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Investor likes biotech in Florida

Dennis Purcell, senior managing partner of New York City's Aisling Capital, is sitting on a $1-billion venture fund that invests in life sciences and has a new interest in Florida.

On Tuesday, Purcell was the keynote speaker at BioFlorida's annual conference here, his first visit to the trade group meeting which attracted a record 450 scientists, investors and biotech executives. His firm just hired away BioFlorida's president, Diana Robinson, to be its head of business development, in part because Purcell was impressed with her role in helping to build Florida's fledgling biotech industry.

"Because of BioFlorida, because of Scripps (Research Institute), there's an energy you feel here now that you didn't feel two years ago," said Purcell, whose investors include billionaire financier George Soros and teacher pension funds in California, Pennsylvania and New York.

Aisling, which is Irish for "vision," created the Perseus-Soros BioPharmaceutical Fund and invested $448-million in about two dozen life sciences companies. None was in Florida. Purcell, who just raised $550-million for Aisling's second fund, thinks that could well change.

"We're seeing more mature companies visit us from Florida, with good science and good management teams," he said. "If Florida continues at the pace it's building on, there's a high degree of probability we will end up making an investment here."

During a break in his Florida visit, Purcell talked to the Times about strategies, successes and failures.

Why is Florida now of interest?

There is still work to be done, but the ground work has been laid here. The governor has a sensible plan to help build the industry and once the infrastructure is built, it begins to build on itself.

Fifteen to 20 years ago in San Diego, there was a company called Hybritech, which sold to Lilly. And all the top managers then started other firms. Now San Diego is the top biotech area in the nation and the lineage of CEOs comes from the Hybritech days.

Our strategy is to go where other investors have not gone to date, both nationally and internationally.

How has your portfolio performed? CALPERS reported a 13.7 percent internal rate of return on your fund about a year ago.

We're north of 13.7 percent now because of exits over the past year. Of two dozen companies, we've had three sold to Big Pharma (pharmaceutical companies) and four IPOs (initial public offerings). We've exited about half of the companies over three years.

When we closed our fund in 2002, we were predicting where the industry would be in 2005-2006 and we wanted a balanced set of exits for our limited partners, who are mostly institutions around the world. It's risky to invest without a sense of what the potential exits might be.

What kind of predictions were you making?

We could foresee the pipeline of drugs would not be there for Big Pharma, opening up opportunities for smaller companies. Today, big pharmaceutical companies know my portfolio better than I do. And where in the past, I'd ask for a meeting and they'd schedule it in a month, now they're at my office the next day.

( Editor's note: Aisling sold Aton Pharma to Merck, Oculex Pharmaceuticals to Allergen and Novazyme Pharmaceuticals to Genzyme.)

We also predicted that investors would become dissatisfied with genomics companies. All our investments are product-based companies. So we anticipated what Wall Street and Big Pharma wanted.

What are some of your success stories?

Adams Respiratory Therapeutics, which we took public in July, will be a substantial gain for the fund. We're eight or nine times the money (invested) now. The funny thing about health care companies is that they can go through a difficult time and all of a sudden come out the back end. It's hard to predict real winners.

What was the secret with Adams, whose over-the-counter Mucinex, which had $160-million in sales for the last fiscal year, is advertised by the memorable "Mr. Mucus"?

That was a regulatory play. We got our mucus-thinner approved and the FDA took all the other nonapproved drugs off the market. Our portfolio is a mixture of drugs which deal with life-threatening diseases like lymphoma and breast cancer and some more basic products.

How much do you invest in a company and at what stage do you enter?

We put in $20-(million) to $25-million in later stage investments. But with Fund 2, I think the climate will force us to go in earlier; there's more competition for deals. The three things we look for before entering is some clinical trial data, reasonable valuations and a three- to five-year time to exit.

What changes are you predicting for the industry?

We need to be more nimble in how we look at markets and as an industry, we need to be more capital efficient. Most companies don't need to grow up to be an Amgen. A Big Pharma buyout is an acceptable and winning outcome.

You've been a life sciences investor for more than a decade, with Hambrecht & Quist before forming Aisling. You've undoubtedly had a few flops. What are the common themes among those companies that fail?

We at times underestimate the complexity, cost and time of clinical trials. And we may underestimate the difficulty of introducing a whole new class of drugs. When you're entering new territory, it's hard to anticipate how it will work out.

The other common theme is management and when you're slow to pull the trigger on management that's not working out.

One complaint voiced at BioFlorida is the lack of "gap funding" for biotech companies in the state, money that will take them from the angel funding to the level at which institutional funds like yours get involved. Do you see this as a stumbling block here?

No, I think there are plenty of very early-stage investment funds out there. And Gov. Bush clearly understands the interplay of how government and private equity should interact.

A mistake in the past was to make money too accessible. It's not the quantity of companies coming out of Florida that's important. It's the quality of companies. And you want to make sure Florida produces some high-quality companies.