Aisling Capital: Investment Strategies and How to Revive Biotech




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Video title: Aisling Capital: Investment Strategies and How to Revive Biotech
Released on: April 21, 2010. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Dennis Purcell at Aisling Capital. Filmed at Bio-Europe Spring 2010 in Barcelona, Spain, they discuss:

• Dennis' history in the biotech sector

• Key changes to biotech business models in the last 30 years

• Aisling's investment strategy

• How the company raised US $650M in January 2009, and how that fund is being used

• Investment in IPO

• What needs to change to bring back early-stage investing

• How other investors can work alongside traditional VC's

• Potential opportunities
Dennis ' history in the biotech sector.
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here in Barcelona at BioEurope. On this show I have Dennis Purcell, who is the Senior Partner and Founder of Aisling Capital, welcome to the show.
Dennis Purcell:
Thanks for having me.
Fintan Walton:
Aisling Capital is something that you've founded but your history and your knowledge with the biotech sector goes back over many years you worked with some of the great names PaineWebber and also with Hambrecht & Quist, what were you doing in those days because that were sort of the hay day of biotech I suppose?
Dennis Purcell:
Yes that was a start when some of the bigger companies really took off, companies like Amgen, and Genentech and Genzyme some of the big companies that have really the bedrock of the industry today, so we took those kinds of companies public for advising on merger transactions in the like so, I worked as a investment banker.
Key changes to biotech business models in the last 30 years.
Fintan Walton:
And following those companies now and seeing how that business model has changed and now in relation to our own fund the Aisling Capital Fund what are the key changes that have taken place in that over the last 30-years?
Dennis Purcell:
Well I think a key change is going to be very difficult to build those types of companies again because it takes so much capital and right now the limited partners are or owners if you will really don't have a 10 or 15-year horizon they have a much shorter horizon, so back then we were able to raise a lot of capital for those companies to help them really grow that's not as easy to do today.
Fintan Walton:
Right and in some ways do you need sort of an element of naivety in those days if you nobody really knew how long it will take now that we are much more knowledgeable it's much more difficult?
Dennis Purcell:
Yes and I think the people that are the buyers of those securities are much more sophisticated so many of the hedge funds and the venture capital funds all have PhD's working in there or MD's working in there, back then it was the generalist and we had some unrealistic expectations in terms of in the next five-years will cure cancer or cure Alzheimer's of the like and we found that it's much more difficult than we thought.
Aisling's investment strategy.
Fintan Walton:
Now Dennis because you were involved in this industry for so long you went out and set up Aisling Capital and you did it all over again you wanted to see how you could do this in a new age, so what is different for you in the fund that you run because obviously you've well obviously you've got multiple funds in there, tell us a bit about those funds and what is your philosophy in investing?
Dennis Purcell:
Yes, we are a little bit different than a typical venture capital fund that starts companies from scratch and where they take technology out of universities and then start a company. We tend to invest a little bit later, so lot of our companies are in late stage clinical trials and we have a fair amount of capital so that we can give them more capital than an early stage venture capitalist could and the idea is to try to get drugs approved get them to the market.
Fintan Walton:
So does that mean you are backing companies with products that are in clinical trials?
Dennis Purcell:
Yes by and large.
Fintan Walton:
And when you say that prior to proof of concept is in there?
Dennis Purcell:
Yes sometimes after proof of concept. I mean one of the issues in the venture capital community is that everybody is now trying to do things post proof of concept and the question we are going to face over the next five-years is who is going to fund innovation, because the challenge that we had is that to fund very early stage companies it's taking longer and it's costing more and big pharma quite frankly isn't paying upward you know big pharma is in the driver seat right now because they have a lot of cash and so for us it's really a question of late stage products.
How the company raised US $650M in January 2009, and how that fund is being used.
Fintan Walton:
The funds that you've got in total you've got over $2 billion?
Dennis Purcell:
$2 billion, yes.
Fintan Walton:
Just over $2 billion under management at the moment, the most recent fund was about $650 million that was closed off what about a year ago?
Dennis Purcell:
January of '09.
Fintan Walton:
And what was that like to do to try and raise the money at that time, I mean you managed to get 650 which is pretty good.
Dennis Purcell:
Yes.
Fintan Walton:
What was that like?
Dennis Purcell:
Turned lucky.
Fintan Walton:
Turned lucky?
Dennis Purcell:
We had some pretty good returns and the limited partners are really interested in returns and they are interested in backing managers and giving them back capital overtime and we've been fortunate enough to get back our limited capital.
Fintan Walton:
So with that particular fund going forward from that day January 2009 how is that fund going? How are you, what sort of investments are you making? What are you trying doing?
Dennis Purcell:
We've strayed a little bit from pure drug development into what we call the outsourcing field. We think that big pharmaceutical companies and the biotech companies are going to outsource a lot of their work whether it's clinical trials or manufacturing, so we have a sprinkling of that in the fund and we also have the sprinkling of consumer healthcare and what we were trying to do is marry life sciences and life style as consumers take more control of their health issues.
Fintan Walton:
Right. So obviously that's moving into an area lower risk than the traditional biotech model?
Dennis Purcell:
Well time will tell, we are however hoping it's a little lower risk and we are hoping to balance it the days of funds would it used to happen if you would make 20 investments and you would hope two of them would return 10 X to your limited partners and that would kind of make the fund. Today I think the VC communities are the from less risky investments to make in and again goes back to the question of who is going to fund innovation.
Fintan Walton:
Right and again going back to your funding model presumably you are also funding companies you've already backed you are not going into to new start ups just you are going into those companies that are bit more mature is that correct?
Dennis Purcell:
Yes it is and one of the other differences from 30-years ago is that there used to be a packing order where you'll do a Series A financing then a Series B and then an IPO, in today's market once you fund the company you have to keep enough reserves because you have to assume that you are going to fund that all the way through to commercialization and that's a huge difference from where it was away or was back.
Investment in IPO.
Fintan Walton:
But are you also looking at the business models so that for the business you are investing so that they have a greater potential being acquired because you know IPO's these days you know whether will ever get back to a healthy IPO market in biotech hopefully will be back for other reasons or other sectors, is it more likely you are going to invest in the company that has a future potential for acquisition?
Dennis Purcell:
It is, it is, we are building companies it's interesting because when the IPO market if it does come back in this sector they like to watch up products, and pipeline, and management teams where as in acquisitions the big pharma companies really only want the product, so do you build a virtual company with one product or you build a company that has more shots on goal if you will and I think the challenge on the acquisition front is that the acquisition deals are starting to look more like licensing deals, so it used to be a company like Johnson & Johnson would come in and pay you three or four times your money and just acquire you, now what they do is they say we'll pay you something upfront most of our money is going to come on milestones.
Fintan Walton:
Yes, so it's basically in for in out basically which is a traditional method anyway but?
Dennis Purcell:
And it's not great for the venture community because that means that our payments are delayed versus 15 or 20-years ago.
Fintan Walton:
Sure but with IPO's you had some sort of limitation on what you could do anyway in the short-term?
Dennis Purcell:
That's right, that's right.
What needs to change to bring back early-stage investing.
Fintan Walton:
Life is never easy for investor but going back to this the issues that we see today because obviously it's not just the way they are here in Barcelona that's cold and miserable yet the financial markets can be like that particularly from an equity point of view, what do you see as the change that's going to have to take place we are going to see a research into biotech again because at the moment as you've mentioned the earlier stage companies are finding it difficult to get funding?
Dennis Purcell:
I think a couple of things is going to have to happen and a couple of bad things have just recently happened for example there was a company called Xenoport on the West Coast of the United States that had a drug in restless leg syndrome and right at the very end the FDA did not approve the drug because it has some toxicity in rats from seven or eight-years ago investors didn't except that at all. Pfizer made a big investment in an Alzheimer's company called Medivation [PharmaDeals ID = 31139] that drug just failed Phase III. But I think we need two things and we are going to see them coming up in the not too distant future one is there are lot of approvals on the horizon for lupus and for osteoporosis and different types of drugs, if we can get some good approvals there and if we can get some momentum in the stock market then all of sudden things might look up a little bit.
Fintan Walton:
So obviously seeing some breakthroughs in key therapeutics areas which have been hard nuts to crack in the past and lupus is?
Dennis Purcell:
Particularly lupus yes.
Fintan Walton:
It's a classic one of few.
Dennis Purcell:
And a vaccine for prostate cancer is what we need to the Dendreon that's gonna be big thing people going to look for.
How other investors can work alongside traditional VC's.
Fintan Walton:
Right, now people often look at the pharmaceutical companies and say well it you know since you guys are going to be the ones who are going to benefit from all these drugs which you get in earlier some of the pharma companies have got their venture funds now different shapes and forms of those venture funds, as an investor do you see that is a good opportunity for you guys in the VC world and how can you work with those venture arms to be productive?
Dennis Purcell:
There has been a real sea change in the venture corporate community. Five or six-years taking that kind of money was almost thought of as second class citizens, today they are right in the middle of the action and I think they are gonna they are important players and they are going to continue to be important players and they have an advantage over the traditional venture capitalists someone like ourselves who has to got raise capital over three or four-years they have one source of capital and working of Johnson & Johnson and Pfizer and I think they are here to stay and they are good partners and they are attracting good people.
Fintan Walton:
And more strategic investors, can a strategic investor work alongside a for multiple investor like you?
Dennis Purcell:
It used to be they would only make investments if they were they were gonna acquire the company down the road. Today it's somewhat strategic but it's a lot of financial too the big pharma companies are looking for returns.
Potential opportunities.
Fintan Walton:
Sure. Now we are here in Barcelona, Catalonia is one of these regions in Europe which has been active in pharmaceuticals, when you come to this conference here based in Barcelona at the BioEurope conference and look at the this particular region what do you see as an investor? Do you see this as an ideal opportunity for investors like you?
Dennis Purcell:
I think it's a tough opportunity for investors in the US, one of the things that we are very we need more of serial entrepreneurs and whether it's Barcelona or Spain or rest of Europe we don't have those serial entrepreneurs, we don't have the culture of kind of winning and then doing it again, one of the nice things about some of the places in the United States is that these serial entrepreneurs are located in Boston or in Rayleigh or in San Francisco we just don't have them here. And I think the other thing that's somewhat intriguing about Europe is that the venture community is drying up over here a little bit and the question for us is how do we take advantage of that and should we be more active in Europe, we've made a couple of investments but we are thinking about being more active.
Fintan Walton:
Dennis Purcell, thank you very much indeed for coming on the show and telling us all about Aisling Capital.
Dennis Purcell:
Thank you.
Fintan Walton:
Thank you.
Fintan Walton
Dr Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan (US) and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Dennis Purcell
Senior Partner and Founder of Aisling Capital
Mr. 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. 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. 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. Purcell was a Managing Director in the Healthcare Group at PaineWebber, Inc. Mr. Purcell 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. Mr. Purcell received his M.B.A. from Harvard University, and his B.S. in Accounting from the University of Delaware.
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.
Aisling Capital
Aisling Capital is a leading private equity fund that invests in products, technologies, and global businesses that advance health. Aisling Capital is led by a group of investment professionals with diverse backgrounds in industry, science, and finance. The team's complementary backgrounds give Aisling Capital unique perspective on the key players, events, and forces shaping the life science industry, and allow the Fund to identify investment opportunities.