Finding, Funding and Fuelling exciting early stage bioscience

Apposite Capital is an independent investment firm focused exclusively on Healthcare. The firm has an in-depth sector knowledge covering key aspects of the healthcare industry internationally coupled with local insights, a well established brand and a strong healthcare network.

Allan Marchington is a Partner at Apposite Capital. A proven entrepreneur and executive in the pharmaceuticals sector, Allan talks to us about the challenges of finding and funding early stage bioscience, the opportunities emerging as a result of the NHS opening up, his view on how the investment landscape
is changing and the key success factors to successful investments.

B&M: Let’s first talk a little bit about Apposite Capital. Give us your elevator pitch, what is Apposite Capital and what makes it different?

Allan Marchington: One of our key differentiators is that as a group we’re a mixture of people, entrepreneurs, banking experience and investing experience that looks across not only life sciences but also healthcare services. We have an exclusive focus on healthcare and we do it from the angle of building and growing businesses, as well as bringing in the financial investor aspect of that. We also invest globally - both in the UK, continental Europe and the US.

B&M: In terms of your role within Apposite, where do your particular strengths lie?

Allan Marchington: I’m a chemist by training, starting at Pfizer, and then setting up my own company, growing it and selling it successfully to Millennium Pharmaceuticals. I joined, Millennium’s management team as part of the acquisition. Millennium was a NASDAQ listed company and provided me with some great experience of the US public markets and US investors. I then came back and moved into venture capital. My bias is really on starting, growing businesses. Some of the challenges in growing companies is dealing with people, which is probably one of my strengths, as well as spotting innovative new scientific opportunities.

B&M: Do you have preferences at the moment in terms of where you traditionally invest, stage of development or geographical nature of those companies? Where are you seeing opportunities?

Allan Marchington: We invest across all stages, start- ups, mid-stage, and growth investments in both Europe and the US. It’s ‘horses for courses’, its where we can see we can make money.

Where we see a major opportunity today is certainly in the technology enabled healthcare service sectors and in medical technologies particularly in the UK where the NHS is opening up. They’ve created academic health science networks (AHSNs) and Academic health science centres (AHSC), in each region and we’re interested in seeing what they actually throw up and what opportunities they bring both in terms of getting better outcomes for patients and also be able to make money for our investors at the same time.

B&M: In terms of financing early stage innovation be it biotech or academic entrepreneurs, do you have a particular approach that Apposite uses when engaging early stage science?

Allan Marchington: For us, the science has got to drive a lot of the investment so a lot of people come in to see us and maybe don’t appreciate we want to understand the science first and foremost or what the technology does and why it’s better than what’s currently out there. That’s a key driver for us and really understanding the fundamental mechanisms or the reason why one device or drug will work over another, is paramount.

Once we’ve got over that hurdle of the science and the opportunity, then it’s down to the people and have they got the ambition, the vision and the operational excellence to actually drive it to where they want to take it.

Sometimes there are limited resources in place but if the science is good and the idea is good, we’ll wrap other people around it to actually make it a success. People are key to great companies but they’re not absolutely required in the early stage investments whereas great science is, as it will attract great people.

B&M: What is the most difficult challenge you’re facing?

Allan Marchington: Over the last 5 years the IPO market has been shut so the only exit you’re ever going to achieve for your company is really going to be an M&A and the people who are going to do an M&A are the large or the medium to large corporates. In the biotech space it’s really about predicting what’s going to be interesting to those companies in 5 years’ time. That’s the challenge.

What has changed for me is not trying to predict that but trying to do what’s sensible in your own mind about where you think the opportunity is and changing patients’ lives, changing clinical outcomes and if that happens then corporates will almost certainly pay for that product, if the market is big enough and the price is right. So rather than trying to second guess it, you just follow your gut in terms of where the opportunity is and how you’re going to change the clinical practice.

In healthcare services, the challenge is based on the practice of medicine in the National Health Service and in the private pay market and just trying to predict that as well. The interesting thing, in terms of therapeutics and devices, is how the services are used which can then can help you predict which devices and which therapeutics are going to become most interesting in an NHS setting. The NHS is ahead of other countries in understanding the health economic pressure of providing affordable quality healthcare. Given the downward pressure on payers across the World new technologies and services in the NHS funded by us, will almost certainly translate to other regions of the Globe.

B&M: What do you see as the most challenging part of your day to day job?

Allan Marchington: The challenging part is once you’ve done the investment is ensuring it stays on track and you deal with the ups and downs of any business. Making the investment is relatively easy, managing and exiting is the hardest.

B&M: What do you think are the success factors to doing that correctly?

Allan Marchington: Communication, realistic expectation on goals, having a management team that delivers and actually does what it said it would do. Having a supportive, active and experienced board is also a big part of it. It’s back to relationships and it’s back to people.

B&M: What’s getting you out of bed in the morning, what’s making you look forward to going to the office?

Allan Marchington: A couple of things, but at the minute there are a number of exciting opportunities emerging as a result of the NHS opening up. There are loads of super smart people who have some great ideas who’ve never really looked beyond the NHS to get real access to capital to take those ideas from concept to fruition and really change patients’ lives.

That’s the thing that really excites me at the minute,

B&M: Who do you think is best positioned to take advantage of that opportunity?

Allan Marchington: Probably the NHS actually. They are trying to work out how best to do that given some of the challenges related to the public perception of private financing of the NHS, which can be a difficult concept for some people. There’s an education process that’s needed to explain how it can be achieved and still meet all the NHS values that were laid down in 1948.

B&M: A quick question about TTOs: what is your perception at the moment of the state of the TTOs in the UK, is it in a good place, does it need a lot of reform?

Allan Marchington: TTOs have a very difficult job to do. They’ve got a mix of technologies, they’re dealing with academics that are extremely bright and will push for their idea but have a mixture of understanding of how to spin out a company. Can it be improved? Yes it can always be but overall they’re pretty good.

B&M: What do you think are the ingredients to a successful TTO? What do successful TTOs do right that other TTOs do not?

Allan Marchington: Successful TTOs reach out to VCs and investors in the right way.

B&M: What is the right way and can you elaborate on that?

Allan Marchington: They have an understanding of what a VC is looking for in an idea, they package it well and they’re pretty open and realistic in what they have. Their IP policy is clear and they give the academics the right advice and guidance in improving the idea they have.

B&M: Where do you think most TTOs fall down, what’s the most common obstacle they fall down on?

Allan Marchington: They have a tendency to overvalue the technology sometimes given the stage it’s at and they don’t always look beyond the borders of the UK for competitive technologies. There may be other IP, universities working on similar things in other regions that could be superior. So it’s really having that holistic view of the IP landscape.

B&M: How do you see the investment landscape changing? We’ve already talked about pharma having an appetite for earlier stage investments. What ramification does that have on the use of VCs?

Allan Marchington: I think it’s great because in the UK and Europe there aren’t that many early stage investors that are out there so there’s a real shortage of capital for early stage ideas. For me the more people that are interested in an idea the better so it is easier to syndicate deals, and mitigate your risk effectively because not everything you invest in is going to be successful. Pharma brings a lot of advantage in terms of access to know-how, knowledge, and an internal understanding of the science. On the down side there is a risk sometimes that the pharma company can suddenly change strategy overnight and pull out of an area deciding they are not going to invest further.

Instantaneously, you’ve lost your co-investment partner. It doesn’t happen so much, these days but in the past that’s been a risk with corporate investors.

B&M: What are some of the other pros of syndication with pharma?

Allan Marchington: One, Corporates are a potential exit route for the investment although that’s not always the way. Two they bring validation as they typically have someone internally who is an expert in the space to look at the science and opportunity. Three they’re very good people who’ve had operational experience and four they’ve got deep pockets so you know they’re not going to run out of money.

B&M: The cons against that process?

Allan Marchington: the changes in strategy. That’s the largest risk. I don’t see integrity and leaking into the research organisation as a risk at all.

B&M: How do you view the UK bioscience industry at the moment? Are you positive about it’s prospects?

Allan Marchington: I’m actually really positive, it’s fragile but I’m optimistic it’s going to grow; there’s a lot of capital coming from Europe and the US to the UK. A lot of people see it as a very strong science base and there’s capital coming in and if capital comes in then we’ve got more shots on goal to be successful and if that’s the case then success will bring success and it will grow.

The challenges for me are in order to grow substantially large companies we need a strong public market in this space and unfortunately it isn’t as strong as I’d like it to be. We are seeing a few early green shoots of IPOs but we need more generalist investors to come in and actually push the IPO market harder. Most VC syndicates can afford to invest maybe $100m in a new company but beyond that it gets very difficult because you’ve got the concentration and risk exposure effects. So the only way you can actually build a substantial company is by accessing other sources of capital. An IPO route is extremely important to build large companies in the billion dollar range valuations. Until we have a strong public market we’re never going to get that because there isn’t enough capital.

B&M: How do you think companies should best position technology and themselves to raise capital?

Allan Marchington: They need to be realistic, have a transformational vision on what they’re going to do with the technology, and a clear strategy that shows you can make money out of it and it’s actually feasible on a reasonable amount of capital. What many people do is they come with a very bold vision but then when you work out the amount of capital required to get there, it falls down; or they come with a great plan but their ambition is quite limited and so you can’t see how you’re going to get your return. The trick is to present the plan where you can see a good return and behind that, show clear steps on how you’re going to get there.

B&M: Finally, if you could give one piece of advice to a start-up looking to raise capital, what would it be?

Allan Marchington: Focus on the science and understand the science fundamentally because that’s what’s going to drive the investment interest.

This interview was taken from our August edition of Drugs & Dealers magazine. To read more great articles, like the above, from The Crick Institute, Imperial Innovations, Edinburgh BioQuarter, UCL Business, Isis Innovation, Cancer Research Technology, The Wellcome Trust, Coller IP, J&J Innovation, BBSRC, Marks & Clerk, GSK and Silicon Valley Bank Download it for free and become a Biotech and Money subscriber.

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