Interview: Rothschild Fund hunting for deals at BIO-Europe Spring®
“It is well known that we have fresh money so in Milan my colleagues and I expect our agendas will be full,” said Olivier Litzka, a partner with Edmond de Rothschild Investment Partners who manages the BioDiscovery portfolios of biotechnology companies.
“We look forward to booking the meetings for BIO-Europe Spring,” he told Partnering News, “though we deliberately will leave time in the schedule for serendipity, those accidental meetings that can develop into opportunities.”
Litzka and his colleagues from Edmond de Rothschild are flush with the BioDiscovery III fund that raised EUR 155 million in May 2008, just ahead of collapse of the financial markets.
“There is no doubt that we had luck in the timing of this new fund,” he said, “though we were surprised by how quickly the fund closed. We started in January, just one year ago, and we fully expected to take one year to complete the fundraising, yet we were able to close four months later.”
“The performance of the BioDiscovery II fund we created in 2005 is the reason the fundraising went so well for the new fund. BioDiscovery II investors responded to the new offer enthusiastically, in many cases with twice the money they put into the BioDiscovery II fund. Three years later they knew the story from BioDiscovery II and told us that we did what we said we were going to do, which is offering a realistic return in biotechnology and medical technology, two interesting but difficult sectors. The returns on the portfolio made them happy enough to come back. “
Litzka said 12 investments were made with BioDiscovery II and quickly the fund realized two liquidity events with an IPO for one company in 2006 and a trade sale for another portfolio company in 2008. In addition some significant events happened in other portfolio companies which created value.
The final investment slot for BioDiscovery II was closed in June, 2008 with a financing round for BT Pharma (Toulouse) led by Edmond de Rothschild Investment Partners (EdRIP).
One investment has been made so far with the new BioDiscovery Fund III with EUR 7 million going to Supersonic Imaging (Aix-en-Provence) and there are two other investments that are nearing a closing, according to Litzka.
In an exclusive interview with Partnering News
Litzka explained the approach he is taking with the new BioDiscovery III fund, offered insights into the current market for biotech companies, and outlined the qualities he will be seeking in partners at BIO-Europe Spring 2009 in Milan.
He also concludes with a cautionary note for biotech executives exploring creative partnerships as an alternative to traditional financing.
“We expect to maintain a good deal flow in 2009 with four or five investments,” he said. “We are not racing toward some new goal for closing deals fast due to current market conditions. That is not our business. We prefer to pick a few really good companies, spend the time it takes to get to know the company, and then decide about the value and the investment.”
“We have the luxury of a lot of interesting choices due to the fact that fundraising is so difficult for biotech and medtech companies,” he said. “We can be selective. Clearly it is in our interest to arrive at a price that leaves an opportunity for an interesting return, but it is not our intention to go to extremes in a harsh negotiation. It is not our business to destroy value. We want to find fair conditions for a good long term relationship with the stakeholders.”
“We invest in biotech and medtech, mainly investing all over Europe with some select opportunities in the United States. We are a humble European fund though if there is an opportunity with management we know and other investors we are comfortable with, then yes, we would look at the opportunity,” he said.
“The aim is to have a balanced portfolio with a mix of low and high risk companies. We set realistic expectations and pay attention to liquidity. It is a part of the equation of opportunity, risk, reward and liquidity, and some people forgot the importance of liquidity events. Developing companies to the stage where they are ready for a trade sale is very important. A trade sale means a cash return and our limited partners like cash returns because that helps them in turn to deliver to their investors. Liquidity is one of our key responsibilities and make all participants in the high tech life science world on the long run happy.
“I am hopeful and an optimistic sort of person thinking that we have seen a reduction in the market but that it will stabilize, though we continue to pass through a very difficult period. Limited partners have a ratio for risk diversification telling them the amount of funding they should put in private equity. This ratio is based on the value of their investments in listed companies, which right now are very far down. Automatically this fact pushes down the ratio of capital available for private equity. This is what is making it so difficult, even for companies with great performance to get private equity from limited partners.
“Looking at how companies are positioned right now I see a lot of opportunities with good companies with professional management, many in clinical development with compounds addressing unmet medical needs, which are caught in an unfortunate condition where it is not easy to find proper financing. European companies already passed through a difficult time from 2002 to 2004 that forced them to focus on quality and reasonable opportunities. For this reason for most biotech and medtech companies in Europe further cost-cutting and downsizing is not relevant to their current position because they are already lean and professional.
“I hope that the good funds that are out there interested in biotech resist the temptation to be harsh in this difficult moment and that they in fact are prepared to support portfolio companies for perhaps longer than they had expected. I know that we are in a position to do so, to help our companies develop in a realistic way toward an exit.
“The exit opportunism has become more complicated than before because the IPO market is effectively closed and will likely remain so through the rest of 2009. Our base case for an exit is a trade sale or an interesting acquisition. If we are able to mature companies, and if the pipeline need for pharmaceutical companies continues to be strong, then we expect to see good exits in 2009. An IPO remain as an upside case for excellent companies with the luck of the right timing.
“Many companies are already in this position and are deserving of financing, a merger, an acquisition or a trade sale. Absent an event like this, these companies will need to create other options through combinations of increasing business development, increasing partnering opportunities and fund raising. It can be dangerous for these companies to be too much driven to partnering deals. If they have a good pipeline, then one or two product deals can be good. But they need to be careful not to overplay deals with products and find themselves in a situation where they become linked to multiple partners such that no one is interested in buying the company.
