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Have Life Science Start-Ups Survived Nuclear Winter? VC Thinks So

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At A Glance

Name: Alden Philbrick

Title: Founder, chairman, president, and CEO of Oxford Finance.

Experience: Established Oxford Venture Finance and served as president and managing general partner. Prior to that, he was executive vice president of Finalco, a publicly held equipment-leasing company.

Age: 46

Education: BA in management science and public policy from Duke University.

 

Has the private-equity environment for life-sciences start-ups rebounded? By most accounts yes, though some shops continue to see smaller investment than they may have been accustomed to in 2000 or 2001.

Alden Philbrick, president and CEO of Oxford Finance, said the current VC season is currently on the “fun” part of the private-equity cycle — that time when the IPO window cracks open and investors are able to cash in on some of their portfolios.

But the space still has some ways to go, and private-equity investors remain finicky, if optimistic.

Closely held Oxford Finance is one company that anticipates stronger growth in the life-sciences space, and expects to double the total number of companies in its portfolio as well as the average dollar amount it invests in individual companies.

Oxford, which is to be acquired by Japanese trading company Sumitomo, oversees around $80 million invested among 50 start-up and publicly traded companies [see 2/5/04 SNPtech Pharmacogenomics Reporter]. Oxford’s portfolio includes US Genomics, Structural Genomix, Infinity Pharmaceuticals, Amphora, and Cellular Genomics.

If the deal closes, Sumitomo America will acquire all of Oxford’s assets for $51 million plus the assumption of certain liabilities related to its businesses. Sumitomo said it believes the transaction will enable Oxford to triple its portfolio in the next three years and offer its clients and venture capitalists increased access to the Japanese life sciences community, as well as expand its client base and line of products.

The company will also increase by at least 50 percent the average amount of money it will be able to invest in new portfolio shops. Oxford currently offers portfolio companies $3 million investments, on average. Also, the company expects the Sumitomo deal to help Oxford double the number of portfolio companies under its control over the next year.

SNPtech Pharmacogenomics Reporter caught up with Philbrick at the BIO CEO conference in New York City earlier this week:

What’s your take on the current state of the venture-capital market for start-up life-sciences companies? By how much are we out of the woods?

I think we’re going through a cycle that we typically have gone through in the past. It’s not surprising; there’s always ebb and flow of capital. If you look closely at the private capital that’s going into life science, it hasn’t diminished quite as dramatically as venture capital going into IT and non-life science arenas. So the investors like this sector and still remain very positive about it even through the darkest times — which would probably be 2000 to 2003.

With the cyclical opening of the public markets now, with cash starting to flow to liquidity of private equity, we’re seeing an up-tick in the pace of investment from the private side. There has been a noticeable dearth of money going to seed investments, and that’s sort of a hangover from the nuclear winter we just had, where the valuations were squeezed so far down that private money was getting Series B and Series C companies for Series A prices. Early companies were squeezed off the plate; it’s still a little slow in that side of it, but we’re starting to see a little bit of that side of it, but it’s starting to pick up.

You mentioned cycles. At what part of it is the industry today?

We’re on the fun part of the cycle: the window for public offerings is cracked and a few companies have slipped through. And not only have they slipped through, but their values have sustained and in a number of cases have gone up. There is still the overwhelming optimism that typically would exist with [IPO] window openings. So, given that, everyone seams to be optimistic. …

I think what was unusual in this cycle compared with cycles we’ve seen in the past is that the compression of values was greatest recently compared to what it was in recent years — meaning that there was a hype of IPO value in 2000 where a typical IPO value would be in the $400 million to $500 million range, and knowing it’s not going to come back to that level, the question became, ‘Where will it go?’

You have a number of pharmacogenomics companies in your portfolio. Has the recently released US Food and Drug Administration draft guidance on the submission of pharmacogenomics data influenced your investment strategy? Or might it in the future?

It’s doesn’t impact us that readily, but the big movements do. But the fact that there’s this kind of detailed discussion going on we think is nothing but positive. Hopefully all the drafts of these won’t stay in [Mark] McClellan’s handbag when he goes [to run the Centers for Medicare and Medicaid Services]. I think the changes at FDA have been influential over the optimism over the past two years since McClellan came to the FDA.

A recent roundup by a venture capital newsletter showed remarkable discrepancy between the amount of money being yanked from different life science market segments [see article, this page]. For example, VCs invested 80 percent less in privately held bioinformatics firms in 2003 than in 2002, and spent only 5 percent less on pharmacogenomics companies. Why the disparity? Is it due to the pharmacogenomics companies’ proximity to the pipeline?

At the end of the day, it’s all about drugs, and solving disease. So the sectors that have the closest touch to coming up with novel new chemical entities that will be the next blockbuster drug will always be in favor. The fallout on the bioinformatics side is that some of those companies oriented themselves just as informatics service companies, and they didn’t really retain any of the intellectual property or the engine to create their own upside from the drugs they would help find. Now, there are certain bioinformatics companies that are doing great, but they have combined their platform with the drug-discovery opportunities that they find for others, and they keep a lot of those eggs in their own basket. They, through that model, have attracted capital.

What traits among life science start-ups attract your capital, or that may have an edge over competitors?

Definitely great management. Managers, executives, founders that have done it before that know what they’re doing. Combine that with novel technology and fill an unmet need, and you have something that has a lot of interest.

 

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