to hire one.

The Institute of Medicine has just released a report that harshly criticizes the money, gifts, and other perks drug and medical device companies lavish on doctors.

The topic has generated much attention- critics say it poses conflicts of interests that tempts doctors into pushing products on patients regardless whether the treatments work or not. The Star Tribune and other media have done stories detailing “consulting” fees Medtronic pays to the doctors at the University of Minnesota. Sen. Chuck Grassley and Sen. Herb Kohl have sponsored legislation to force the disclosure of such payments.

Defenders of the practice says industry/academic/medical collaborations are essential to innovation, developing new treatments and devices that ultimately benefit patients.

The IOM is pretty clear how it feels about these issues:

Although research collaborations can benefit society, financial ties between medicine and industry can create significant risks that these interests will inappropriately influence professional judgments. Such conflicts of interest jeopardize the integrity of scientific investigations and also threaten the objectivity of professional education, the quality of patient care, and the public’s trust in medicine.

Republican senator pushes biotech funding

Sat Apr 25, 8:04 am ET

WASHINGTON (Reuters) – A Senate Republican who could prove a swing vote in the U.S. healthcare debate said on Saturday he wanted a new agency to help struggling biotech companies as part of a future healthcare system.

Senator Arlen Specter said the new agency could be important as Democrats push a health plan that aims to rein in soaring costs and to provide health coverage for an estimated 46 million uninsured Americans.

“I believe that we can live not only longer lives, but healthier lives, by harnessing and applying the genius of our biomedical research community and getting about the task of accelerating cures,” Specter said in remarks prepared for a Chicago speech to physicians and researchers.

Specter, who has survived two bouts of cancer, proposed a new agency known as the Cures Acceleration Network that would award grants to cash-strapped biotech companies to help them develop new treatments.

He said these companies are having difficulty tapping into private capital and a number have cut or put on hold important drug development programs that could provide new treatments for cancer, multiple sclerosis, diabetes and other diseases.

“Without adequate funding, these companies will be unable to take these products to the development state, the basic research done by the NIH (National Institutes of Health) will be lost, and many patients will die waiting for drugs and devices to give them a better quality of life,” Specter said.

A copy of his speech was made available in Washington.

Specter was able to secure additional funds for NIH as part of the $787 billion economic stimulus package signed into law by President Barack Obama.

Specter’s vote for that package got him into trouble with some of his fellow Republicans and he is facing a primary challenge for re-election in Pennsylvania next year from conservative Pat Toomey.

Specter said he would make creation of the new agency and increased funding for NIH a major focus of his re-election bid next year. He also said he would push to include the measure in the sweeping healthcare overhaul that Obama wants.

Democrats control 58 votes in the 100-member Senate and could need the support of at least two Republican votes to overcome any procedural roadblocks.

(Writing by Donna Smith, editing by Vicki Allen)

Interesting story in today’s New York Times about SecondMarket, which is developing a trading system in which investors and shareholders can swap shares of privately-owned start-ups.

With venture capitalists and angel investors unable to exit their investments through IPO or sale, SecondMarket says it can enable investors to unload some of their portfolio companies.