SJ Berwin The 5th International Venture Capital Forum - Athens


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SJ Berwin The 5th International Venture Capital Forum - Athens

  1. 1. SJ Berwin The 5th International Venture Capital Forum - Athens Perry Yam (Partner, Private Equity Department) 16 June 2004 222 Gray’s Inn Road London WC1X 8XF Tel: +44 (0)20 7533 2222 Fax: +44 (0)20 7533 2000 Email:
  2. 2. Agenda <ul><li>Introduction - About SJ Berwin </li></ul><ul><li>Fund Establishment/Transaction Experience </li></ul><ul><li>How can you make your Company more attractive to investors? </li></ul><ul><li>Critical Terms in a biotech/life science investment </li></ul><ul><li>The Landscape in the UK </li></ul>
  3. 3. SJ Berwin <ul><li>Founded in 1982 </li></ul><ul><li>Today, a leading law firm advising the private equity industry across Europe </li></ul><ul><li>Over 100 partners and 470 lawyers across Europe </li></ul>
  4. 4. #23900.1
  5. 5. Pan-European Reach <ul><li>Belgium (Brussels) Opened in 1990 (predominantly EU/Competition) 1 partner and 11 assistants </li></ul><ul><li>Germany Opened in May 1998 Offices in Berlin , Frankfurt and Munich 26 partners and 30 assistants </li></ul><ul><li>Spain (Madrid) Opened in May 1999 2 partners and 14 assistants </li></ul><ul><li>France (Paris) Opened in March 2001 9 partners and 16 assistants </li></ul>
  6. 6. Corporate Department and Private Equity Team <ul><li>Market leading expertise in: </li></ul><ul><ul><li>venture capital (technology and biotechnology) </li></ul></ul><ul><ul><li>domestic and European M&A and buyouts </li></ul></ul><ul><ul><li>IPOs </li></ul></ul><ul><ul><li>private equity investment funds </li></ul></ul><ul><ul><li>public to privates </li></ul></ul><ul><li>One of largest dedicated private equity teams in Europe </li></ul><ul><li>Over 150 specialist private equity lawyers </li></ul>
  7. 7. Biotechnology and Life Science Practice <ul><li>Recognised as a leading adviser in the sector </li></ul><ul><li>SJ Berwin acts for a majority of the principal UK and European based investors </li></ul><ul><li>An understanding of the intellectual property and commercial aspects of biotechnology companies </li></ul><ul><li>Team lead in London by Perry Yam </li></ul><ul><li>Mature practice in Germany (Munich and Berlin) </li></ul>
  8. 8. Recent Life Science Funds Abingworth Bioventures Abingworth Bioventures III Advent Venture Partners Advent Private Equity Fund III Avlar BioVentures Avlar BioVentures Fund II Dresdner Kleinwort Benson DrKB Life Science Partners L.P. Dresdner Kleinwort Wasserstein DrKC Life Science Partners II Schroder Venture Life Sciences Schroder Ventures International Life Sciences Fund III
  9. 9. Recent Life Science Investments <ul><li>Lorantis Limited </li></ul><ul><li>Arrow Therapeutics </li></ul><ul><li>Astex/metaGen </li></ul><ul><li>Piramed Limited </li></ul><ul><li>Oxxon Pharmaccines Limited </li></ul><ul><li>Renovo Limited </li></ul><ul><li>ProCognia Limited </li></ul><ul><li>Microscience Limited </li></ul><ul><li>Solexa Limited </li></ul><ul><li>RiboTargets Holdings plc </li></ul>
  10. 10. Recent Life Science Investments cont’d <ul><li>SJ Berwin advised a syndicate of private equity investors who supported a £20 million spin out of the needle free injection technology business from Chiron Vaccines, the US biotechnology company which acquired Powderject a year ago </li></ul><ul><li>The new business, PowderMed Limited will use helium powered technology to deliver therapeutic vaccines for, inter alia, cancer and AIDS </li></ul>
  11. 11. SJ Berwin’s Life Science Team advises the following investors • Abingworth • Advent Venture Partners • Apax Partners • Atlas Venture • Avlar Bioventures • Bioscience Managers Limited • Granville Baird Capital Partners • Heidelberg Innovation • JP Morgan Partners • Medical Venture Management (MVM) • Merlin Biosciences • Nomura • Prelude Technology • Quester Capital • Schroder Ventures Life Sciences • SITKA Capital Partners • Sofinnova • TVM
  12. 12. So what is it that might make your Company more attractive? <ul><li>A strong technology platform </li></ul><ul><li>Strong management with relevant experience </li></ul><ul><li>Business plan and strategy </li></ul><ul><li>Access to academic centres/SAB </li></ul><ul><li>Partnering arrangements </li></ul><ul><li>Existing shareholder base/corporate governance </li></ul>
  13. 13. So what is it that might make your Company more attractive? Strong technology platform <ul><li>Ability to commercialise the intellectual property (the proprietary technology must be capable of being used to create products of clinical relevance) </li></ul><ul><li>Products/Service with a competitive edge/unique selling point </li></ul><ul><li>Need critical mass (there has to be enough technology to channel into products that will generate enough revenue flow to grow a sustainable business) </li></ul>
  14. 14. <ul><li>Consider whether in-licensing complementary technology can bolster the business </li></ul><ul><li>Consider whether out-licensing technology to a partner can generate a royalty stream of revenue </li></ul><ul><li>Patents and trade secrets must be protected to prevent competition in the Company’s area and an investor will want to be sure that the Company owns the technology it plans to use for product development - (a handshake with a scientific founder doesn’t guarantee security!) </li></ul><ul><li>Companies must actively pursue a strategy for protecting their IP (build a wall of protection around the original invention) </li></ul><ul><li>Consider agreements with academic institutions and collaborators to ensure rights to use technology and future related inventions </li></ul>
  15. 15. <ul><li>• Companies need to be led by Management with hands-on experience </li></ul><ul><li>Investors like serial entrepreneurs </li></ul><ul><li>Investor will want to have confidence that Management is experienced enough to plan for failure as well as success </li></ul><ul><li>Successful biotech management teams “evolve” (skills needed to drive a young company forward through proof of concept stage and managing scientists are different to the skills required for operating a business with products in the clinic and a requirement to build a sales force) </li></ul>Management
  16. 16. <ul><li>• Cash burn is likely to be high, a detailed strategy and business plan is crucial </li></ul><ul><li>VC’s attracted to strong companies with the ability to weather an unexpected negative result in product development </li></ul><ul><li>VC’s ultimately looking to make a return - therefore attracted to companies with high growth prospects supported by a strong business case </li></ul><ul><li>VC’s looking to invest in companies with products/services with a competitive edge and a unique selling point </li></ul>Business Plan and Strategy
  17. 17. <ul><li>Access to academic centres </li></ul><ul><li>Rapid pace of research makes it difficult to keep track </li></ul><ul><li>Well established companies benefit from strong academic ties (contribution from researchers and access to compounds that might lead to new products) </li></ul><ul><li>Scientific collaborators also provide service by sitting on the Company’s SAB </li></ul>
  18. 18. <ul><li>Partnering Arrangements </li></ul><ul><li>Most biotechs have to wait in excess of ten years for product revenues to begin flowing </li></ul><ul><li>Most CEOs are keen to have additional sources of income and partnering arrangements can assist with this </li></ul><ul><li>Need to balance the need for short term cash with long term value growth </li></ul><ul><li>Good partnering arrangements provide more than cash - they can provide access to teams with lots of experience of pushing drugs through the clinical and regulatory process and into the market place </li></ul>
  19. 19. <ul><li>Existing Shareholder base/Corporate Governance </li></ul><ul><li>Be wary of angel/friends and family rounds </li></ul><ul><li>Too many shareholders can be a disincentive for investors </li></ul><ul><li>Good corporate governance illustrates professionalism </li></ul><ul><li>Consultants/SAB appointees should be documented </li></ul><ul><li>Insurances (and IP protection) should likewise be in place </li></ul>
  20. 20. Critical Terms in a biotech transaction <ul><li>Share rights </li></ul><ul><ul><li>Dividend? </li></ul></ul><ul><ul><li>Sale and liquidation preference </li></ul></ul><ul><li>Mandatory transfer of shares? </li></ul><ul><ul><li>Vesting of shares </li></ul></ul><ul><li>Drag and tag </li></ul><ul><li>Price anti-dilution </li></ul>
  21. 21. Critical Terms in a biotech transaction cont’d <ul><li>Board constitution/entrenched position </li></ul><ul><li>Negative control </li></ul><ul><li>Restrictive covenants </li></ul><ul><li>Staged/milestone related investment </li></ul><ul><li>Warranties </li></ul>
  22. 22. The Landscape in the UK <ul><li>Signs of a cautious recovery </li></ul><ul><li>Underlying fundamentals: ageing population & uncured diseases </li></ul><ul><li>But Europe has difficulties; no IPO, limited M&A, equity gap developing </li></ul><ul><li>On the positive side, Pharma needs to fill R&D pipeline </li></ul>
  23. 23. <ul><li>Pharma depends on biotech (for products) AND vice-versa (for biotech exits and income) </li></ul><ul><li>Biotech not yet achieved full potential </li></ul>
  24. 24. <ul><li>Tend to look to the US - most mature/sympathetic market </li></ul><ul><li>VC investment in US biotech continued to grow robustly in Q3 2003 </li></ul><ul><li>In US, biotech companies received more investment than any other industry sector for the first time in seven years [source: PricewaterhouseCoopers/Venture Economics, NVCA Money Tree Survey] </li></ul><ul><li>Biotechnology companies raised $873m (representing 88% jump over same period in prior year) displacing software as the leading category </li></ul><ul><li>Broader life science sector (including biotech and medical devices) totalled $1.24bn (over 30% of all VC investments in the quarter) </li></ul>
  25. 25. So what of Europe? The challenges... <ul><li>Following Genentech (1976), early companies were all rounders </li></ul><ul><li>Today there is diversification with a number of highly focused companies </li></ul><ul><li>Circa. 30,000 known diseases but only a third can be treated effectively </li></ul><ul><li>Modern drug discovery has become expensive (higher development costs) </li></ul><ul><li>2002/03 was closed for European biotech companies </li></ul><ul><li>Investors in Europe tend to be more cautious - IPO window? </li></ul>
  26. 26. IPO’s? <ul><li>In the US, October 2003, 10 Companies file for IPO </li></ul><ul><li>But not all good news… </li></ul><ul><li>- CancerVax (raised $72m (€62m)) </li></ul><ul><li>- Genitope (raised $33m) </li></ul><ul><li>- Myogen (raised $70m) </li></ul><ul><li>- Aderis pulled </li></ul><ul><li>Caution: relative lack of demand for offerings in the sector </li></ul><ul><li>Europe: typical problems for public fundraisings - the size of the IPO </li></ul><ul><ul><li>small offerings, poor liquidity, investors more cautious </li></ul></ul><ul><li>European VCS (UK) want to see an IPO perform well in the after market (VCs face lock in for 6 months (or more)) possible exits … Ark Therapeutics, Microscience, KuDos, Inpharmatica, Cylacel </li></ul><ul><li>Europe needs a blockbuster! </li></ul>
  27. 27. Is M&A the answer? <ul><li>Much less activity than one would believe especially given the amount topic is discussed </li></ul><ul><li>Reasons? </li></ul><ul><ul><li>a long period before expected profits for many companies has caused investors difficulty in justifying investment rounds (to fund M&A) </li></ul></ul><ul><ul><li>a two tier system has been created </li></ul></ul><ul><ul><ul><li>early stage biotechs </li></ul></ul></ul><ul><ul><ul><li>late stage companies with clear path to profitability </li></ul></ul></ul><ul><li>this should have prompted consolidation i.e. to create companies with broader pipelines and later stage products (leading to profitability in shorter timescale) </li></ul><ul><li>But need strong management team capable of delivering these goals </li></ul><ul><li>Management reluctance? </li></ul>
  28. 28. Developing Trend <ul><li>A longer period before expected profits and hesitancy for IPOs in the UK for many companies has caused investors difficulty in justifying investment rounds </li></ul><ul><li>Almost a two tier system has been created </li></ul><ul><ul><ul><li>early stage biotechs </li></ul></ul></ul><ul><ul><ul><li>late stage companies with clear path to profitability </li></ul></ul></ul><ul><li>this has created a focus by VC’s on late stage product companies with revenues (or revenue capability) or on companies which might be suitable acquisition targets by Big Pharma (who need biotech companies with products in Phase lll) </li></ul><ul><li>Big Pharma has issues with products coming off patent (affects revenue stream) </li></ul>
  29. 29. Is there an equity gap developing? <ul><li>Many companies today face difficulties: </li></ul><ul><ul><li>under financed </li></ul></ul><ul><ul><li>sub critical in R&D capabilities </li></ul></ul><ul><ul><li>high infrastructure costs (modern drug discovery is increasing in complexity therefore increasing costs) </li></ul></ul><ul><ul><li>poor business models (platform/late stage product and revenues) </li></ul></ul><ul><ul><li>management issues in Europe (need experience) </li></ul></ul>
  30. 30. Links with Pharma <ul><li>Is Big Pharma the answer? </li></ul><ul><li>A big issue for Pharma is their product pipeline </li></ul><ul><li>They need biotech companies with products in Phase III (so product can be brought to market in a reasonable time frame) </li></ul><ul><li>Big Pharma has issues with products soon coming off patent (effects revenue stream) </li></ul>
  31. 31. Conclusions <ul><li>Biotech companies face continued hurdles to achieving success: </li></ul><ul><ul><li>long time periods inherent in building a successful company </li></ul></ul><ul><ul><li>new product/discovery/development takes 10-15 years </li></ul></ul><ul><ul><li>initial revenue non-existent (at best low) </li></ul></ul><ul><ul><li>increasingly demanding regulatory environment </li></ul></ul><ul><li>IPO window uncertain </li></ul><ul><li>Equity gap (R&D) </li></ul><ul><li>Management (M&A unproven) </li></ul><ul><li>But there is a symbiotic relationship between Pharma & Biotech </li></ul>
  32. 32. Conclusions cont’d <ul><li>Technology which can be commercialised is key </li></ul><ul><ul><li>Ensure technology is protected </li></ul></ul><ul><li>Be clear on strategy! </li></ul>
  33. 33. Achievements to be proud of <ul><li>Not all doom and gloom... </li></ul><ul><li>More than 155 biotechnology drugs and vaccines have been approved by FDA </li></ul><ul><li>More than 370 biotech drugs, products and vaccines are currently in clinical trials targeting more than 200 diseases </li></ul><ul><li>Currently circa. 4,000 companies globally </li></ul><ul><ul><ul><ul><li>1,870 private and public companies in Europe </li></ul></ul></ul></ul><ul><li>*[source: Biotechnology Industry Association:] </li></ul>
  34. 34. SJ Berwin The 5th International Venture Capital Forum - Athens Perry Yam (Partner, Private Equity Department) 16 June 2004 222 Gray’s Inn Road London WC1X 8XF Tel: +44 (0)20 7533 2222 Fax: +44 (0)20 7533 2000 Email: