Just how hot are investors on biotechnology in the wake of the dot-com implosion, genomic explosion and prospects for stem-cell research?
Oxford Bioscience Partners, a Boston-based venture firm with its West Coast office in Costa Mesa, has raised nearly $450 million for a new biotechnology fund set to close next month.
“We were $150 million oversubscribed and we’re not able to take in many new investors because previous investors increased their commitment,” said Ned Olivier, an Oxford general partner who works out of Costa Mesa and Los Angeles.
Oxford managing general partner Jonathan Fleming said in a published report the new fund received backing from Banc One Corp. of Chicago, Goldman Sachs Private Equity Partners of New York and the California Public Employees Retirement System. New fund investors include GE Capital Corp. and IBM Corp., according to Fleming.
“The major (participants) are almost all repeat,” Olivier said.
While interest in biotechnology is up, Olivier is quick to credit Oxford’s track record and focus on the sector: “We raised it because we’re perceived as one of the best, if not the best, venture fund (that) specializes in early-stage life-science investing.”
Oxford has about $700 million under management, according to Olivier.
“Where we started off with three partners, we now have approximately seven, and they are backed up with a number of excellent associates,” he said. “When other people were cutting back their life-sciences operations, we maintained our investment activities. In fact, we increased.”
Life-science companies received 13.8% of all venture cash in the second quarter, up from 3.95% a year earlier, according to the Arlington, Va.-based National Venture Capital Association and Thomson Financial’s Venture Economics. During the height of the technology boom, biotech, like other sectors, took a back seat.
“So many of the major venture firms essentially dropped life sciences,” Olivier said. “Not having an information technology branch, we never considered that. We just kept on sticking to life sciences because it’s a long-term business and it’s the one we know. And we’re good at it.”
Besides, Olivier said, pension funds, institutional investors and wealthy individuals “take a long view anyway, and they know the market moves in cycles.”
Indeed. Money continues to flow into biotech even though the market for public offerings has waned. Only three venture-backed biotech offerings have been completed this year, generating $190.6 million, according to Venture Economics. In 2000, 36 venture-backed biotech companies went public in offerings valued at $3.2 billion.
Oxford’s new fund has made one investment so far,ActivX Biosciences Inc., a La Jolla-based company developing technology to profile the activity of proteins and possibly aid in drug discovery. Oxford led ActivX’s $20 million private placement that closed last month.
“I know the Oxford group has very strong people with a scientific background,” said John Kozarich, ActivX’s chief executive. “(From) what they’ve told me, we’re the only proteomic investment that they’ve ever made. That’s very gratifying.”
Oxford is searching for “the best technology that we can imagine being applied to the problem,” according to Olivier.
More specifically, Oxford officials have said the firm avoids consumer-oriented healthcare companies or those with a business model based on licensing pharmaceutical compounds and then seeking U.S. Food and Drug Administration approval.
Also, “the management team must be outstanding,” Olivier said.
Even so, venture capital firms often take active board and management roles within the biotech companies they back, he said.
“In biotech companies, very often the company is started by a scientist who is not a general manager,” Olivier said. “Part of the job of the venture capital group is to assist the company in obtaining excellent management.”
Oxford, while primarily an early-stage investor, looks at backing companies in various stages of development, according to Olivier.
“We try to finance them all the way to an IPO or another liquidity event, probably meaning acquisition,” Olivier said.
Oxford’s had “quite a few hit companies, especially in the areas of genomics and gene-driven companies,” Olivier said. Around 15 of the 50 or so companies that the firm has funded have been what Olivier calls hits, though he declined to cite them. “I don’t want to pick out two or three,” he said.
Two Oxford-backed companies that could be considered hits include Rockville, Md.-based Human Genome Sciences Inc. and Genetic Therapy Inc. of Gaithersburg, Md., which was sold to Novartis AG in 1995.
According to Olivier, Alan Walton, another Oxford partner, had a hand in persuading scientist J. Craig Venter, now chairman of Norwalk, Conn.-based Celera Genomics Corp., to help start Human Genome Sciences. Human Genome Science shares were trading in the mid-40s last week, and the company boasted a market capitalization of $5.9 billion.
One Oxford-backed company that hasn’t done well in recent months is Genset SA, a French genomics company whose U.S.-traded shares were at about a buck last week, down from 30 in September.
“Our failure rate has been fairly low, probably less than 15%,” Olivier said. “In just over half of the failures, the problem was the technology did not work.”
And in the other half?
“I would say it was management,” Olivier said.
Oxford finds companies in various ways, according to Olivier. For startups looking to approach Oxford for backing, it’s best for them to go through a third party, such as another venture funder or professional services firm.
“The success rate of business plans which we received anonymously in the mail is very low,” Olivier said.
While Oxford’s West Coast office is in Costa Mesa, most of its Southern California investments are made in San Diego, rather than Orange County (see story this page).
Still, Oxford’s Web site lists two OC-based companies in its portfolio.
One, MaterniCare, based in Laguna Hills, is a practice management and network service organization for obstetrical and gynecological physicians.
The other is Reprogen Inc., based in Irvine, which focuses on improving women’s healthcare through a diagnostic system for endometriosis and a contraceptive vaccine based on antigens found on the head and tail of sperm.
Oxford also has a heavy degree of overseas activity,Olivier spends roughly 40% of his time in Europe.
“I would say that we are certainly one of the three largest and possibly the largest U.S. investor in European life science startups,” he said.
Olivier, raised in Oklahoma and Texas, has been a venture capitalist for 15 years. He holds a bachelor’s degree in chemical engineering from Rice University in Houston and a master’s in business administration from Harvard University.
Olivier speaks in a low voice that some might call aristocratic or patrician, but he seems bemused at that characterization.
“I’ve been accused of a lot of things, but patrician has never been one of them,” he said. “I will defend myself against being accused of being patrician. I use the language well, but then I always have.”
Olivier spent many years in chemical and other businesses, including managing domestic and international operations for what’s now Ultramar Diamond Shamrock Corp., as well as stints at Conoco Inc.’s chemicals arm and Corning Inc. Olivier ran Corning’s worldwide scientific products operations during his last five years at the Corning, N.Y.-based company.
“The chairman and CEO of Corning decided to retire and asked me and another Corning person to join us in what became Steuben Venture Partners,” Olivier said.
Steuben merged with Oxford Partners in 1992 to create Oxford Bioscience Partners.
Olivier said he hasn’t looked back. Being a venture capitalist is “outstanding,” he said.
“I cannot imagine a better job,” said Olivier, who lives on the beach in Malibu. “I am paid reasonably well to stay at the forefront of a technology, life sciences, which is important to people. And I have the opportunity to deal with the most interesting people. The venture industry and the scientific organizations that drive it are very much meritocracies.” n
