FEATURE: Forbion Capital sees new approach to biotech investing

Filling the gap 

By John Carroll

Pausing between meetings at the JP Morgan Healthcare deal-fest in San Francisco this week, Forbion Capital managing partner Bart Bergstein was clearly relishing the action. Earlier this week, Forbion Capital announced a €200 million venture fund for the life sciences field with the spin-off of the partners and portfolio of ABN AMRO. Forbion manages the €90 million portfolio that ABN AMRO had built up.

While Forbion's portfolio is focused largely in Europe, it's also backed a few U.S. companies in the process and plans on doing more. In San Francisco he was fresh from meetings with Pfizer, Novartis, AstraZeneca, Johnson & Johnson and others, all scanning the biotech field for the kind of deals that they absolutely have to have if they plan to keep growing.

"It's interesting, the change you notice with the big pharma companies," says Bergstein. "They are really changing, coming down from their ivory towers and seeking interaction with VCs. One by one, they're opening their portfolios, saying here are the gaps. Their research is not yielding the results and they've becoming more and more open about it."

They're also becoming somewhat more adventurous, he adds. Before, there was a careful look to see how the company or compound fit their business model and drug programs. Now: "They are willing to consider new technology as well, far away from their historical chemical entities."

For someone like Bergstein, who backs emerging biotechs with a strategy of cashing out at just the right moment, it's all a tantalizing prospect. The new emphasis on deals and acquisitions has changed the play book for biotechnology.

"Typically there are two major types of exits: Via the public markets and second is a strategic sale, either of an asset or the whole company. The latter is preferable. In our experience, and we have over 12, 13 companies listed, it takes two years on average after an IPO before you're out. You have to choose the right time, do it in an upward market. A strategic sale is money in the bank, day one."

Bergstein likes to balance his portfolio with the bulk of new investments in biotech and a portion going to medical technology. And in biotech, he's looking earlier in the development stage than a lot of VCs who lately have been training their sights on companies with products advanced into Phase I and Phase II.

"In drug development our sweet spot is companies with products in late preclinical development, we can estimate what is needed in terms of money and risk taken, that's where our core expertise is," says Bergstein. "The deals for Phase II products, they're scarce. Late preclinical is definitely a better hunting group."

Forbion has no particular focus by disease category, but Bergstein does note that the venture group is backing two biotechs pushing experimental gene therapies. Apart from add-on investments, Forbion looks to make three to four new investments each year. Over the next three years, he expects that Forbion will make about €60 million in new investments. About €45 million of that will go to support drug development work--and it will require a significant amount of traveling.

"Historically, European companies have been more cash constrained," notes Bergstein. "There's good and bad, but in the U.S., there's an atmosphere of, you can't pour enough money into a company. In Europe, it's more analytical. What money will bring what result in what time. Too much risk and people shy away. There's just more capital in the U.S. It goes to the level of remuneration for teams, overhead and doing things very aggressively, including scaling up production when you don't know if the product works. You see that Europe has a more careful approach."

But Forbion isn't restricting its work to Europe.

We're "always a transatlantic investor. In my opinion, you have to be. Only if you invest transatlantically will you have a flow of business plans on both sides of the Atlantic. You need it for a picture of the whole competitive field."