MIRA Life Science Ventures: How Family Offices Can Capitalise Healthcare Investment Opportunities
Updated: Sep 30, 2020
The interview was jointly conducted by Dr. Kurt Gehlsen and Dr. Rob Grundy. Please join them for their virtual MIRA LSV Investors MeetUp on Wednesday, 21 October 2020 at 3PM CET. Please register here: https://bit.ly/33WHsrl
The current pandemic has led many private investors to reconsider their investment strategies. Many developed a sudden appetite for healthcare? Is that something you observed as well?
Yes, we too have felt a positive shift in interest in healthcare and in innovative therapeutics, medical devices, personalized medicine, vaccines and digital health. Moreover, although there is still some push-back on drug pricing in particular, we don’t believe that should dampen the enthusiasm for the sector. One of the interesting things about this pandemic is that it provided some insights on how the sector and these companies work, and that’s intrigued many investors.
But what is the biggest challenge for newcomers to the world of healthcare investments?
The biggest challenge for any one investing in the space is: how do I source and then properly analyze the opportunity. For public companies, there are plenty of analyst reports to read and help with diligence, but for the novel, game-changing innovative, early-stage opportunities, it is incredibly difficult. One needs to understand the basic science, the problem to be solved, the mechanism of action, the biology, the intellectual property position, the competitive landscape, the commercial viability, the manufacturing process, the regulatory hurdles and applicable timelines and cost to develop the product.
Validation of the science is a huge issue. At RCT we installed a process, at times, to validate critical data by hiring a third party to replicate these experiments before we entered into agreements or funding. One needs a patent attorney to look at the patents, and one needs someone who understands every step of the product development pathway in order to be sure the product can both be manufactured and tested properly and safely in patients.
The Mira team has been involved in every aspect of the life science product develop process from invention, patenting, manufacturing, preclinical and nonclinical development, clinical trials, regulatory affairs, business development and commercial launch. In addition, our management team has experienced most of the good, bad and ugly that can happen during the development process, with operations and capital raising.
Based on Dr. Gehlsen’s experience as Chief Scientific Officer at RCT, and Dr. Grundy’s experience in Business development, Mira LSV has developed a rigorous and meticulous due diligence process so we can best select the opportunities with the highest probability of success and return for our investors. RCT started with a $25m loan and over 20 years turned it into $2b in revenues, returned $1b to Universities and inventors and grew the fund to $500m. Dr. Gehlsen was part of a great team at RCT to help achieve these results.
Where do you see the general pitfalls when it comes to investing in healthcare?
In addition to the points already outlined, we believe many investors have a personal reason to invest in healthcare and a certain disease like cancer. Most people have been touched personally or through family and friends by cancer, heart disease, and autoimmune diseases to name a few. So, the investment is from the heart and personal, and in this case everything that is being developed sounds great. Sadly, a lot of good ideas fail and private investors lose money. At Mira, we do all the heavy lifting in choosing investments and removing the personal emotion from the analysis. We will report regularly to our investors on the projects so that, for ones that are near and dear to their heart, they can feel more involved. In some cases, we may also allow our investors to come in at later rounds when the risk has been further reduced and invest alongside Mira.
Moreover, healthcare investment tends to carry more risk as translation of experimental findings to human studies often leads to project failure. At MIRA, our approach is very hands on. Shaping early innovation consistent with our deep experience so that a relatively modest investment early in the innovation cycle can reap significant dividends when properly stewarded science realizes its potential in patients.
Do you think it is possible to actually invest in healthcare without having the appropriate education and background? Or are you doomed to fail if you’re not a medical doctor or scientist?
At the risk of sounding alarmist or elitist, we suggest that investors without a scientific background, and without access to people who can validate these types of technologies would have a better chance of success at their local casino. Seriously, such investors should stick to public companies where technologies have been vetted by the market, lots of analysts’ reports to read and the risk has been reduced. For early-stage investments with the potential for huge returns, it is a tough game How would the investor even find the early-stage opportunities? The Mira team has unparalleled access to deal flow most investors would never have access to.
Yet you encourage healthcare investments. Why?
The next 10-20 years are poised to provide the greatest scientific and medical breakthroughs in our lifetimes. With the technological advancements we have seen the last 10 years allowing us to answer questions we never could address before, including advancements in molecular diagnostics, telemedicine, artificial intelligence (AI) for medical data, mobile networks and devices, novel materials, and biosensors, it is expected that we will see a new generation of treatments to address the most pressing unmet medical needs. Mira LSV was established to capitalize on these breakthrough advancements and facilitate their accelerated development leading to improved clinical outcomes, greater patient access and more effective utilization of healthcare system resources. If done as we propose, we can reduce risk along the development path. We prefer tranched investments to clear Go/NoGo decision points. We may decide to abandon investments early if initial development reveals they do not work or are not commercially viable. This will allow us to focus time and resources on those projects that will have a better chance for success. We are not passive investors, we expect to roll-up our sleeves and help our companies, allowing us to know at an early milestone if we have a possible winner and thereby protecting our investments and investors’ capital.
Finally, at the end of the day, one only has to look at the potential returns to see why if you can find the right model, investing in healthcare makes absolute sense. The return on investments on healthcare technologies that hit the market vastly outstrip other sectors. That makes it worth placing a bet on the sector that fits with your risk profile.
So, I guess what you’re saying is that you need a partner?
Yes. We are looking to work with family offices/investors who are interested in the life science space but lack the ability to properly access new technologies, access potential deals or both. Deploying capital with MIRA allows you to leverage a broad base of investments across medical devices to therapeutics.
Now, how does a private investor identify the right partner for this specific sector?
That is a challenge. The most obvious way is to approach a VC firm. There are many active in this sector. However, the data tells us that VCs are not very good at picking winners in health and life sciences. This is because there are significant limitations on the ways they can invest and the cash amounts VCs can deploy in innovative technologies. These limitations just do not suit the timeframes and risk profile of what we see as exciting early innovations. However, VCs have been instrumental in funding the incredible innovation we have witnessed to date.
Many family offices or investors are firmly set on direct investments. Is that the right approach for the healthcare sector, too?
They certainly can do that, but we would not recommend it in life sciences as we think they are limiting their chances of success. Lacking the deep and globally distributed network we have cultivated over many years, family offices/investors will likely never see the deals we can access. Mira LSV is not a broker or small advisory firm that shops the weaker deals around to private investors, we always go for the most practical and potentially successful opportunities, leveraging our networks and our many years of experience.
What’s the advantage of a fund and how do you respond to those who only focus on direct investments?
All the aspects we’ve already touched upon should support investing through a company structured like Mira LSV. We source the deals, we do the due diligence, we value the opportunity, we negotiate the term sheets, we stay involved with the company and advise on exit strategy, adding value every step of the way. Moreover, as we de-risk our investments, if an investor wants to participate alongside Mira at times in follow-on rounds of investment, we can accommodate that desire.
Who is the team behind your own fund and what qualifies them?
Dr Kurt Gehlsen – Over 30 years as an experienced leader, fund manager, inventor, entrepreneur and developer of marketed products in life-sciences. Inventor and developer of two approved products, more than 100 patents/applications and 140 publications. Kurt has worked for Pharmacia, Trauma Products, Maxim Pharmaceuticals, Research Corporation Technologies.
Dr Rob Grundy – Over 20 years of experience as a drug developer, fund raiser, entrepreneur, business leader, government advisor and commercial consultant. Rob’s innovation network is vast and has sharp business acumen. Rob has worked for large pharma such as Schering Plough andGlaxoSmithKline as well as small companies such as Cerebricon, CIGA Healthcare.
Mel Rothberg – Over 40 years as an experienced leader, manager, investor, inventor, entrepreneur and developer of products in life-sciences (therapeutics, diagnostics, devices, enabling technologies) Mel has held international management and board positions in Europe, South East Asia, Australia, Japan.
What are the returns an investor can expect from you and your fund?
Investors will come in under a secured loan with interest plus warrants for equity. Once we have completed our raise the investors will own the majority of Mira. Mira will distribute 50% of all revenues to the investors as they are realized in order to pay down the note and interest. The remaining 50% will go back into the company to build our cash investment base. Hence our “Evergreen” structure. We are targeting an annualized IRR on the loan portion, which is paid pretax, of 10-12%, with a 2-4x return on the Note. HOWEVER, and most importantly, the investors through their equity also own the cash base of the company, the assets and entire market value.
Once the notes are paid-in-full, all shareholders will receive dividends under the same scheme of 50% of revenues to the shareholders and 50% back into the company. Under this model we expect at year 10 the investors will have received an estimate of 8-10x returns in cash and own a similar amount through their equity position.
NOTABLE, MANAGEMENT DOES NOT TAKE A 20% CARRY OFF THE TOP OF THESE RETURNS TO INVESTORS. MANAGEMENT WILL ONLY SHARE IN THE UP-SIDE WHEN WE HAVE FULLY PAID OFF THE NOTE AND INTEREST AND WE ARE THEN TREATED LIKE EQUAL SHAREHOLDERS UNDER THE DIVIDEND PLAN
We intend to allow Investors to liquidate if they choose after year 5 (if possible based on performance and other factors) and or at some point Mira LSV could go public (as we are a C-Corp) and provide full liquidity at the market value of the enterprise.
Importantly, one aspect of Mira which is different than other VC’s is that we can in-license technology, develop and out-license to pharma, collecting license fees, milestones and long-term royalties on sales. At RCT, Dr. Gehlsen managed many internally developed and licensing programs that included more than 300 licenses for products like: Shingrix, bgh, Pichia Protein Expression System, GM-CSF, Abdurins, and Sarcin. These programs generated $10’s of millions of dollars of royalties and milestones each year.
What is your outlook for healthcare sector and the opportunities for investors?
There has never been a more interesting time to invest in healthcare., The current rate of innovation is unprecedented and the next 10-20 years will see the greatest breakthroughs in the treatment and management of disease that we have seen in our lifetimes. Mira LSV is well-positioned to find these game-changing opportunities and drive value for investors and patients.
The interview was jointly conducted by Dr. Kurt Gehlsen and Dr. Rob Grundy.
Please join them for their virtual
MIRA LSV Investors MeetUp
on Wednesday, 21 October 2020
at 3PM CET
Please register here: https://bit.ly/33WHsrl