Building the next billion dollar biotech businesses

Neil Darkes, Co-CEO of Biotech and Money caught up with one of Britain’s leading figures in biotechnology innovation.

Nigel Pitchford, CIO, Imperial Innovations is the man responsible for developing and implementing the investment strategy of the venture team at Imperial Innovations and has a long history and track record of success in building and developing successful biotechs: during his venture career he has been responsible for leading investment rounds into Domantis (sold to GSK for $454m), Apatech (sold to Baxter for $330m), Arakis (sold to Sosei Pharma for $187m), Horizon Discovery (AIM: HZD) and Oxford Immunotec (NASDAQ: OXFD), amongst others.




 B&M: Nigel you’re the Chief Investment Officer within Imperial Innovations and responsible for the Group’s investment activities, but what does that equate to on a day-to-day basis? Where is your time spent?

NP: Being the Chief Investment Officer means that ultimately I lead all of our investment activities and that in itself means developing and implementing our investment strategy. The key piece there is that I chair both our healthcare and our technology investment committees and the challenge is therefore to ensure that we’re investing in high quality opportunities, but then also working with my team members to ensure that both new and existing investments continue to develop in the direction that we think they should take.

Outside of that I am a Director on a portfolio of Innovations companies. I currently sit on the boards of companies such as Veryan Medical, PolyTherics, Psychology Online, Epsilon 3 Bio and Oxford Immunotec. I am also an Executive Director of Imperial Innovations Group plc. So my time is split between managing the business at the Group level, managing our investment strategy and how that translates into making investments, as well as looking after the companies within my own portfolio.

B&M: Imperial Innovation invests broadly in ventures from Imperial College London, Cambridge and Oxford universities and UCL, but in your mind what is it about UK biotech at the moment that is creating such a buzz?

NP: I think that UK biotech is in a pretty good place at the moment and that’s probably down to a combination of factors. I think we are fortunate that there remains a number of very good, high profile, venture capital investors who have been investing since the 90′s in the UK and are still here, still good names, raising money and looking to invest that. They’re typically looking to invest on a more global basis but being based in London, they also spend a lot of time looking at opportunities that are on their doorstep. On top of that you’ve had newcomer funds created such as Innovations, Syncona from the Wellcome Trust, and the Pioneer Fund out of CRT. These funds have a more “evergreen” approach and can support companies for a longer period of time. I think you’ve also seen the environment change with regards to pharma companies who have always viewed the UK as being a home to innovative science, but are now investing in venture backed businesses as well as increasingly looking to engage at the even earlier stages by going into the Universities directly and engaging with targeted research groups. This is really encouraging.

The UK has also benefitted from some successful government led initiatives over the last 4 or 5 years, in particular the Biomedical Catalyst. The investments made into places like the Sanger Institute, the Babraham Research Campus, and the Crick Institute, are also examples of investing in the biotech infrastructure that will support the industry in the UK over the next 20 years. I think it is really positive that policymakers are putting a bit of muscle behind that ambition. So I think there’s a combination of environmental factors supporting the buzz, but ultimately we are also seeing interesting new companies being created around exceptional science, strong management teams being recycled into those businesses and a high level of ambition.

B&M: What do you think is still missing from the UK biotech industry?

NP: We still lack critical mass, both in terms of exciting young companies but also those more established businesses that can anchor the sector. This translates to our public capital markets that lack sufficient mass of interesting companies to invest in or follow, and who subsequently find it hard to consider biotech – particularly after the blow-ups of the 90’s.   I think if we really are to see the sector build and grow and go from strength to strength, we’re going to have to make sure that public market money is also available for these businesses, when they need it.

B&M: So we’re talking about educating generalist investors here?

NP: Yes, I think we are. I think that education is going on. Generalists are clearly seeing some interesting opportunities now in the public market space, and to date have been receptive to them, but it’s not yet a mainstream activity. We need more analysts, more research, and more specialist funds dedicated to this area, to rebuild the sector and educate the generalists. Of course, we also need to demonstrate performance. What will reinforce the belief amongst public market investors is that this is a sector that is now starting to show some degree of maturity and where investment propositions are more robust and likely to deliver returns for them in the long-haul.

B&M: It’s been a very successful year so far for Imperial Innovations and a number of its portfolio companies. Talk me through some of those highlights and what’s been the most satisfying personally?

NP: We’ve had a nice year to date, particularly with the IPO of Circassia which was really well received here in the UK and hopefully will create some of that momentum in the public markets. Within the last 12 months we have also seen Oxford Immunotec float on NASDAQ, and we were clearly very pleased to get that business onto the market with a really supportive group of new investors sitting behind it, and to see the positive post-IPO performance of that business. So both these companies are now fully funded and moving forward. On the private side we’ve delivered a number of both new and further rounds of investment over the last 9 months - all consistent with our investment theme. As well as a number of spin-outs from Universities, we’ve seen substantial rounds of investment complete for four biotech companies: Pulmocide, Crescendo Biologics, Mission Therapeutics and TopiVert. All four were VC rounds raising between £17m to £20m, and financing those companies for the next 2-3 years.

I would probably highlight Pulmocide as being particularly satisfying as it’s a good example of what we would like to do more of. It’s built around a founding team of Garth Rapeport and Pete Strong. Imperial Innovations had previously backed the same team in a business called Respivert some 7 years ago, which was subsequently sold to Johnson & Johnson for $100m. The team has been within Johnson & Johnson for the last few years, taking their lead product into the clinic. Having achieved that they’ve now come out of J&J, with J&J’s blessing, to create Pulmocide, a new entrepreneurial venture bringing together the same team with the same group of co-investors as before comprising Innovations, SVLS, Fidelity Biosciences and JJDC - the venture arm of Johnson & Johnson - to create a new company, focused on developing new medicines for respiratory infections, for which a £17m investment round was raised just before Christmas.

B&M: Given the success of Circassia and the current favourable stock market conditions, are you seeing the rest of your portfolio companies re-examining their own future funding options?

NP: Our investment strategies have not been predicated on IPO markets being available to us - particularly here in the UK where the door has been broadly shut for most of the last decade. Most of the companies that we’ve been instrumental in setting up and funding are more likely to have a strategy which ultimately sees them move more towards a trade sale. Now, clearly if the public markets remain open and receptive then that becomes an alternative direction for those companies to take. We’re not averse to them going in that direction, but we do believe that we should be preserving the public market space for companies that are robust, that have good management teams, and that can survive and thrive in that public market environment.

B&M: Focusing in on Circassia for the moment, what role did Imperial Innovations play in the build up to the IPO of Circassia? What’s been its role since the offering?

NP: Circassia is an investment that we’ve been in since it was originally started up in 2007, when we backed the current team to get it up and going. My colleague, Russ Cummings, led that investment and has been on the board of that business right from the start. He remains a director even after the IPO. Innovations not only provided its own capital through the evolution of the company but it was also instrumental in bringing the other investors to the company over multiple funding rounds. Typical with all of our investments, we were intimately involved in the development of the company’s strategy as well as the implementation of that strategy through the building and supporting of the right management team and board. With Circassia we were very fortunate to have a highly experienced team from the outset, in Charles [Swingland] and Steve [Harris], and we look forward to continuing to see them execute in the public domain.

B&M: Moving on your other portfolio companies, talk me through some of Imperial Innovations other leading assets and what your outlook is for them over the next 12 months?

NP: Veryan is a medical devices business that’s developed a peripheral stent with a novel 3D helical geometry. The recent clinical data shows significant clinical differentiation against a market leading straight stent product. Given that it’s already got a CE mark this data enables us to begin commercialising the product in Europe, whilst also putting in place the studies required to secure a PMA for the US market. With plenty of corporate activity in the peripheral market, the company is now in an interesting position that we will seek to capitalise on and grow value from over the next 12 months.

Another one that’s been more public about its ambitions is Cell Medica. This is a cell therapy business whose CEO, Gregg Sando, has spoken openly about his fundraising ambition. I think it likely that this company will raise a significant amount of money, possibly in the order of £40m to £50m, over the next 12 months to support its activities going forward. They include running clinical trials for its main product Cytorex, but also commencing commercialisation activities for its Cytovir products as they come through regulatory hurdles here in Europe. It’s an exciting time for this company.

B&M: Across the portfolio companies, has there been a consistent theme or preference to the companies Imperial Innovations have chosen to invest in? What do you personally look for in those potential investments and what makes you take notice?

NP: Our investing approach is different to most venture capital investors. We are much more interested in getting involved in creating companies from the outset, than we are in being presented with business plans for companies that have already been formed by others. As such we are typically targeting key academic groups within the golden triangle, seeing whether there is really interesting technology there, whether there are potential leaders within those groups, bringing in experienced management, developing up our investment thesis, and then looking to lead the creation of those companies. These start-ups are normally around really novel areas of biology, typically from labs who are world-leaders in those fields. There has to be a substantial market opportunity ultimately to justify the risks, but this is what we are aiming to get involved in.

B&M: What are the particular therapeutic areas or subsectors that are attracting your attention at the moment? Are there subsectors that you’d like to see represented within your broadening portfolio?

NP: We don’t really target specific therapeutic areas. We focus on novel science with substantial market potential that we can believe in. We have a high weighting of cancer companies within the portfolio, which reflects the research activities within the golden triangle universities in this field, but that wouldn’t stop us from continuing to look for exciting new opportunities in cancer. As our investment model is long term we try not to second guess what the industry might or might not be interested in ten years from now. We are starting to look at novel diagnostic platforms – an area that many investors shy away from – and also have an interest in healthcare IT, particularly where this can be applied to mental health or dementia care.

B&M: Coming now onto the wider UK industry space, what is your outlook for the UK Bioscience industry over the next 12 months?

NP: I think we’ll see more growth. I think there is an increasing ground swell of activities, particularly in developing infrastructure like the Crick Institute and the Cell Therapy Catapult. There is also starting to be better coordination, with initiatives such as MedCity recently being launched. The continued implementation of the UK Life Science Strategy, and increasing engagement with the NHS will be an important differentiator. That’s the direction of travel that I think we will continue on. Pharma will increasingly reach back into the UK universities and I think we will see more engagement and investment there. It’s not a tidal wave, it’s a ground swell. I think we’ve got a pretty good basis here and it’s about building this industry in a considered way and not over hyping it.

B&M: Do you see a tidal change in the interest levels shown by US investors in UK biotech?

NP: I think there are certainly more US funds who are becoming alive to the opportunities that are here in the UK and also in Europe. They know that there’s great technology here down to the historically strong research and academic base which has consistently generated interesting ideas and companies. I think the big difference between the UK and the US in this context is around critical mass and access to public markets. So whilst more US investors are showing interest, I still think they are cautious.

B&M: What do you see as the main differences between these two markets?

N: The US has a big public market with significant critical mass around the biotech industry generally, which also includes the ancillary companies, and that has a huge impact. There are public market investors who have made money out of biotech and as a result of that will continue to invest in it. There are lots of specialists, more investment banks, plenty of good analysts, and the market support is high. That’s something that we need to build here in the UK if we are going to have a longer term sustainable biotech sector because our companies will need access to that level of capital to grow and remain independent. It doesn’t happen overnight though, and in the meantime NASDAQ will provide an attractive alternative for many companies to listing on the LSE.

B&M: Where you see the major opportunities in the next 12 months for Imperial Innovations?

NP: Some of our businesses will continue to move towards a trade sale or some form of liquidity event. However, I also think there will be opportunities for us to deploy substantial amounts of capital behind businesses that we think we can build into the next generation of billion dollar companies. That’s certainly our ambition. We’re not in any hurry to sell out of companies, particularly if they have that capacity to scale.

I think this point about critical mass is important. I think the UK needs to build a critical mass of billion dollar businesses and ultimately if we can do that privately, that’s one means of getting there. If public markets are also available and amenable to building those businesses then that’s also great. We have a core group of our own shareholders who are really supportive of that overall strategy and with their continued support, patience and ambition, that’s what we’ll aim to do.

B&M: To round off, if you could impart one piece or wisdom to a CEO of a UK Biotech positioning itself to raise capital or attract funding what would that be?

NP: I think one key piece of advice is select your investors wisely and make sure those investors have a strong alignment with your desire, and your ambition, for that business. I think too often when there is a lack of alignment between investors and management it can really create substantial problems down the track. So finding investors who share your ambition, and are aligned with where you want to take that company, is really important and it’s one of the key things to get right at the outset.

This article was featured in the June edition of Drugs & Dealers, Biotech and Money’s exclusive magazine.To get access to 10 other executive interviews like this one and feature articles, download for free the magazine.

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