Apposite Capital: Weathering the storm with a hands on approach to investing.




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Video title: Apposite Capital: Weathering the storm with a hands on approach to investing.
Released on: June 08, 2012. © PharmaTelevision Ltd
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In this episode of PharmaTelevision News Review filmed at BioTrinity 2012, Paul Larsmon talks to Chris Hollowood, Partner, Apposite Capital
Apposite 's investment model
Paul Larsmon :
Hello and welcome to PharmaTelevision News Review. On this program I've got Chris Hollowood, who is a Partner with Apposite Capital LLP. Chris, tell me little bit about the company?
Chris Hollowood:
Sure, so we are a London based healthcare venture firm, we were formed in 2006 but really started life when we closed with $200 million fund in March 2007. The business plan of that fund was to invest pretty much across the board in healthcare about 50% of the capital is focused on service investments and that's more patient provision type services then say CRO type services that's done almost exclusively in the UK. The other 50% of the capital is addressing life sciences in it's broader sense so that's medical devices, therapeutics and to some extent diagnostics there we've tended to mix the capital between the UK and the US, the one thing that is slight different I guess about us we are structured quite conventionally in a nine-year fund but almost all of our money comes out of Japan and that primary $200 million fund and that gives us we believe an interesting angle on investments in that other syndicate members will not be able to bring Japanese networks to bare and we've already seen a couple of examples and portfolio companies where we've had interesting deals done with big Japanese pharmaceutical companies that have been initiated through introductions we've made.
Paul Larsmon :
Okay, can you tell us a little bit more about Apposite 's investment model and when do you get in?
Chris Hollowood:
Yes so we've, it's changed as the fund has got older because obviously as you get towards 9-years you've only got five-years remaining you've got to go into slightly later stage opportunities than you are allowed to then you can't get into when you are at the beginning of the fund, we very much like being the first institution into an investment we believe that gives as a great opportunity to build the company in the mode that we think we make it successful and we've done essentially 10 deals out of our $200 million fund and 7 of those have been that type where we are either the single investor or the first institutional round, we have done a couple of later stage deals just to balance out the portfolio in terms of the risk reward profile in it and as you can see from the far we've done 10 across $200 million we go in pretty hard into a company, put a lot of capital to work and work very closely almost operationally with that company to mitigate risk.
Paul Larsmon :
So you are very hands on?
Chris Hollowood:
We're very hands on we much prefer being hands on aligned with management, rolling up our own sleeves and helping out and providing extra capacity where they need it than trying to mitigate risk by investing the smaller amounts in a greater number of companies.
Paul Larsmon :
So what are you looking for here at the partnering conference like this?
Chris Hollowood:
So a mixture of things, obviously new opportunities, we are always looking for new opportunities but this is a great conference for getting more UK perspective it's ironic that I am based in the UK, but I can go to places in Germany where they have conferences and learn about German biotech industry and like three days very intensively and the UK I think has lacked that in the past there's been a conference in London beginning October there did some of that but London is a location where everyone goes home afterwards rather than hands around there as a networking that since stopped and I think their focus is now been on this conference and that's helped this conference, so it's a lot of catching up with companies may already know seeing what the UK market's like and always catching with other investors and what they are doing.
How does Apposite spot good investment?
Paul Larsmon :
So, I mean the big question I mean how do you spot good investment?
Chris Hollowood:
It's people, people, people to paraphrase Tony Blair. I think when I first started this it was 10-years ago I come out of a lab and I saw this as an opportunity to kind of pursue a science career without getting my hands dirty and my first Chairman a guy called Jeremy Curnock Cook said you know it's not about sciences it's about people and me being fresher I was like that it can't be the case, but the reality is having done it for 10-years I've seen companies there where the science has failed still either get the money back or make a return because the management has been inventive proactive just high quality where as I've seen companies with great assets fail because the management hasn't been able to realize that value. So people first, the science is important and it needs to match what the market need is and that's kind another difficult of being a venture or the interesting part also the difficulty of investing at the venture stage is we are trying to perceive a market need in five-years time and I think now quite excitingly that's very much driven by destructive science more so then it was five-years ago when there was a more of a push towards how can we tweak existing drugs et cetera, et cetera. So is those two things people, high quality science and then it's down to a business plan that makes sense on a sensible time scale, but the matter of money that our fund can match there is no point coming to us with a business plan that's gonna require $100 million it may have a perfectly good risk reward profile but we are gonna deploy 10 to 20 and we're not gonna be able to exert the control that fits our model, so we're just the wrong type of investor for that. So it needs to be more of a 20 to $60 million play that we can then partner with two other investors and be able to hopefully add the value we think we add as investors.
Examples of success
Paul Larsmon :
Okay, can you give me an example of the success or successes you've had?
Chris Hollowood:
Yes, I guess our most recent exit as a company called SureCalm this is on the service side, it's essentially a logistics business providing various sort of healthcare products in the community, it's main clients were hospitals who had out patients that needed things delivered to them and through that platform then built a number of other products that it was also delivering. We saw three regional businesses that if you consolidated and combined a lot of the back office, the logistic functions, lot of the warehouse function you could change the cost profile of it, we did that deal two-years ago so it's kind of a three way buying at the start and sold it two-years later to a group called ConvaTec here it's sort of a healthcare service provider who soar a distribution platform for their own, their own products. So we were very pleased with that we have bigger plans for it but when someone comes along them pays the right price you know that's a happy, happy reason not to pursue the full plan. So does that one on the pharmaceutical side we sold this company called PharmaKodex to a Swedish listed company called Orexo and the lead product to PharmaKodex is now the lead product to Orexo, so we're pretty hopeful that will trigger some very substantive milestones for that company as well as the upfront that we got there.
Chris Hollowood's perspective: UK's present venture capital environment and future prospects
Paul Larsmon :
Your career in venture capitalist sort of spans some of the glory days some of the worst times imaginable, I mean how is it been over the last couple of years?
Chris Hollowood:
Yes, so I would say I came in on the down slope of the glory days, right I never quite saw the 2000's I came out of 11, 2002 and joined venture. I think the last two-years has been necessary in kind of a brutal way there is a lot of early stage companies always complain there is not enough capital out there and they may be right, but there is certainly capital wasted because companies that have assets aren't going to work don't die quick enough and that capital they have doesn't get focused on companies that are better quality and so a purge of those companies is not necessarily a bad thing in the someway that I think you gonna see a purge of some investors who displaced fund raising post 2008 and now getting to a point where they have to go fund raising and not all would make it because it's a limited amount of LP's that you can chase. So that I think has been helpful at some point you've got to turn back up again otherwise you're just going into perpetual downwards spiral and I think for the beginning of this year I was more pessimistic than I now I am that we in the UK in particular where or in Europe in general but the UK which is kind of one of the best thing in Europe is the biotech market we are gonna slip down that downslope, but with the announcement of Index's fund, the Wellcome initiative that we heard a bit about yesterday that was obviously announced kind of a month ago now and more smaller initiatives like the CLT initiative I think there is the capital there now that's always been the substrate of science it's always been great in the UK and the management here is as good as the management anywhere else in the world whether we had the debt for quality management lets say they have in the US that's arguable but certainly for the best companies there are the best kind of people to run them. So after a pretty difficult two-years I think we are on the upslope from Apposite sort of view of the world we were quite lucky and say lucky we were very clever. In 2008 you know we deployed less than half the fund at that point, so we had quite a lot of capital going into at point where asset prices were much lower and so we've weathered the storm quite well, how it's affected us materially is you know we've done 10 investments potentially we will stop there at 10 because we fairly need to reserve a greater amount for our existing investments that perhaps we did a few years ago, but as sooner have don't that and under deployed the fund then the reverse where you kind of lose that in a portfolio company that you liked because you haven't raised enough money and actually presented quite a big opportunity for us in my previous firm I've done some secondary investing where you buy portfolio of another investor that's looking to exit in a different kind of way and with the asset price crash there was obviously an opportunity to do that, there were some investors they were looking to exit the sector and me and David Porter our Managing Partner thought it was a pretty good idea to pursue that and we managed to buy nine companies of 3i at that point we've raised some new fund special purpose fund to do that acquisition and closed that in May 2009 and that's been a great success for us. I don't think there is gonna be a million of those kind of transactions out there and I don't think there is a business model for firm that solely does that, but given there overlapping skills set between running a primary and secondary business I think it's a nice add on for us and it's certainly been successful for us.
Paul Larsmon :
So I mean in the nut shell are you fairly optimistic about the sector's prospects?
Chris Hollowood:
I am optimistic about the sector's prospects, I am particularly optimistic about the UK, I like the fact that some of these funding initiatives have been announced and not in these constrained 10-year structures that you know traditional VC's like ourselves have to raise and that provides companies access to capital with different time horizons which I think is helpful and you know as if we I think we have in the UK it's a first major advantage but all countries are going through the same sort of dynamic we are and were and we have managed to get our house in order quicker to get this capital available, so I think we can still emerge and it's timing was critical because of all the human resources that have unfortunately have been let go by the big closures in pharma unless we had money to create companies to capture these people now there is a risk that the UK could lose core capability in this area forever and I am optimistic about that is now not going to be the case, six months ago you would have got a different answer from me.
Paul Larsmon :
Sounds like a good up note to end on. Chris Hollowood, from Apposite Capital thank you very much for joining us.
Chris Hollowood:
Thank you.
Paul Larsmon
Paul Larsmon has worked as a broadcast television journalist for 25 years, covering general news, business and politics. He has been both presenter and producer in several news broadcasters, including the major British television news company ITN. He joined PharmaTelevision as Executive Producer earlier this year and has been responsible for getting PTV News launched.
Chris Hollowood
Director
At the time of recording this PTV interview Chris Hollowood serves as Partner at Apposite Capital LLP. Chris joined Apposite in 2007 and is working with the Life Sciences investments. He started his investment career as a fund manager with Neptune Management, with responsibility for Healthcare sector investments, before moving into Healthcare focused venture capital and corporate advisory at Bioscience Managers. He attained his first degree in Natural Sciences, specializing in Chemistry, and a PhD in Organic Chemistry, both from Cambridge University. Between his first and second degree, Chris worked in the pharmaceutical industry as a medicinal chemist at GlaxoWellcome (GlaxoSmithKline) and Pfizer.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
Apposite Capital LLP
Apposite Capital LLP is an independent investment firm focused exclusively on Healthcare. The firm has an in-depth sector knowledge covering all aspects of the healthcare industry globally. Apposite seeks to invest in high quality companies that it can grow to the next market leaders. Apposite makes private equity investments in Healthcare Services companies, provides venture capital to Life Sciences companies, and makes investments in the direct secondary market. The investment team has an enviable blend of expertise combining complementary entrepreneurial, private equity and investment banking skills. The team is committed to adding value to its portfolio companies and typically has an active representation at the Board of Directors. Apposite is headquartered in London, UK and has a presence in San Francisco, CA, USA.