In lean times, the private market has traditionally been a favorite of issuers that ? for liquidity, credit, or pricing concerns ? have fled the public markets. For small-cap life science companies, even the private debt market has rolled up the welcome mat. A new private equity fund from New York-based Brown, Simpson Asset Management, however, has a prescription for relief.
With $25 million in cash and commitments from a previous Brown, Simpson investment vehicle already in place toward a December 2002 goal of $125 million, the firm?s new Xmark fund targets small-cap life sciences companies ? biotechnology, medical diagnostic, therapeutic, and medical device companies ? that need a funding kick after their IPO honeymoons have gone chilly.
“When you look at companies like this, they typically have a longer time to market,” says Juan Dominguez, an analyst at Brown, Simpson. “Let?s say eight years from concept to commercialization of a product or FDA approval.”
He explains that, in many cases, the companies Xmark targets have been taken public by one of the larger houses, get their IPO funds and are then followed by a few analysts out of the chute. Two or three years down the road, however, the large investment firm has typically moved on, but the company ? with effectively the same if not greater potential that it had as an IPO debutante ? needs further capital to make good on its earlier promises.
“We feel that we?re going in with expertise in this area and finding these orphaned gems at much better valuations than when they first came out,” Dominguez says. “We fund them, and in many cases, become a bridge to final FDA acceptance or commercialization of a product so that further down the road they may be back on the radar screen of the larger institutions for further financing.”
Diamonds In The Rough
Two such “orphaned gems” that Xmark has adopted are Maryland-based biotech firm Antex Biologics Inc. and Canadian medical device concern WorldHeart Corp.
The $3 million transaction for Antex consisted of 3,000 shares of Series B convertible preferred stock as well as two classes of warrants sold to five investors under rule 144A. The transaction has future registration rights.
Antex is a biopharmaceutical company committed to developing and marketing products to prevent and treat hospital-acquired infections and bacterial infections ? particularly respiratory, gastrointestinal and sexually transmitted diseases.
Earlier this month, the company announced that the U.S. Army Medical Research Institute of Infectious Diseases agreed to test certain Antex antibiotic compounds as potential drugs to be used in the fight against bio-terrorism.
Two separate private equity placements were completed in December for WorldHeart, totaling just over $20 million. WorldHeart plans to use the proceeds toward continued funding of pre-clinical and clinical trials for its already well-established Novacor left-ventricular assist system and the next-generation, fully implantable, HeartSaver ventricular assist device.
WorldHeart?s NovacorLVAS kept sixty-three-year-old Pete Kenyon alive for three and a half years while he awaited the heart transplant he finally received in early January. Last week, the Food and Drug Administration approved an additional 15 subjects for a long-term trial of the Novacor device.
The two ringers on the Brown, Simpson team that help to track down these under-funded overachievers are consultant Allan Tuchman M.D. and Christie Ju, a principal on the fund. Tuchman is both a practicing medical doctor and former analyst at the healthcare-focused private investment firm Oscar, Gruss & Son Inc. Ju held a position as a biotech equity analyst at U.S. Bancorp Piper Jaffray and conducted biotechnology research while a Ph.D. candidate at the University of Rochester.
Xmark is expected to maintain a portfolio 10 to 15 life sciences companies with an average funding size of $5 million to $10 million.
Eric Homer can be contacted at:Eric.Homer@tfn.com