June 4, 2014
Interviewed by: Ainslie Chandler
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Venture Capital’s Boost for Health Sciences

Stephen Thompson, of Australia’s Brandon Capital Partners, outlines to Privcap why he chose to start a health sciences-focused venture capital fund, what it takes to operate such a vehicle and why there are untapped opportunities in the market segment.

Stephen Thompson, of Australia’s Brandon Capital Partners, outlines to Privcap why he chose to start a health sciences-focused venture capital fund, what it takes to operate such a vehicle and why there are untapped opportunities in the market segment.

Venture Capital’s Boost for Health Sciences

With Stephen Thompson of Brandon Capital Partners

What does Brandon Capital Partners invest in?

Stephen Thompson, Brandon Capital Partners:

We’re a life-science venture-capital fund. We only invest in early-stage life-science companies developing new drugs or new devices or diagnostics here in Australia.

Will you be raising capital this year?

Thompson: We’ve got two funds. We’ve got $100 million under management, with $50 million in each fund. We will be trying to raise capital again later this year.

The first fund is fully invested and the second has about two years to run its investment cycle. We run them in parallel. They’ve been a seed fund and a following fund. The following fund is fully invested and we still have a certain amount of seed capital we’re investing.

You are planning to exit some portfolio companies this year. How do you expect to achieve that?

Thompson: We hope to do that through trade sale. Our investment model is to get in early, identify exciting technology, take it through to proof of concept first in clinical trial, and then pass it on to someone who can develop it and take it to market completely. So, we’ve designed and built most of the assets to be trade sales.

Where does your capital come from?

Thompson: Currently, we don’t have offshore investors. Our LPs are three large industry funds here and the commonwealth government through its IIF scheme. We have been talking to overseas investors and, for the next fund we raise, we will go overseas and seek some investment capital from overseas as well.

Why are you electing to go overseas now?

Thompson: We’d like to diversify our investor base and not be solely reliant on Australian investors. We have a unique, attractive investment offering. We’d like to explore our overseas leads and contacts and bring in one or two high-quality overseas investors, if we can.

The Australian government’s Innovation Investment Fund is one of your investors. How has that helped you?

Thompson: That’s a fund or scheme that’s been running since the late ‘90s. This is where the government puts up money to be matched by private capital. Our first two funds, we’ve had $20 million each from the government, followed by $30 million from matching private capital. It’s been one way that a number of early-stage fund managers have been able to get new funds launched in this current market. So, all the investments we’ve made have received money through the IIF through our funds. So, it’s been critical for us in attracting other institution LPs into the funds at the time we’re raising to have the government there as a co-investor alongside them.

What challenges and opportunities do you see in the Australian venturecapital market?

Thompson: On the opportunities side, there’s a tremendous opportunity in healthcare. A lot of medical research goes on here that doesn’t get translated into products going to market. That’s the opportunity. The team we’ve built are all specialists with domain knowledge and expertise. The challenge is that we have shortage of capital. There are few co-investors around at the moment, so one big issue we’re facing is finding co-investors to help us in the syndicates as we grow the companies.

Is there a shortage of co-investors?

Thompson: There’s a move toward tech investing at the moment. It’s a global phenomenon. Also, the healthcare venture-capital industry is having a shakeout worldwide and concentrating back down to a smaller size and pool of experienced managers. We’re just a part of that.

Why did you elect to invest in life sciences?

Thompson: It’s personal expertise and domain knowledge. I came out of a life-science research background and a life-science startup. Really, it’s that domain knowledge or needs in order to make the critical-judgment, early-stage investments, deciding what is a good investment, and then helping investments get off the ground and come to fruition.

How important has your team’s operational expertise been in achieving your goals?

Thompson: We think it’s critical. For all the investments we’ve done, we’ve found the technology, done the diligence, and written a business plan. We’ve been the interim management team or hired the management team after we’ve started it. Without that domain knowledge, it would have been much more challenging for us. None of the investments we’ve done has come to us ready packaged and ready to go so we just have to make a simple investment decision. They’ve all been things we’ve identified and worked up a transaction, turned into a company, then built the team around.

You established the Medical Research Commercialization Fund (MRCF). How does it work?

Thompson: We set up a fund called the Medical Research Commercialization Fund (MRCF), where we collaborate with 30-odd medical research institutes and research hospitals around the country. We work with them, with their tech-transfer group, and with their leading academics and medical researchers trying to identify technology, often before it’s patented. We try to help them file the patents and establish the intellectual property around the technology. Then, we work with them to establish the quickest way to get clinical proof and concept for this. Then, we figure out the shortest and leanest way to get this into the market.

In general, is there a lack of knowledge among scientists about how to commercialize their technology?

Thompson: It’s not their core strength. Their core strengths are academic endeavor, treating patients. When we look at an investment, we ask questions like, “What are the regulatory hurdles, which government’s going to pay for this, and what about reimbursement? Can you design a clinical trial and do this with the amount of capital we can provide?” We ask a bunch of questions that they don’t intuitively ask when looking at their new invention.

Australia has a legacy of commercializing and exporting medical technologies.

Thompson: It does. Certainly, here in Sydney, we’ve got ResMed and Cochlear as examples of successful, global medical-device companies. Gardasil is a vaccine used now worldwide, marketed by Merck, that started here in Queensland in Ian Frazer’s labs. We have a number of successes. More are coming and they are the right fields for harvesting.

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