Paul Capital Partners: Financing and Risk Sharing




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Video title: Paul Capital Partners: Financing and Risk Sharing
Released on: June 02, 2010. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Ken MacLeod, Partner at Paul Capital Partners. Filmed at BioTrinity 2010 in Newbury, UK.
Paul Capital Partners' form of financing
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here at BioTrinity in Newbury, Berkshire in the United Kingdom. On this show I have Ken MacLeod, who is with Paul Capital Partners , welcome to the show.
Ken MacLeod:
Nice to be here.
Fintan Walton:
Ken MacLeod, you've been on the show before and particularly giving us insight into not only Paul Capital Partners but also the condition of financing in the industry, so just remind us a little bit about what Paul Capital Partners is about but also in particular where you are moving yourselves in terms of financing?
Ken MacLeod:
Yes, okay I think most people will know of Paul Capital from our royalty acquisition where and that's really I guess were people mostly where we started off and at that time we imagined we primarily be buying royalties from inventors and universities but very quickly it become apparent that royalties were actually an asset that biotechnology companies had and they could use those as a means of providing financing. They can monetized that royalty stream and use that to put often more often not on their early stage pipeline. It then involved into providing financing to companies that were generating their own revenues from say their own sales and marketing activities and so what we did was we realized that a royalty is simply a sliver of sales effectively and so by buying a proportion of the revenues that a company generates themselves we can actually provide financing again for them to say acquire products, acquire the companies, expand sales forces and the like. And then most latterly we've moved in on again that's another turn of the evolutionary wheel if you want where we have recently concluded a transaction with a larger pharma company where they were seeking to share some of the risk around its portfolio development it was seeking financing for the Phase III studies for a couple of indications on a product that already been approved for one indication, so it was in a sense life cycle management and we provided the financing in sort of help them achieve that.
Fintan Walton:
So essentially what you are offering is a financing that is independent of equity financing and different to debt financing?
Ken MacLeod:
Right very different I think it fits somewhere between the two of those things. I think the main differentiator as far we are concerned is that we are taking on the commercial risk of a product success or even a project success which is not going to be the case in a classical debt situation but of course what we are not doing is we are not providing the dilution they are having to raise equity it require.
Risk sharing deal with AVANT
Fintan Walton:
So give us an example of where you have taken the risk and where you are potentially holding that risk now as a result of may be some decisions?
Ken MacLeod:
I mean I think that deal I just mentioned was right here we can look at that and probably in both sides of our business I think one of the things that people feel is that once a product is approved and on the market a lot of the risk is taken out, well one of the earlier transactions that we concluded was acquiring the royalty on Rotarix which is marketed by GSK [PharmaDeals ID = 23205] and we bought part of that royalty from AVANT [PharmaDeals ID = 20457] now in that particular situation people will be aware of recently there has been some issues raised by FDA which is called for the products be temporarily suspended from sale in the US, now we believed that and hope that will be short-term and will be resolved very quickly certainly the European authorities where the job did it very quickly but clearly in that situation having bought the entire, bought that royalty stream we've effectively taken on board all of that risk and removed it from AVANT. So that's an example where we've always taken a risk because products cannot succeed in the market they can have competitive pressures or indeed in this situation where there is a clinical issue which is brought up by the regulators so that's an example of risk.
Fintan Walton:
Now of course you know clearly Paul Capital Partners have been doing these sort of thing for some time you've described some of the changes, are those changes as a result of the changing environment within the pharmaceutical sector that's more or less moving the companies towards that, so we are all aware that pharmaceutical companies for an example have diminishing pipelines, they got this patent cliff coming on and so forth they can't place the bets and everything so they it's of another way of them achieving risk some form of risk sharing?
Ken MacLeod:
Absolutely.
Fintan Walton:
And will ask them to have a broader portfolio enable a broader portfolio?
Ken MacLeod:
I think that's very true and I think one of the things that large pharma companies actually have quite a wealth of opportunity and often they have to allocate their resources accordingly and as a consequence of that they are looking for financial partners for some of the projects they have in development and those of range from product development to product launches and even to sales force expansion, so I think what our form of financing offers is just really another sort of another arrow in the quiver of the armamentarium that is financing that are available to pharma CFO's.
Financing in the traditional biotech sector and working alongside VC's
Fintan Walton:
Right, so when it comes to the biotech sector the traditional biotech sector who obviously have had difficulties in recent times trying to raise money are you do you provide the solution for those sort of companies?
Ken MacLeod:
Yes very much so, I think that we've used an example there of AVANT were that was at very classic biotech company their focus was primarily on early stage portfolio, they had one asset which was much more advanced than the others but you know what we did was we provided financing for them and if you look at the vast majority of the deals that we have done they've probably been in that small to mid size range of companies and I think it's more recently that the bigger pharma companies have started to become more interested in they are looking what their alternatives are quite frankly.
Fintan Walton:
Obviously we were talking about financing and often those companies that are looking or seeking financing are talking to a range of different sources of funds sometimes private equity sometimes venture capital, how closely do you work alongside those sort of groups?
Ken MacLeod:
Yes, very closely. We our form of financing fits quite well I mean again probably the best way to illustrate that is through an example, one of the deals we did in the last couple of years is with a Franco Dutch specialty pharma company which is venture backed so it's still private it's got VC supporting the company. What they were looking for was another product for their sales force to sell and so what we did was we provided the financing to allow them to make that acquisition which in fact we put another product in their reps bag and so increased the efficiency of that particular sales force and so that's an example from a classic venture backed private company and we hope they go on to have more success and indeed they've actually acquired another product since that time.
Fintan Walton:
So how often is it then from your perspective are you called in by existing investors and by the existing financiers of these companies rather than say management themselves may be they see you as another way of probably preventing additional dilution of their stock?
Ken MacLeod:
Yes I don't know which would be the most common but I think both are you know maybe it's 50-50 quite frankly certainly there are occasions where it's the investors and sometimes when it's the management they come to us often it's their board who have said look go out and look and see what your alternatives are and may be one of them might have recommended that they should talk to us because obviously we are fairly well known in terms of providing alternative forms of investment.
How Paul Capital operates as a global organisation
Fintan Walton:
Sure and the other piece of information is where do you actually operate, I mean clearly you are based here in London we assume that you cover the EU but how far beyond the EU is your remit?
Ken MacLeod:
Okay, well that our remit is global, we believe this is a global industry. I got colleagues in New York so they predominantly handle the US and North America and we handle Europe and the rest of the world effectively from London and in terms of the transactions that we've looked at we've completed our first deal in India [PharmaDeals ID = 24431] and we are certainly looking at doing more there as that market and that sector opens up, so we are truly global organization and that's partly reflection of fact that the industry is a global industry.
What is the preferred business model for Paul Capital?
Fintan Walton:
There are number of business models out there on the biotech field and particularly the ones that we've heard hear at BioTrinity and other conferences similar companies which have got they call the hybrid model in another words they've got both a revenue stream coming through and then a certain group which are involved in risk taking, taking products through, are those companies the preferred option for you? Would you prefer to obviously work with the company that's got at least some element of revenue coming through and in that respect question really is I presume you gonna say is a positive response but are those companies more likely to get the support of Paul Capital Partners and therefore the most likely ones to succeed going forward in another words they are gonna become the preferred risk model or business model for biotech going forward?
Ken MacLeod:
Yes I think any company which has some degree of stability as a consequence of its revenue stream is gonna be more longer last then and so certainly we always talk to those companies and existing revenue stream is almost a fundamental for us in terms of providing finance, so yes we like those companies.
Ken MacLeod's perspective on the current economic climate
Fintan Walton:
Good and then just finally in terms of the economic situation obviously we are all hoping we are coming we still coming out of those we are not completely out of it and not just the general situation but specific to the pharmaceutical biotech sector from the discussions that you've had with pharma companies, discussions you've had with biotech companies, Ken what is your take on the current situation?
Ken MacLeod:
Well I think it remains extremely difficult to raise capital, I mean I think I am sitting here in Europe I think it's probably even harder than it is in the US. To some extent that reflects the smaller investor base and quite frankly there hasn't been as many success stories in (indiscernable) as there has been in Europe, but we have to assume that the cycle will change and there will be more positive sense out there as more successes coming through but in terms of us Paul Capital we tend to invest at pretty much any part of the economic cycle. I've never met a biotech CEO who believes that their stock is overvalued and so everyone is always keen to avoid dilution if they can do. So we are although of course in the current climate where we are seeing an awful lot of people coming and talk to us, so I think we invest pretty much right the way through the cycle where things have where we've been more careful just recently is perhaps more because of the uncertainty in the US because of healthcare reform there and now I think that is becoming a little bit clearer and perhaps there aren't any draconian price reductions enforced on the industry. I think that's providing a little bit more hope for us although I think going forward I think reimbursement and affordability of medicines is going to be an ongoing issue and so I think we are very cognizant of that and will keep that well on the track.
Fintan Walton:
Ken MacLeod, thank you very much for you to coming on the show.
Ken MacLeod:
Thank you very much.
Fintan Walton
Dr Fintan 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).
Ken MacLeod
Partner
Dr. Ken MacLeod , Ph.D. joined Paul Capital in 2004 and is responsible for sourcing, evaluating and negotiating European and Asian investment opportunities for Paul Capital Healthcare. Based in London, Dr. Ken MacLeod brings a strong operational background in the pharmaceutical and biotechnology industries where he previously held senior management positions over a 15-year career at Serono, Abbott Laboratories and Beecham Pharmaceuticals. Prior to joining Paul Capital , Dr. Ken MacLeod was a Venture Partner at Schroder Ventures Life Sciences where he was responsible for deal sourcing, evaluation and negotiation of pharmaceutical investment opportunities. Dr. Macleod earned his Ph.D. from the University of York, UK and his B.Sc. with honors in Biology from the University of Manchester, UK.
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.
Paul Capital
Paul Capital was formed in 1991 as a pioneer in the secondary market, providing creative liquidity solutions to investors in private equity limited partnerships and portfolios of direct investments. Today, Paul Capital sees the world from the vantage point of an experienced investor with unique insight and the ability to build compelling solutions for institutional investors. The team has grown from an initial two to more than 90 employees, with offices in Hong Kong, London, New York, Paris, San Francisco and S"o Paulo, managing a total of more than $6.6 billion across three distinct investment platforms.