Aisling Capital: How Funding Must Adapt to the Current Market




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Video title: Aisling Capital: How Funding Must Adapt to the Current Market
Released on: October 20, 2009. © PharmaVentures Ltd
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  • Summary
  • Transcript
  • Participants
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In this interview, filmed at BioPharm in San Francisco, Dr Fintan Walton speaks with Dennis Purcell, Senior Managing Partner at Aisling Capital, an investment company dedicated to funding global healthcare companies.

They discuss:

• Dennis' experiences of the market's booms and slumps
• how funding has had to adapt
• bankruptcies and efficiency of capital
• how the funding model will change
• focusing on faster returns
• new alliances between Pharma and Biotech
Dennis Purcell's experiences of the market's booms and slumps.
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here in San Francisco at the BioPharm America Conference. On this show I have Dennis Purcell, who is the Senior Managing Partner at Aisling Capital based in New York. Welcome to the show.
Dennis Purcell:
Thank you. Thanks for having me.
Fintan Walton:
Dennis Purcell, these days in 2009 a company with fund investing in biotechnology must be interesting times?
Dennis Purcell:
They're challenging that's for sure. It's tough to raise capital because lot of our limited partners are struggling because of the market, and of course with the healthcare form coming up and with the melt down in the market it's a pretty challenging time.
Fintan Walton:
Okay. But your own background goes back over many years involved in the investment role both as an investment banker been in heading up various funds; how would you describe then 2009 relative to all the years experiences that you have had in investment business?
Dennis Purcell:
Sure. I grew up in the business out here in San Francisco with the firm called Hambrecht & Quist, and there were four of us - Alex Brown, Montgomery Securities, Robertson Stevenson and Hambrecht & Quist, and we funded a lot of the biotech industries as we have seen the industry is growing up as well as the internet industry. This is about as challenging a time as we've seen, generally what we've seen in the past is a year or two of boom times and then three or four-years, two or three-years of down times and right now we are in a protracted slump and with many, many companies with less than a year of cash and many of them less than six-months of cash, so there is a lot of scrambling right now to try to kind of keep the industry going.
How funding has had to adapt
Fintan Walton:
Right. So therefore biotechnology companies have to change their business model?
Dennis Purcell:
I think so. I think that in the past what happened was we tried to build companies and then take them public, and that's how we would get our capital back. And then recently what we tried to do is build companies and try to sell them to big pharma or other big biotech companies. And I think in the future what we have to do is we have to finance these companies to sustainability, so what has to happen now is when you fund biotech companies, you have to be able to fund them all the way through approval and watch over the product and the like, in the past you didn't have to do that, there where always different people in the chain to finance.
Fintan Walton:
Just to me, when we just look back a little bit at start, and put the biotech on the psychiatrist chair if we could. We all like to look for our problems. Clearly taking a drug to market is expensive, it's highly risky, it requires a particular type of investor to get involved in that sort of game, but the issues that we are facing today do not necessarily relate to the problems in biotech per say, but relate back to how capital markets work, how funding works?
Dennis Purcell:
Generally, along the chain you have the venture capitalists at the beginning and then you have the public investors and then maybe you have big pharma for the acquisition and the public investors just start there right now. So what's happened is we've built up an enormous infrastructure in the industry and these companies have used a lot of cash just to get there, so we are trying to figure out new ways to get drugs to the market with less capital. And what's happened is that with some diseases that doesn't work, so if we take the cardiovascular company, for example huge trials and the venture community I would say is generally wary of funding those types of companies, simply because you can't rely on somebody else to run the Phase II with the funds of a Phase III. The venture people who used to take it a certain level and then hand it off to the next person in the chain. Now they have to run with the ball all the way.
Bankruptcies and efficiency of capital.
Fintan Walton:
So looking at what's actually happening now for biotech companies and as I understand some of the venture capitalists are now asking for the fund money to come back or the money to be taken out of the company, put the company into administration, into receivership - a lot of that's happening at the moment, has that got to change or we going to just continue to see that happening and when do you think we are going to start seeing an inflection point change in which companies will start getting reasonable amount of stream of investment companies?
Dennis Purcell:
I think we are going to have a bit of the time, but we were going to come out of the backend stronger than we have in the past, but what venture capitalists are doing now by necessity is figuring out which are the companies on the portfolio they want to give more money to, and which ones they just have to let go, so it seems.
Fintan Walton:
So the sacrifice is going on?
Dennis Purcell:
The sacrifice is going on and we are seeing more bankruptcies today then we have ever seen in biotech, it used to be companies could raise money one way or another, today companies are in trouble raising money from anybody, so we are seeing lots of bankruptcies and we are going to go through that and we are going to see a bunch of companies disappear, but on the back end we are going have fewer stronger companies.
Fintan Walton:
Right.
Dennis Purcell:
What we have is a huge infrastructure in biotech, we have 4 or 5,000 companies around the world and that's just too many, given the cost to bring drugs to the market.
How the funding model will change
Fintan Walton:
But is that the problem? I mean in the fact that we just had too many opportunities in terms of entities corporations should be backed, in the end we are really looking at clinical products or products that need to be backed, so should the business model shift away from just looking at companies and shift more towards products, or should we just continue to look at just a few companies and very well managed and very well funded?
Dennis Purcell:
Somehow we have to be more efficient with our capital. So I think we are going to go through this change, because as I mentioned with 4 or 5,000 companies and taking a 100, a couple of $100 million to get a drug to market, we don't have the capital to do that, so I think what we are going to have to do is change the model and we are going to have fewer companies. In the past 20 or 30-years it's been relatively easy to get funded and therefore we started so many companies. If you think about the pharmaceutical industry once you get past the top 15 or 20 it had, you're hard pressed to name the rest and here in biotech we've created this monstrous, monstrous infrastructure that now is difficult to support.
Fintan Walton:
Right. Now Aisling Capital itself - what's different about that particular fund and the way you invest, say to other types of sources of funding?
Dennis Purcell:
Generally, in the venture capital community the main focus was starting companies, going into the institutions or universities and starting companies, we tended to be later stage, so we didn't go in and start companies, but we came in when they where in Phase I or Phase II and funded them then. So we intended to be a little bit later stage and we've tended to play on the periphery of life sciences also in the sense of our second fund, we have three funds now, our second fund is heavily devoted to outsourcing. We think outsourcing is going to be a big trend, it has been a big trend and it will continue to be a big trend and you know we are wary right now a little bit of the FDA and then some of the things are happened with the FDA and we vary of reimbursement, so navigating that mine field right now.
Fintan Walton:
Right. The other thing that's happening in the global world, we got the emergence of China, we got the emergence of India, huge markets that are transforming and will continue to transform over the next few years, but there are other changes occurring in those particular territories as well as those territories develop their own biotech. So we normally see biotech concentrated and performing extremely well here in the US, do you see that changing? Do you see that biotech, how biotech companies evolve will change not just simply in how they are funded, but where they are actually placed and how those operations run?
Dennis Purcell:
I think for the foreseeable future the United States will continue to have the lead obviously with places like India and China, there is an enormous market as the emerging middle class comes into play. But I don't think the industry has developed enough in terms of people, infrastructure, government to understand really how to get drugs approved. So my sense is in terms of innovation and in terms of getting drugs approved it's still going to be primarily US dominated play.
Focusing on faster returns
Fintan Walton:
The other thing that's happening obviously novel therapeutic approaches, stem cell science is an important of evolving an area, is that an area that venture capitalist like yourselves attracted to? If so why and if not why not?
Dennis Purcell:
Our main focus is to get money back to our limited partners, and these are university endowment state pension funds. And what's happen to them over the last number of years has been that there is an increasing pressure to get money back to them faster. So these exciting new areas of innovations to say stem cells are really 7 to 10 years out and in many ways that's too long a time, because our owner partners just don't have that kind of patience. So I would say that as we look at things that are very exciting but they're far out, we tended to shy away from them. And venture community generally has simply because of the pressure of our limited partners, it used to be that a 7 to 10 year window was reasonable and people said - waited for the returns and now that time frame is shifting, so that gets you away from some of those types of technologies, notwithstanding the fact that they are going to be important going forward.
Fintan Walton:
Absolutely.
Dennis Purcell:
I mean they are going to be hugely important going forward.
New alliances between Pharma and Biotech.
Fintan Walton:
Absolutely. So we are left with an industry, a biotech industry that's funded by venture capital, hopefully will continue to be so, but we have also pharmaceutical industry that has a need of huge appetite for a continued appetite for products that come through, So are we likely to see from your perspective a change in the way the pharmaceutical companies approach biotech companies? So for an example are we going see better alliances not just with the biotech companies themselves but with organizations like yourselves? Are you getting closer to the pharmaceutical companies and their needs directly rather than placing your bets inside a biotechnology company which hopefully will someday have an arrangement with the major pharmaceutical companies?
Dennis Purcell:
Yeah, we are much closer to the pharma industry, as the venture industry than we were 5 or 10 years ago. We, they understand us, we understand them what we need to do. They have their own set up of pressures, they have profit and loss pressures, they have the cash but they have accounting issues, they have resource allocations issues. What we need to do is come up with better models of how we partner with the pharmaceutical industry, so we may see some different changes in the way biotech and the pharma industry inter-relate, but for sure the venture community, the biotech community, the pharma community are getting much closer together.
Fintan Walton:
Right. Do you see the IPO market ever returning to biotech?
Dennis Purcell:
I guess, you never say never. And we've seen this in the past, certainly. I actually as we sit here in September of '09, I think the market is actually opening up a little bit. I am noticing from the investment banks, that they are starting to file transactions or are working on transactions and we've gone through this before where we have euphoria and then we have despair and we are certainly in a despair mode right now, but if history repeats itself over, and it has over the last 25 years, we will see it come back, it might, it will be more selective.
Fintan Walton:
The character of the companies being IPO will be what? More towards closer cash flows?
Dennis Purcell:
Yes, yes. I think that.
Fintan Walton:
Performance.
Dennis Purcell:
Right. I think that when the window IPO, so called window does open it's going to be later stage companies, companies that have products, companies that have approvals, and you know it will continue to be a challenge for earlier stage companies.
Fintan Walton:
Dennis Purcell, thank you very much indeed for coming on the show.
Dennis Purcell:
Thank you.
Dennis Purcell
Senior Managing Partner
Mr. Dennis Purcell has served as the Senior Managing Partner of Fund I and Fund II since February 2000 and is responsible for the management of the Partnership. Prior to joining Fund I, Mr. Dennis Purcell served as Managing Director of the Life Sciences Investment Banking Group at Chase H&Q (formerly Hambrecht & Quist, H&Q) for over five years, and served on the Executive Committee of Hambrecht & Quist. While at Hambrecht & Quist, he was directly involved with over two hundred completed transactions and supervised over $10 billion of financing and advisory assignments in the pharmaceutical, biotechnology, and medical products industries. During his tenure, BioWorld and other industry publications cited H&Q as the leading underwriter of life sciences securities. Mr. Dennis Purcell has also often been cited as one of the sector's leaders. He was honored in the Biotech Hall of Fame by Genetic Engineering News and named to the Biotechnology All-Stars list by Forbes ASAP. Prior to joining H&Q, Mr. Dennis Purcell was a Managing Director in the Healthcare Group at PaineWebber, Inc. Mr. Dennis Purcell, at time of interview, currently serves as a director of Dynova Laboratories, Inc. and Xanodyne Pharmaceuticals, Inc. Previously he served as a director of Aton Pharmaceuticals, Inc., Auxilium Pharmaceuticals, Inc., Cengent Therapeutics, Inc., and Valentis, Inc. He is also a member of the Board of Directors of the Biotechnology Industry Organization (BIO) Emerging Companies Section. He has served as a member of the Advisory Council at Harvard Medical School.
Aisling Capital
Aisling Capital believes the next decade will be marked by a revolution in healthcare driven by new therapeutics generated by biotechnology. The completion of the human genome has given scientists new insights into the causes of human disease. These insights, combined with the past 20 years of developments in the biotechnology industry, are leading to rapid expansion of novel approaches toward the diagnosis, prevention, and treatment of life-threatening illnesses. These advances have led to an ever-increasing demand for capital to complete the development and commercialisation of new therapeutics. Aisling Capital's goal is to support the leading global healthcare companies that are building on these technical and medical breakthroughs to commercialise new healthcare products.