GBS Venture Partners: Investing in Australia




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Video title: GBS Venture Partners: Investing in Australia
Released on: December 16, 2009. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Dr Geoff Brooke, Co-Founder and Managing Partner of GBS Venture Partners.

Filmed at AusBiotech 2009, they discuss:

• the way the life sciences industry has developed within Australia over the last 10 years
• investment opportunities within the country
• how Australian biotech companies were affected by the global financial crisis
• GBS Ventures’ funds, including Peplin
• Geoff’s predictions for the industry in the next 12 months
The way the life sciences industry has developed within Australia over the last 10 years.
Fintan Walton:
Hello and welcome to PharmaTelevision news review here in Melbourne, Australia. On this show I have Geoff Brooke, who is a founding partner at GBS Ventures here in Melbourne. Welcome to the show.
Geoff Brooke:
Thank you. Pleasure to be here.
Fintan Walton:
Geoff Brooke, you're an investor, GBS Ventures is your firm, you founded it, your history goes back to the days when Ross Charles were investing here in biotech, how would you describe the change in Australia between the times when you started to invest to where we were are today?
Geoff Brooke:
It's enormously different, it's grown enormously pretty much in all respects. It started with a really good obviously really good medical research base but very little commercialization, couple of big companies one government focused, one government are in the investment group with no real entrepreneurial management available, no boards available with experience, lawyers didn't know how to do you know start a company documentation, banks had no idea how to manage accounts so that sort of things, so we really started from really strong medical science that lot of which was ready for the beginnings of the commercialization phase, but very little else. And I can remember distinctly sitting with Jeremy (indiscernable) Curnock Cook whom I was a partner with him those days when we started the business and people would call and say want to come in and talk to you about starting a company based upon my medical research and they would come in and sit with the Senior Board and then Ross Charles sit across the table and that's what they do, just sit across the table, they had you know no business plan, they had no presentation, they had no thoughts on clinical trials, they had no thoughts on commercialization and literally would say I've come here for some money because I can't get grants anymore. Now we have companies coming in couple of times a week, real companies coming in with qualified management teams that might have actually, it might be actually the second start up or they might have left big industry they've the business plan done, the IP done, the market research done, they not even being missed the clinical trials, the board done, good Chairman all that sorts of things, so it's growing enormously.
Investment opportunities within the country
Fintan Walton:
So Australia had already obviously a mature research base, a scientific academic research base, now today would it be accurate to say the biotech industry is growing up it's a mature, much more mature cluster, is more experienced, lot of whirlwinds but it's a stronger industry?
Geoff Brooke:
Absolutely, absolutely it's stronger, it's not mature it's still maturing and of course we are you know still small compared to the US in particular, but it's doing, it's doing a way better now than it has for you know for those for all the right reasons again when we started the business roughly 10-years ago or more the only thing that we can invest in was in vitro stage medical research projects that with the life work of the research with the university. And now we have opportunities still to invest in those sort of companies, where we have to do the Life Science have to do the start up on and management teams build the board all those sort of things, we also have opportunities to invest in companies that are actually have done that prior to us getting involved and now perhaps at preclinical stage or just about to go into clinical stage and we can invest the foreign companies that have way more progress made, less risk and a shorter turn around for our investments, (indiscernable) of sorts it's grown enormously from the commercialization point of view.
How Australian biotech companies were affected by the global financial crisis
Fintan Walton:
So one of the key things we are here now in 2009, later part of 2009 there has been a global financial crisis, it's been tough for biotech companies worldwide, has it been tough for biotech companies in Australia?
Geoff Brooke:
Yeah it's been, yeah it's been really hard, I mean the public. So there is a big difference between public and private stocks from that point of view obviously. Public stocks have been smashed, so the bottom of the market was in March which this year was sort of bottom of the market in general, the bottom of their market was towards the end of the last calendar year though absolutely smashed. And if you think about your own investment portfolio, when you know, when the place all goes to hill and high [ph] water you know what you gonna throw at first, what you're gonna stop buying first that stocks are perhaps a bit more speculative [ph] to than buying a big mining company or bank.
Fintan Walton:
Sure.
Geoff Brooke:
Right? So they're absolutely got smashed, but then hence we are starting from a low base but then when the big companies started to get stronger again like cleaning up the balance sheets, economy started to improve now people are feeling yet more comfortable and they are buying these stocks again, so in fact our sector has outperformed every other sector this whole year, so for the nine months to the end of September our index has gone up about 90% compared to 30% for the general market.
Fintan Walton:
So that's a biotech, Australian ASX Biotech Index?
Geoff Brooke:
Yeah, well I am, I am talking about a, there is number of indexes so they're all the same, they've all gone about the same, whether you and some of the banks for example track the top 30 stocks and some track the whole lot the ASX index so obviously covers the whole lot and that 90% is excluding the big couple so say someone (indiscernable) if you take them out, because interestingly for the first time when you take out those big companies the performance is better, you know I can't remember that before.
GBS Venture Partners' funds, including Peplin
Fintan Walton:
Now in terms of you as an investor and the funds that you're managing how are those funds doing, are you in a safer place today than you where six months ago, a year ago those with your investments?
Geoff Brooke:
Definitely, of all the funds, so we manage about $430 million in four funds, our all the funds, our first fund for example was done really well its returned a couple of times capital end and but we still have a couple of companies in that fund one of which is public and it's, it's performed really well, we are actually holding that stock because we think there is still some upside, good upside in that stock. And then our more recent funds because our bigger funds and because of the reasons that I got before that the markets are more mature the last couple of funds we have been able to invest in public companies not just private companies, because there where public companies available. Now our most recent fund invested when the markets were really bad and so got great pricing on a couple of investments and they've, they've you know sky rocketed and have done really well and Peplin is a great example, we invested in Peplin in about October, in about August last year almost at the bottom of the market when that was entering its last couple of trials.
Fintan Walton:
So you where a late investor then we had, did you?
Geoff Brooke:
Right.
Fintan Walton:
in Peplin ?
Geoff Brooke:
Right.
Fintan Walton:
Yeah.
Geoff Brooke:
So we saw, we saw Peplin when it was starting out and then for whatever reason we just didn't make, I mean I remember when it was a research project up in Queensland and they hadn't started that company yet. And for couple of reasons I mean you don't " you can't invest in anything in everything we didn't, and then we've noticed that, we kept in really close contact and known the CEO that was running for long time and now the new CEO for long time and watched it's growth and that was never quite right for us to invest or it was never quite right for them to invest anyway the moon and the stars aligned about March just last year, we paid several others from GBS had paid the company several visits to see how they were going. And so in about March last year they called and said they are ready to take an investment from us so, so we worked up a deal and a close in that August.
Fintan Walton:
Right. Now does that I mean obviously the acquisition of companies here in Australiabecome an important part is good news because it gives another element of return obviously to investors it may be bad news because technologies now leaving Australia or products some innovation are leaving Australia, so from your perspective is this, is this a sign of the maturation of our industry?
Geoff Brooke:
Yes I think it is. So again when we started the business and others started out in the same sort of business roughly in the late 90's you know between '96 and '98 for example as I said before all there was able to, all you are able to do was invest in vitro stage projects and hope they become companies, well guess what here we are 10-years later and it takes 8 to 10-years to take something from the test tube and show that it works in a 2B or a 3 where the real value is shown in something plenty of them have fallen over and haven't made it, but now Australia has a whole (indiscernable) of companies that have made it and here they are finishing their Phase II or Phase III and getting acquired like Peplin and like Arana, so I think Australia is in a terrific position as it sits today within next two or three-years there is something like 15 different projects in Phase III clinical trials spread across something like seven or eight companies. And then there is a whole lot of 2B's is about five or six companies with really solid 2B programs underway, so we can have a raft of this data available over the next two-years, that I think will really cement the Australian biotech industry.
Fintan Walton:
The resources have always been an incredibly important part of the Australian economy but also to the stock market, so where does biotech now sit alongside that sector?
Geoff Brooke:
Yeah, I mean I've just lived my life with that question or how that's, I spent you know, I spend my life rising money for these companies in investing, so it's way better than it was, you started that asking me those sort of questions, it's way better than it was, and now there are institutions that have biotech interest, there are institutions that have allocation to the biotech sector mostly on the public side. So our investors are only super innovation funds, pension funds. And most of those have their exposure to our industry through us or other groups like us not many of them are yet investing in, in private companies directly like there is in the US there is a number of pre-IPO late stage institutions that invest in private companies, we don't have that yet, but there are increasing number of institutions that are taking interest in biotech companies. My next one over [ph] was a Hedge Fund Manager they have a big interest in a number of, a number of biotech companies and it's quite surprising because I mean they've haven't -- they've had no background in it and they've seen this as a, as like a second mining sector that Australia can do really well at, and they've made tremendous return from and they are [ph] absolutely thrilled with what's, the way what's happening.
Fintan Walton:
The other thing about biotech industry, you need lots of players for an investment point of view, has Australia developed enough players, I mean this -- the old difficult problem here in Australia is the funding gap taking something from the university and bringing it up to into proof of concept, how has that stage developed is that still a weak part of the link in terms of financing?
Geoff Brooke:
I think it is, I think we need more players not, not 30 or 40 players this is probably about 6 groups like ours that are active in Australia now. I think they all need to be at a raised larger fund and then I think we need perhaps a few more on top of that. Some of my colleagues argue, not so much GBS colleagues but other people in the industry argue that we probably got enough fund managers, they just need more money, clearly in the unit holders our investors, our LP's don't want to give money to in experienced teams. But I think we could do with a few more managers and then all of those managers have, have significantly more amounts of money, so we're just raising, we closed in March a $125 million fund it's just enough to operate as a fund. And it's all to do with the numbers, right? You roughly don't want to have more than 10% of your fund in any one company, so roughly that means it's 10 to 20, 10 to $12 million is the max that we can allocate to one company over the whole life of their involvement with the company. You know that's, that's the way things are done these days, that's just enough, so again the way venture deals are done in our sector now and you notice, when you go into deal you really want to see that you can take the people that are involved with the company at that stage can take the company all the way through to probably a 2B.
Fintan Walton:
Right.
Geoff Brooke:
It's not like the old days we did a series A, we did a four, five $10 million series A and then said okay we'll get the data[ph] and then we go and raise more money not done that way anymore, now you need to see a clear plan that everybody that's involved can take it there, so for us to lead if, you know what it will be a $50 million series of grant's you know we can just to do it earning 20% of that.
Fintan Walton:
Right.
Geoff Brooke:
Putting in 10 million.
Geoff Brooke's predictions for the industry in the next 12 months
Fintan Walton:
You're in the investment game, you have to have skills and predictions in what's going to happen, we are at the end of 2009, where do you think we will be in 12-months time here in Australia?
Geoff Brooke:
Yeah, well I think assuming China and India keep going the way they are and that our economy is still, still stays blend and hence people are still interested in looking for a slightly higher risk, slightly higher return in our industry I think there will be these results of these clinical trials that are all happening now will come out and people continue to get more satisfaction and return from investing in those companies. So I think in 12-months time we're going to see good results out of these clinical trials, more institutional investors coming into the public markets. And I hope that our venture fund and other venture fund colleagues will be making more returns out of this sector and hence more money will flow back into it.
Fintan Walton:
Geoff Brooke, thank you very much indeed for coming on the show.
Geoff Brooke:
Pleasure. Thanks for having me again.
Geoff Brooke
Founding partner
Dr Geoff Brooke co-founded GBS in 1996 and has more than 20-years venture capital experience. He was formerly President of Medvest Inc., a US-based early-stage venture capital group he co-founded with Johnson & Johnson. Geoff Brooke experience includes company formation and acquisitions, as well as public listings on both NASDAQ and ASX. He has been a founder, executive and director of private and public companies and has an extensive network of international contacts. Geoff Brooke is on the board of GBS portfolio companies Chemgenex Pharmaceuticals, CoDa Therapeutics, Sunshine Heart and Uptake Medical. Geoff Brooke is licensed in clinical medicine by the Medical Board of Victoria, Australia and his post-graduate studies were in anaesthetics/intensive care. He earned his Bachelor of Medicine/Surgery from the University of Melbourne, Australia and a Masters of Business Administration from IMEDE (now IMD) in Lausanne, Switzerland.
GBS Venture Partners
GBS Ventures Partners(GBS) is a leading life science venture capital firm. Founded in 1996, GBS invests in young businesses developing and commercializing products which, when combined with the right management and finance, will make a significant difference to patients' lives and deliver financial returns for our investors. Our areas of particular interest and expertise include human healthcare, biotechnology product development and life science start-ups. In particular, recent investments have included biological or small molecule therapeutics, medical devices and diagnostics. GBS invests in private or public companies whether at start-up or later stages of company development. Their investors include major Australian superannuation funds. The GBS team has been investing in Australasia since 1996 and has financed companies with a combined market capitalization approaching $2 billion.