Bailard Investments: New Pathways for Investment Opportunities




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Video title: Bailard Investments: New Pathways for Investment Opportunities
Released on: December 11, 2009. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Selena Chaisson, Director of Healthcare Investments at Bailard.

Filmed at AusBiotech 2009, they discuss:

• 2009 performance in the public markets
• Bailard's criteria for investment
• how investing at early stages is the way forward
• IPO potential, with more to come in Biotech
• scouting Australia for new investment opportunities
Bailard:The funds and activities.
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here in Melbourne, Australia on this show I have Selene Chaisson who is the director of Investments at Bailard Investments, welcome to the show.
Selene Chaisson:
Thank you, Thank you for inviting me.
Fintan Walton:
Selene Chaisson you are a been in the investing in healthcare for many many years. You've got for with some of the larger funds in the US investing in healthcare. You are currently at Bailard and you are investing in publicly quoted companies and you've got a number of funds could you tell us a little bit about Bailard and the activities you have right now?
Selene Chaisson:
Yeah Bailard is a primarily high networth individuals and we have about 1.6 billion under management currently and about half of that is in real estate investments and the other half is in equities and there are three funds that can invest in life sciences companies. One is an emerging growth fund, the other is a small cap value fund and then that we have our emerging life sciences fund.
Fintan Walton:
So the size of these funds give us some idea.
Selene Chaisson:
There are couple of hundred million dollars and the emerging growth fund the small cap value fund and the emerging life sciences fund is the smallest of the three funds. It's the fund but it's the fund with the least amount of turnover, it's a long term growth strategy where we hold the stocks for up to 5 years in terms of term.
2009 performance in the public markets.
Fintan Walton:
Right, so and clearly when you work in the public markets valuations are sometimes not determined by you and a lot of prediction has to go on in terms of which way things are gonna go, so for you for a company for an investment fund involved in public markets is 2009 been a good year for you?
Selene Chaisson:
2009 has been a very good year for small cap life science companies. I would say since April of this year, I don't what the average small cap US life science company is up but we have a number of companies in our portfolios that are up more than a 100% in that time frame.
Fintan Walton:
Right.
Selene Chaisson:
So it's been a significant run from the lows that were created in cash constraints of last year. Right now I am thinking that the market is going to pull in term pull back certainly not go back to the valuations that we saw in spring but I am expecting the markets to take a breather but we are nowhere near even average historical valuation. So then I am expecting a significant run again.
Bailard's criteria for investment.
Fintan Walton:
Right. Now when we talk about small cap we are talking about companies with the market cap valuations of just below 500 million is that correct?
Selene Chaisson:
Yeah that's what our definition of small cap and obviously every fund has its own definition of what a small cap stock is, it's sort of something that's determined on each on a fund by fund basis.
Fintan Walton:
So when you make that decision which stock to invest in are you in there obviously you are looking for growth because that's the key factor there.
Selene Chaisson:
Absolutely.
Fintan Walton:
But you are also playing a game of risk as well?
Selene Chaisson:
Yes.
Fintan Walton:
So what in your risk assessment how important is it that the company has obviously late stage products? How important is it that the company has cash flows coming through already, I mean that might sound like a dumb question but in the end you know some of those companies will underperform and some of those will over perform so what's your guidance there?
Selene Chaisson:
Yeah absolutely. I think the- we look for couple of things for our investments. Obviously we are trying to go for something that's going to pay off within a reasonable time frame. So we wanna make sure that we get a two to three X valuation that's sort of our (indiscernable) rate [ph] over a two to three-year time frame, that's what we are sort of targeting. It's great if we can find companies that have later stage investments. It's great if we can find companies that have more than one product that's in development and it's great if we can find companies that are already generating revenues on something. So that if there is a halt in the public markets they don't find themselves completely cash constrained, you know may be they can downsize or do something else until the markets open back up again. So we look for all of those things especially when we are first getting involved with stocks. I think now recently given the run that you've seen in the small cap names my focus is shifted a little bit, I am probably looking at companies of little bit earlier stage, because I feel like I can get better valuations.
Fintan Walton:
Sure.
Selene Chaisson:
And I don't necessarily find that I am getting paid at least not in the US for holding stocks sort of post Phase III data, so between Phase III data and actual FDA approval you are not seeing lots of appreciation after that bump from the Phase III data. So taking those kinds of assets and moving them to earlier stage companies makes a lot of sense right now, I think.
How investing at early stages is the way forward.
Fintan Walton:
Right. Now the other thing you do is get involved in secondary fundings, pipes and so forth, so tell us a little bit about your philosophy there and presumably just one of those funds is playing that game, does it?
Selene Chaisson:
Yeah, we definitely take a look at, you know we love to put on our oppositions at the best price as possible, so we look at everything from just buying, crossing a trade, buying a block of stock that's available in the public market, participating in pipes where we would have to be restricted on those funds for a while and we don't have a problem with that to actually participating in secondary offering. So if there is a company that's already gone public and they are out trying to raise money we take a look at those offerings as well.
Fintan Walton:
So, I mean obviously in the type of investments you do you are unlike a venture capitalist where you are going to sit there and try to negotiate on the price, you have to play on the price that's available on the market, so how ---?
Selene Chaisson:
We, we do, but you know especially for those companies that are actually raising money we do get to get into a dialog with them about what price we are willing to pay, and there were some pretty extraordinary deals I would say especially in the first half of this year in terms of what fund managers were able to negotiate on the deals that got done. Obviously you are going to see you are not going to see those fantastic deals get done, because valuations have risen and it's just not as capital constraint to market anymore, but you can still in some cases negotiate very good deals for your investors.
Fintan Walton:
That would be on the pipe, on pipes for an example?
Selene Chaisson:
It would be on pipes, but even on the secondary's
Fintan Walton:
Right.
Selene Chaisson:
You know when the depending on which company is trying to raise that money you can have some influence over the what price those deals actually come to market.
IPO potential, with more to come in Biotech.
Fintan Walton:
Right. Obviously you're playing in the public markets one of the thing you are probably looking to is IPO market coming back into play for the healthcare sector, is there any sign from your perspective, okay there's been a few that just got away in the second half of this year and there are number of companies now filing with the SEC to do IPO?
Selene Chaisson:
Right.
Fintan Walton:
So what's your view on the, on the forth coming potential IPO market?
Selene Chaisson:
Yeah, well it's funny you know but a year ago a lot of people said that there wasn't going to be an IPO market.
Fintan Walton:
Yeah.
Selene Chaisson:
Again in biotech and other people were predicting that the existing companies will not be able to get secondary's done, and now less than a year after all those predictions were made both things are happening. You've had a couple of IPO's, I think we are definitely gonna see, gonna see more, but the private equity guys are not particularly anxious though to go to the public markets with their deals because they still feel like they are not getting the valuations that they want and they can get better valuations lots of times when they just negotiate directly with pharmaceutical or medical device companies, but I think what's going to happen is that as typically happens I think at some point the valuations in the public markets are not only going to be back to historical levels they're probably gonna exceed that. And of course at that point it's gonna make more sense for the private guys to bring their deals to the public markets and to even sit and try to negotiate with the large pharma and device companies. And then I think you're gonna see a pretty robust IPO market again before this is over, but again that's, that's just my predication.
Fintan Walton:
Yeah. I suppose we have to remember the history of why IPO's dried up, because there are numbers of, the last trench of IPO's that happened, stocks just went South.
Selene Chaisson:
Yeah.
Fintan Walton:
A lot [ph], so
Selene Chaisson:
Yeah.
Fintan Walton:
There is still some bad memories there, and is still a considered amount of nervousness that you really have?
Selene Chaisson:
Well I think one of the good things about that, that period when the IPO's did not work as you haven't seen the private guys bring a lot of deals to market too soon, meaning the public market said we don't want these very, very early stage companies and so you haven't seen a lot of those, the companies that are sitting in the private equity portfolios are fairly matured. They are either you know sitting in the Phase III stages or very close to filing their NDA's and some of them are even already generating revenues. So I think if there is another IPO market that opens up in any significant way it's going to be with, with much more mature companies than what we say in that, in that 2000 time frame.
Scouting Australia for new investment opportunities
Fintan Walton:
Yeah. So you are here in Melbourne, Australia and you are obviously based in the United States, you are based actually in Foster City in California?
Selene Chaisson:
Yes.
Fintan Walton:
You deal with US funds, and you are here looking at potential play in the markets here, is that right?
Selene Chaisson:
Yes.
Fintan Walton:
So what attracts you to Australia and what attracts you to the concept of looking at the relatively small and there are some of them are really small compared to some of the ones that you play in small cap market here in Australia, what do you see particularly in the healthcare sector?
Selene Chaisson:
Yeah, I would say that at this point I am really looking for new ideas. And last year in the early part of the year there was a conference that was focused primarily on Australian companies, it was hosted by one of the firms here called Blueprint. And I think they had somewhere between-around 10 to 20 different Australian names that where presenting there. When I saw those presentations I was interested in a handful of the companies. And subsequently went and met with those companies and actually introduced some of the other fund managers in the United States to those names, but I was so intrigued that I decided, I would follow-up actually make a trip out here and get more of a variety of names and just look at the whole selection of publically traded companies. And now that I am here I have to say I've been very impressed with some of the names that I've seen, I absolutely intend to follow-up with some of these companies. And frankly I'd be surprised if I didn't end up in investing in some of them.
Fintan Walton:
So you're very tempted to buy in the Australian market?
Selene Chaisson:
I am tempted by the valuations that I am seeing for what I am getting, I mean some, some fairly late stage opportunities and for the market cap that I'm seeing, I don't think I could find the same quality, at least not in the US.
Fintan Walton:
Right. Now clearly you are dealing with US dollar versus the Aussie dollar and there is a, it's not exactly a stable market at the moment, so how do you overcome that particular, potential as issue?
Selene Chaisson:
Well when we invest outside the United States what we tend to do is, is hedge the currency risk. Because yeah you are right, you are talking about dealing in an assets that's denominated in a different currency and there is a lot of fluctuations and I think there is gone to continue to be a lot of fluctuation in the valuation certainly at the US dollar.
Fintan Walton:
Right. Yeah.
Selene Chaisson:
You've seen it depreciate quite a bit over the last six months.
Selene Chaisson's perspective on biotech industry in 2010.
Fintan Walton:
Selene Chaisson, you've been a player in the healthcare investment game if I can call it for many years now?
Selene Chaisson:
Yeah.
Fintan Walton:
And we are in 2009, we are looking into obviously 2010 already, what's your view? Are we is just still a sector that's got significant growth potential or is it an industry that's still going into so much change that there is an uncertainty about its future?
Selene Chaisson:
Yeah, you know I started in the business in the mid '90s and there was a lot of concern that biotechnology as an industry was gonna go away then. A lot of companies, the crux of the, of the valuation was just based on well how many months of cash do you have left.
Fintan Walton:
Yeah
Selene Chaisson:
And people were predicting similar things a year ago.
Fintan Walton:
Yeah.
Selene Chaisson:
And yet, you know none of that has really come to past. So I think this for many reasons as an industry that has a lot of ways. I don't think it's going away anytime soon. And on a historical basis we still haven't even gotten back to normal valuations. And again because of the cyclical nature of this business where once the sector does start to perform it attracts a lot of capital, it does tend to some sort of over shoot the mark on the upside, I think that's probably be going to be what happens in this instance again. But I think the outlook looks, looks fairly positive for the next couple of years.
Fintan Walton:
Selene Chaisson, thank you very much indeed for coming on the show.
Selene Chaisson:
Okay. Thank you.
Selena Chaisson
Director of Healthcare Investments
Experience: 14 years; 3 years with firm As a member of Bailard's asset management team, Selene Chaisson focuses on highly specialized, emerging healthcare opportunities. Before joining Bailard, she was Global Sector Head of the Healthcare research team at RCM and lead analyst and manager of the RCM Biotechnology and RCM Global Healthcare funds. Selene Chaisson also worked with RCM from 1994 to 1999, when she helped establish the RCM Biotechnology and RCM Global Healthcare funds. In 1999, Selene Chaisson left RCM to join Julian Robertson's investment team at Tiger Management. In 2002, she started her own firm, Coyote Capital, where she successfully launched and managed her own hedge fund and provided investment advisory services to SAC. Selene Chaisson received a BS in microbiology in 1987 from Louisiana State University in Baton Rouge, LA, where she graduated Summa Cum Laude. She earned her MBA and MD from Stanford University in 1992 and 1993, respectively. Selene Chaisson personal interests include running and spending time with her two Chihuahuas.
Bailard
We at Bailard offer innovative, well-designed investment products to insitutional and individual investors. Our mission is to create investment opportunities for clients through our: Think-tank cultures Our disciplined, collaborative approach to investment management stimulates innovative thinking and enables us to find new ways to make money for our clients. Different view of risk Our approach to risk is disciplined and intelligent and seeks to offer clients the opportunity for solid returns and a smoother ride. Stability and agility We've lived through market cycles, seen bubbles come and go. Our collective knowledge and long-term perspective enable us to nimbly adapt to market changes and find value for our clients. Refreshing approach to client service It's personal, dialogical, and focused on building long-term relationships. It's all about identifying issues, solving problems, and making money for our clients. And it works: many of our clients have been with us for more than two decades.