While VC’s hunger for life sciences investments seems to be growing, A.M. Pappas & Associates was putting the final touches on a $102 million investment vehicle dedicated to the sector. But the firm isn’t simply following in the footsteps of its VC peers. Rather, you might say A.M. Pappas is sticking to its knitting, as it has been backing life sciences companies since it was founded in 1994.
Modeled very closely to its predecessor and namesake, 1998’s $41 million TechAMP I LP, Fund II will invest in biopharmaceutical companies that are developing therapeutics to treat cancer and diseases associated with the central nervous system, infectious and autoimmune disorders and the cardiovascular system. Specifically, the fund’s resources will be devoted to capitalizing companies offering a host of enabling or platform technologies related to drug discovery and development, particularly in the areas of genomics and proteomics.
Approximately 60% of the fund’s capital will be invested in late-stage deals, while the balance will go toward start-up and early-stage deals, said Ford Worthy, senior vice president with the firm. The fund will pump between $6 million and $7 million into each of its portfolio companies over the life of an investment.
While the fund-raising process was admittedly more trying than last time due to sour economic conditions and an overall tightening of LPs’ purse strings, Worthy said, nearly all of the firm’s previous investors anted up capital for the fund’s $50 million initial close last fall. The returning investors included First Union, Duke University, Nikko Capital, ALZA Corp. and Quintiles Transnational.
Additionally, A.M. Pappas garnered interest from a slew of new LPs, including Burroughs Wellcome Fund, Bank of America, GATX Ventures, Imperial Creditcorp, ITX Corp. and Tripos.
Although fund-raising slowed down a bit as the firm shopped its new vehicle to new LP prospects, the fund was oversubscribed. TechAMP II’s original target was $100 million.
Moving On To A New Sector
Despite the tough fund-raising waters, Worthy said he is undaunted by the prospect of actually putting the money to work, especially now that the pace of life sciences investing is beginning to pick up.
“We’ve been in [life sciences] through lean times as well as the big upturn that we saw last year in the public market and through the general heightened interest in the private market,” he said. “We were there in the nuclear winter period of 1997, 98 and 99.”
Logically, following the bursting of the Internet bubble and the ensuing disillusionment that resulted, it would make sense that VCs would seek out deal flow in other sectors, and it seems life sciences may finally be getting its due.
In fact, A.M. Pappas has already invested in three such deals with TechAMP II. Its newest portfolio now includes NuVasive, a San Diego-based medical device company; Cognetix, a Salt Lake City-based biopharmaceutical firm that is developing therapeutics for the treatment of epilepsy; and Incellico, a bioinformatics company located near A.M. Pappas’ home base in Research Triangle Park, N.C.
Moreover, investing in life sciences has served A.M. Pappas well. Last year, it recorded six successful exits in its portfolio, four through initial public offerings and two through strategic sales.