Private equity interactive, Dow Jones

Flush with a handful of exits this year, Prospect Venture Partners has raised $500 million for its third life sciences-focused fund, ahead of its $400 million goal.

The new fund–which is the same size as its 2001 predecessor–would follow a similar strategy of investing in mainly early-stage biotechnology, biopharmaceutical and medical devices companies, according to Prospect Venture Partners Co-founder and Managing Director Alex Barkas. To a lesser extent, the Palo Alto-based venture firm also plans to back health-care services companies, Mr. Barkas said.

More than 90 percent of the investors in the firm’s previous funds returned for Prospect Venture Partners III, including one core public pension fund, Mr. Barkas said. He declined to disclose investor names.

Prospect Venture Partners believes that investments in biotechnology and biopharmaceutical companies will produce superior long-term returns, in part because of the pace of innovation in these fields. Mr. Barkas also said that the IPO market and sales to strategic buyers have provided a strong exit environment for life sciences and medical devices companies of late.

In September, for example, Prospect Venture Partners agreed to sell Opus Medical, a maker of soft tissue repair systems, to publicly traded company ArthoCare Corp. for $130 million. In March, portfolio company Tercica raised just under $50 million in an initial public offering. Tercica develops therapeutics for endocrine system disorders, such as diabetes. Also in March, Prospect Venture Partners sold NovaCept, a developer of medical devices focused on women’s health, to Cytyc Corp.

Prospect Venture Partners plans to invest its new fund in $10 million to $15 million slugs across more than 30 companies. The previous fund has so far been invested in some 25 companies, including Opus Medical and Tercica. Other companies in that portfolio include biopharmaceutical companies Archemix and Jazz Pharmaceuticals.

Mr. Barkas and David Schnell, who used to be health care partners at Silicon Valley firm Kleiner, Perkins, Caufield & Byers, formed Prospect Venture Partners in 1997. They were later joined by Russell Hirsch, a former managing directors at venture firm Mayfield, and James B. Tananbaum, an entrepreneur who formed two biotech companies.