March 2, 2011

PEHub

Carusi and his Banner Year for Healthcare Exits

Mike Carusi is having a very good year. In the last three months, the Advanced Technology Ventures GP has sold two portfolio companies – cancer therapeutics maker Plexxikon and hypertension device developer Ardian – in deals collectively valued at upwards of $1.6 billion.

Both exits were a long time in the making. ATV first invested a decade ago in Berkeley, Calif.-based Plexxikon, which recently wrapped up Stage III trials for a drug targeting metastatic melanoma. Japanese pharma Daiichi Sankyo announced this week it will acquire the company for $805 million plus up to $130 million in milestone payments. Carusi called it a 10X-plus return.

ATV also first backed Mountain View-based Ardian, a developer of catheter-based therapies for hypertension, about five years ago. Medtronic announced in January it completed the acquisition of the company for $800 million plus cash payments tied to revenue growth over the next four years. That was a 15x to 20X return for ATV, depending on milestone payments.

Carusi, who joined ATV about twelve years ago, says the recent deals only serve to bolster his conviction that early stage healthcare and medical devices are thes place to invest. Following are some of his thoughts on the investment outlook, and his recent exits, from a phone chat this morning.

Q:  Any tips on how to generate high returns in healthcare VC?

A; There are two ways to get a great multiple. One is to get a great number (from an acquirer) and the other is to not require a lot of capital. By biotech standards, Plexxikon did not require a lot of capital. It raised about $66 million.

Q: What made Plexxikon such a popular acquisition target?

A: Their treatment is for patients who have advanced stage melanoma, and there are very few treatments for those patients. If the melanoma is limited to the skin, you can excise it, but once it spreads to other parts of the body it’s a very aggressive cancer. What was unique with the Plexxikon product is they are targeting a particular mutation that  is tied to a diagnostic by Roche. If you have the mutation, then you can take the drug. For those patients, response rates have been very high, and they’re seeing tumors shrinking dramatically.

Q: These past couple months you’ve had two really big exits. Is that just coincidence that these two large deals happened so close together, or is there more to it?

A:  They didn’t happen overnight, and I don’t just mean just the development of the companies. In both cases we had been talking to potential acquirers for years. With Medtronic, they invested in Ardian, and we’d been talking to them for a long time. We’d also engaged an investment banker to guide a sale six months or so before.

It’s a relationship-building process. Particularly for these kinds of numbers, the acquirers need to get comfortable with the company and the team. In the case of Daichi, we had been talking to them for quite a while.

Q:  In what areas are you currently looking to invest?

A: We are still very interested in early stage investment  and are working out of our eighth fund, which is roughly half committed. It may be a contrarian point of view, but we continue to look for early stage investments in both pharmaceuticals and devices. We look for things that are very disruptive, like a recent Series A investment in Altura Medical, which is developing a novel treatment for abdominal aortic aneurisms with a device that’s much smaller than existing devices.

Q: How would you characterize the deal-making environment for early stage healthcare investment?

A: Right now for healthcare and these early stage deals there’s less competition that in years past. You’re seeing more healthcare investors move to later stage opportunities. Capital is getting a little scarcer, and the timeline on these things is long.