TVM Capital: Investments from Scotland to India




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Video title: TVM Capital: Investments from Scotland to India
Released on: September 15, 2009. © PharmaVentures Ltd
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In the last in the series of interviews from the BIA Leadership Summit, Dr Fintan Walton talks to Simon Best, Entrepreneur-in-House at TVM Capital. Simon’s background was in agriculture. He is based in the UK with responsibility for identifying interesting deal flow opportunities in and out of India. Topics discussed include:

• investment in India
• development in the Middle East and China
• Big Pharma’s work in India
• TVM’s risk strategy
• how Par Equity’s business angel syndicate actually works
• the shape of the pharma and biotech industry
• drug discovery, development and regulation
Simon Best's responsibilties outside UK and investments in India.
Fintan Walton:
Hello and welcome to PharmaVentures business review here at the BIA Leadership Summit in Hertfordshire in the UK. On this show I have Simon Best, who is the Entrepreneur-In-Residence at TVM, TVM is a venture fund, a private equity fund that's based in Germany, but you have a role here in the UK, but your responsibilities are outside the UK largely with the Asia as well as the Middle East?
Simon Best:
Well specifically India is the area I am personally most responsible for. I've had an interest in India for a long time. My original background in biotech was actually in agriculture. And when I got out of the Ag the GM Food world in the late 1990's DFID one of the UK development agency asked me if I would represent the UK on the board over an Ag-Biotech Research Centre in India, in Hyderabad and that gave me you know a regular reason to go to the most interesting parts of India from 1999 onwards. And that allowed me to get to know what was going on in Hyderabad and Bangalore. And then when TVM heard about this after they were investor in my last biotech company they asked me if I'd help them identify interesting deal flow opportunities out in in and out of India both for Europe and then for the Middle East. So that's how it came about.
Fintan Walton:
Right. Very interesting. That role does that reflect the way the industry is going at the moment, that organizations like TVM or funds like TVM are looking beyond the normal biotech industry here in Europe and looking at opportunities overseas where there are growth markets?
Simon Best:
Well yes, there are many dimensions to that, I mean one, one which has been obvious for some time is that India in particular represents an opportunity to outsource many aspects of drug discovery and development at global quality standards I mean there is no longer I think any concerns about quality in India at lower cost and particularly with regard to clinical development and large scale clinical trials the ability to recruit patients into global standard clinical trials very quickly. It's really the speed I think with clinical recruitment in India now does the main stay rather than simply the cost saving.
Fintan Walton:
And so the types of investments that TVM are making are in?
Simon Best:
Well there we haven't made any, haven't made any yet, these developing business in that part of the world takes time, I've lined up two or three potential investments that have an Indian component and a European component, but watch this space this is a new development and you will see some interesting things rolled out over the next few months.
Development in the Middle East and China
Fintan Walton:
So clearly your remits [ph] in India you also mentioned the Middle East?
Simon Best:
Yeah.
Fintan Walton:
So what's the connection there between India and Middle East and back into them?
Simon Best:
Well Middle East and India the next strand of all this is that you know I really right around the world, but particularly Middle East, India and China you're seeing the very rapid construction of a modern healthcare infrastructure largely privately funded, so you are seeing that health � private healthcare schemes of all shapes and colors and sizes being rolled out in those geographies. And then the infrastructure to allow people to get access but supported by private healthcare insurance to a sort of global standard of care basic but global standard of care healthcare package largely built on generic components, that well opens up opportunities to provide services you know the part of that puzzle in some cases taking Indian services and helping them grow, in other cases European services and then creating opportunities for them in the Middle East and India and we are looking at examples of all of the above.
Fintan Walton:
So you are talking about the delivery of healthcare itself
Simon Best:
Yeah.
Fintan Walton:
The patient, you are the patient level and you are then
Simon Best:
Specialist, specialist services if you think about everything that a hospital does it will have you know cardiac unit, it will have diabetics unit then it will have smaller indications, more specialized indications�.
Fintan Walton:
Yeah.
Simon Best:
Typically which may have a technology or an IP component to them and those are the sort of things we are interested in.
Fintan Walton:
So you are migrating from the patient back down towards through the value chain effectively to
Simon Best:
Yeah.
Fintan Walton:
Specific services to particular technologies?
Simon Best:
Yeah, and these things that are scalable, so that if you have a hospital in Europe or a clinic in Europe that's got a particularly good reputation on a brand for a type of specialist service then you know you can use that to train, you know the right sort of staff to then scale up you know specialist units. India right know there are about four competing hospital chains who are putting in place large thousand to 1500 bed hospitals you know on a sort of multiple basis you are seeing hospitals going up in a at a massive rate. And each of these you know needs to be able to quickly supply you know a wide range of services and that represents interesting opportunities.
Globalisation of healthcare delivery and TVM Capital's risk strategy.
Fintan Walton:
Do you see then the integration of from biotech or drug discovery all the way through to patient? Do we see a change in the way in which our healthcare industry is actually run and joined up?
Simon Best:
Well yes I think it is. I mean what you are really seeing is the globalization of our healthcare delivery. Now that you might think is decoupled from the biotech industry and it's and in classic venture investing into new products and technologies, but I think it's really only a time lack. if you think about what we've been talking about and then think about all other reasons in our excellence from big pharmaceutical companies about their global and generic plays, so you know Pfizer tie up with Aurobindo [PharmaDeals ID = 32691] you know big generics company in India based well I think it's 60 generics that they've developed a package around. Why they've done that? Because Pfizer over the next 10-years want to be providing full packages of drugs including the generic and the proprietary right through this new healthcare infrastructure that's being built, so that when it's built as incomes continue to rise 10, 15-years down the road suddenly you've got a market that has the wealth and the appetite to buy proprietary drugs.
Fintan Walton:
And GSK has also dubbed it in it?
Simon Best:
GSK has done it you know it's the that you are seeing this role out quite rapidly amongst the other big pharma. And you know all of this I think will come together in codes. The other is here of course is that you know traditionally the venture funds you know have relied on limited partners from European and US financial institutions. Those financial institutions many of them themselves are looking at private equity activity in India and you'll see a lot of the big American PE firms have now got India or Middle East in arms equally you are seeing the family in sovereign funds in those areas gradually investing more outside as well, so it's a slow process I mean cultivating new investors and there some dimension of this you know is certainly part of the story, but that takes a long time you know if you'll trying to you can't just go in and pitch to raise money on a you know slide deck you've actually got to develop friendships and relationships and that takes years, but that's all part of the long story here.
Fintan Walton:
But is there does that mean that funds that normally dealt with healthcare, which way of traditionally looked at biotech are now moving away from the high risk to the lower risk of investment opportunities and will end ultimately potentially end up with those type of investors giving up investing in biotech?
Simon Best:
I don't think they'll have to give up. I think it's a case of you know where as that would have been all they did five-years ago, I think this the firms that wants to be around in business in time of 20-years see that they need to have a different balance of risk offerings and risk reward propositions from other big partners. So I don't think TVM will ever give up you know a portion of its investment into higher risk
Fintan Walton:
Risk.
Simon Best:
Venture capital and that's still continuing both in Boston and in Munich. I do think however they are exploring not just you know late stage drug development or specialty pharma which they are certainly doing, but they want to be part of the global strategy.
Fintan Walton:
And the broadening their risk portfolios as well?
Simon Best:
Yeah, that's right.
How Par Equity's business angel syndicate actually works.
Fintan Walton:
You've also recently got involved in creating a new business angel network?
Simon Best:
Yeah.
Fintan Walton:
In Scotland tells you a little bit about that.
Simon Best:
Correct.
Fintan Walton:
And why you are doing that?
Simon Best:
Well I mean, I suppose you know within healthcare you've just heard on diversifying geographically, but having been a investor in my own right and with the work I've done outside the UK after three or four-years you know I've now � you know thinking local acting globally you know I've now got to know the entrepreneur al community on my doorstep in Scotland not just within biotech which I've known for some years, but also the other successful technology sectors in Scotland as a strong energy community in Scotland because of the oil and gas tradition and a lot of renewable work now, lot of very interesting clean tech Technology in water some of which actually comes back to biotech, reagents biotech instruments and tools, so there is lot more say under these things you might think and then yeah you know playing outside of my traditional space I am looking at one MedTech investment from StrathClyde which after Imperial in the UK is the other very strong base. And some you know software and tech investments. So Scotland is you know small community, a lot of younger entrepreneurs you know like myself you know people in the 40's and 50's who've been successful made some money now wanting to pool their expertise and we've created a new angel syndicate called power equity. And then that started to make investment, but we've also there are core of four executive partners couple of them with city experience we've got FSA approval to then raise to
Fintan Walton:
Institutional funds?
Simon Best:
Institutional funds, one will be a sort of innovation fund that will tackle technology based projects other than energy for reasons I will explain in a minute that are at launch or revenue stage and we will put 1 to 2 million pounds in those sorts of companies and will leverage as advisors and deal flow filterers and sources the angel syndicate, so the angel syndicate would be the eyes and ears and diligent tools of that fund, but then specifically in energy where going to be launched in what we call as a stand ability fund which is a joint venture with the UK's largest energy consultancy company called Synergy consulting Services who's renewable advisory unit is based in Edinburgh.
Fintan Walton:
Okay.
Simon Best:
So we have a partner for that and we will be fund raising for that in the back end of the year which finally brings me full circle because that includes a biomass and
Fintan Walton:
You are back to plans?
Simon Best:
Back to plans. And I am looking now scouting for them, interesting opportunities particularly in the US in all the in non-crop plants as fuel sources so you know everything that goes around comes around.
Fintan Walton:
Yeah it certainly does. So looking at clearly this is pharma, we are on PharmaTelevision talking to an audience which is interested in the biotech sector, so just looking at how your funds, your how power equity actually works, because obviously you've got business angels putting money in although is that matching fund, because you got also, you're raising these funds individual funds�
Simon Best:
Yeah.
Fintan Walton:
So how is the how does the private money or the individual personal money match the funds or all they're going into the same fund, how does that work?
Simon Best:
No it's three separate stages, but on matching let's remember we are in Scotland which actually is ahead in the UK with the local development agency because it's enterprise already has co-investment funds to match angel and our institutional investments.
Fintan Walton:
Sure.
Simon Best:
So we are registered, we are approved for co-investment, so we have that already, but now that the governance if you like of the angel syndicate and the funds they are separate, the institutional funds may be the follow on vehicle for the some of the syndicate investments but they have an independent investment committee process that will actually you know review each thing on their merits and will have sufficient independent representation that there won't be conflicts of interests between the angels syndicate and the administration.
Fintan Walton:
Okay. So, so you're then are you operated operating then at a seed level?
Simon Best:
With the angels well the very, very simply we that the ground rules are we will look at anything that is a roughly a year from first revenues, now it can still have true R&D, so there may be some residual final stage you know field trials or clinical trials or whatever, but we need to see projects for which there is clear customer polls or potentially already some customer money on the table and clear evidence of sizeable market opportunities, but we are not very catholic about sector, so on med on in healthcare we are already looking at some MedTech investments which classically you know the R&D cycle is short-term whether overtime we'll work again risk appetites will go up whether I can convert some of my software and tech colleagues to take a bit more risk and look at healthcare, they may do and at least we've got the expertise in this syndicate to tackle a broader range of things.
The shape of the pharma and biotech industry.
Fintan Walton:
Right, now you've just described to us the broad level of activities are going on, but I think when we go back to the pharmaceutical sector
Simon Best:
Yeah, sure.
Fintan Walton:
And the biotech sector within it, what shape are we seeing because when we look at that industry the biotech industry is going through tough times because of the
Simon Best:
Yeah.
Fintan Walton:
Financial constrains, the regulatory issues are there, it's much tough to get a product onto market, with your background, with your knowledge seeing the world as it is through your eyes, what do you see do you are you concerned that where are they going end up in an industry that's unable to deliver drugs to the patient because there is just too many constraints?
Simon Best:
Well we're certainly going through tough times, but again going back to what we said earlier about the globalization that's going on, I think this is a transition. I think where the whole of the pharmaceutical and biotech industry is going through a transition where there is going to be a bigger market but on average a lower price market but it will be much bigger than the existing markets that we have for pharmaceuticals or biotech products. So you are going to see with all of the healthcare reforms in the US you are definitely going to see price
Fintan Walton:
Price pressure.
Simon Best:
Pressure on the whole system, undoubtedly now how much obviously it's going to dependent how the politics play out on average you are going to see price pressure, that may be compensated by some volume gains then with the construction of private medicine you know very rapidly
Fintan Walton:
Elsewhere in the world?
Simon Best:
Elsewhere you are going to see certainly big volume gains with the premium segment at the top that will pay for innovative products and drugs, the other thing to say of course is that you're gradually seeing, I think it's very critical the firming up of commitment intellectual property protection worldwide. Now in India one of its strengths versus China is that it that IP is respected and there is an independent legal system that will back it up.
Fintan Walton:
Sure.
Simon Best:
China has still got to prove itself there
Fintan Walton:
Exactly.
Simon Best:
And it's one of its weaknesses and you know I am amazed you know I mean I've heard examples you know very recently of you know fortune 100 companies you know big global companies who've gone into China with partners who have promptly you know set up parallel bootleg operations these are people who
Fintan Walton:
Yes.
Simon Best:
Absolutely would have the best lawyers, the best advisors in the world and they're still getting ripped off, so you do have to worry.
Fintan Walton:
But they also accept it and they've accommodated it in the sense accepted that culture and they just take it as part of what's dealing in China?
Simon Best:
Yeah.
Fintan Walton:
But let's just move from that because that's another topic completely.
Simon Best:
Yeah.
Drug discovery, development and regulation .
Fintan Walton:
But then lets continue to look at the shape of this industry, because are we fine so the markets are going to expand, we can satisfy certain market criteria, but because taking a drug to market, taking it to market is high risk are we now going to end up with a lower productivity yield so the patient whether they've got lots of money or not, whether it's well funded or not we are not going to end up with patients being able to be cured or to overcome the nasty symptoms?
Simon Best:
Well, I think we got to look at the other side of the equation the and if you don't mind changing the subject a bit, I think it's very important to what you are saying, I think if we stick with the current model for drug discovery development and regulation then there is no alternative, but that will be it will become less productive.
Fintan Walton:
Sure.
Simon Best:
But there I think you know we are and there are signs that the regulators themselves in at least fractions within the FDA still promoting what they call the critical path agenda within Europe you know that is a willingness to embrace the innovative medicines initiatives and then within strong national regulators like the MHRA in the UK are recognition fundamentally that the science that's used in drug regulation is old times, some of it you know really 30 or 40-years old going back to the 60's and 70's when the first versions of the Food, Drug, and Cosmetic Act in the European equivalence went through.
Fintan Walton:
Sure.
Simon Best:
And particularly in toxicology you know the way we use animals you know leads to on generally safe outcomes but you know really it's empirical science for which a lot of biotech tools now exist to substitute.
Fintan Walton:
So we can change the way in which drugs can get clinically approved, the pathway?
Simon Best:
I think that's the way to keep productivity is to actually bring in a collaborative way new science into the whole of the drug discovery and regulation process in parallel. We need to actually you know go back to beginning, we should have a better understanding of modes of action of drugs before we able to start before even test them you know in any animals or humans we should know have they work and there is no excuse or much less excuse now for not doing that. We should then be able to use you know insilico modeling, simulation and the availability now in the sort of post stem cell era of a much wider range of more human, truly human assays and materials to actually screen out, so that..
Fintan Walton:
You select the good ones quick?
Simon Best:
Yeah, so basically they are ones that you know and then there is the whole genomic stratified medicine, personalized medicine paradigm.
Fintan Walton:
Coming in behind?
Simon Best:
Well then you only you know which subgroups of patients are most likely to benefit and which may be have a particular safety risk. So that we need to pull all those tricks together so that even if right the money available to do it for a given drug you know is still a fixed or less without compromising safety we can actually be much more efficient in the process. And that's going to require and that's not a quick fix that's also a 10-year process. So I think we got a big transition as a big globalization going on, a big market transition going on and there needs to be a big innovation among drive in drug discovery development and regulation. But if all those things can happen I think the industry can re-emerge in much better shape over the next 5 to 10-years. The next two or three-years are going to be tough, so we can regenerate.
Fintan Walton:
Right. So it sounds like the strategy of having a broad investment strategy across the board is a good one?
Simon Best:
Yeah.
Fintan Walton:
Thank you very much indeed Simon for coming on the show. Thank you very much.
Simon Best:
Thanks for interesting conversation.
Simon Best
Entrepreneur-in-house
Professor Best's illustrious international career has been wide-ranging, from the music to bioscience industries. A music graduate from the University of York, his claims to fame include managing the 1979 European Tour of the hit Sheffield band, the Human League, when he also filled in on two of their gigs! Deciding on a career change in 1982, Simon embarked on an MBA at London Business School. In 1998, Simon was headhunted as CEO of Roslin BioMed, the newly-formed commercial arm of the Roslin Institute and developed the business rapidly and facilitated its acquisition in May 1999 by the Geron Corporation. In July 2000, the Medical Research Council's Human Reproductive Sciences Unit in Edinburgh approached Simon to assess the commercial potential of their research for product development. This ultimately led to the formation of Ardana Bioscience. Dr Best is Chair of the Board of the Biotechnology Industry Organization, Bioethics Committee in the US, a member of the Board of Trustees of the International Centre for Research in the Semi-Arid Tropics in India and a special adviser to the World Bank. He actively promotes the benefits of biotechnology and is involved in the teaching of Biotech in the UK. He was Chair of the Bioethics Committee from 1998 - 2005. Simon is currently Entrepreneur-In-Residence at TVM Capital and Chairman of the Advisory Board of PAR Equity. He also received an honorary Professorship in Medicine from the University of Edinburghin August 2008.
TVM Capital
TVM Capital is a global venture and growth capital firm with a 25 year operating track record. From its headquarters in Munich, and office in Boston, TVM have financed more than 250 emerging companies in technology and the life sciences. During the last 15 years, TVM have become increasingly specialized in these two attractive high-growth sectors. TVM's key objective as investors is to enhance company growth by harnessing the power to innovate at all levels technological, strategic, marketing and geographical - incorporating effective international management and securing adequate financial backing.