March 2018 investor update
March 13, 2018
As public market valuations for emerging healthcare companies continue to chug higher, we are maintaining strict valuation discipline in our venture investment portfolio. When we launched LifeSci Venture Partners I, LP (the “Fund”) almost exactly one year ago, the biotechnology sector was coming off a dismal stretch which included the Nasdaq Biotech Index’s worst calendar year performance (down 22% in 2016) since the genomics bubble (down 45% in 2002). While still below 2015 peak levels, small cap clinical stage biotechnology companies have made a stunning comeback, with the BBC clinical stage biotech ETF nearly doubling since the end of 2016 and up over 60% since the launch of our VC fund.
As a review of Fund activity, we made four investments in 2017, one in March 2018 and have one more scheduled to close on March 26th. Of these first six investments, two have been in biotechnology, three in specialty pharma and one in medical devices/digital health. Looking forward, we are most excited about active investment opportunities that we are diligencing and structuring in diverse areas such as 3D bioprinting, clinical trial technology, liposuction, radiopharmaceuticals and “traditional” small molecule drug development. At this point, we expect to fully deploy the Fund’s capital by the end of 2018.
New Investment – Novus Therapeutics (Nasdaq: NVUS)
On March 9, we invested in Novus Therapeutics, a publicly traded specialty pharmaceutical company at a cost of $[CONF] per share. This represents a [CONF]% weight at cost for Tranche A investors and [CONF]% for Tranche B investors. Novus is developing OP-02 for the treatment of otitis media and related disorders, more commonly known as ear infections among children. OP-02 is an intranasally delivered product with two active ingredients, both generally recognized as safe and naturally occurring in the human body. Together they act to “de-stick” the closed Eustachian tube in the inner ear, thereby allowing fluid to drain and return to normal function. Any parent who has had a child with an ear infection is likely familiar with the limitations of the current treatment alternatives of antibiotic therapy and ear tubes. Novus’ product would offer dramatically better efficacy and convenience and represents a multi-billion dollar market opportunity.
The management team is highly experienced, with several members including the CEO and Chairman having most recently been with Avanir, which successfully developed and launched Nuedexta and sold the company to Otsuka Pharmaceuticals for $3.5 billion. Orbimed, a healthcare VC fund, is the largest investor in Novus, has a board seat, and was instrumental in the formation of the product portfolio and management team.
Novus went public via a reverse merger in May 2017 and after completing a venture investment round at $9.99/share including significant participation from senior executives, the stock became orphaned in the public markets. At our purchase price, the company has a valuation of $[CONF]mm pre-money and $[CONF]mm post-money. We made an investment directly into Novus for new primary shares which gives the company additional breathing room as they continue manufacturing and development work. We estimate the company’s pro forma cash balance at $23 million. As such, we believe the company is well positioned to move OP-02 into Phase 1 in 2018 and into Phase 2 in 2019.
New Investment – Orasis Pharmaceuticals
We have recently issued a capital call for an upcoming investment in Orasis Pharmaceuticals, a specialty pharma company based in Israel with an eyedrop treatment in Phase 2 for presbyopia. Presbyopia is an extremely common condition affecting 80% of the global population over the age of 45 (1.8 billion people), with bifocals and reading glasses capturing the vast majority of treatment share. Orasis has developed an eyedrop with two active ingredients, both generically available, which act to constrict the pupil and create a “pinhole effect”. This results in a temporary and reversible improvement (5 to 8 hours) in near-field vision, which could be ideal for daily or intermittent use.
Sequoia led a Series A round in January 2016 and the company has made strong progress since, including completing a positive Phase 2a trial in 36 patients. We are investing in a $[CONF]mm Series B round at a $[CONF]mm pre-money valuation with Sequoia and Visionary VC (a unique ophthalmic-focused venture group).
There are surprisingly few drugs in development for presbyopia – a word search in the 2000-page Cowen Therapeutics bible has exactly zero results – but we expect investors to increasingly pay attention in one to two years as Orasis and competitor Allergan (with a similar eyedrop approach) announce Phase 2 and 3 results. Given the enormity of the market opportunity, we believe there will be room for multiple drugs, though we believe that Orasis’ approach has advantages over Allergan’s approach.
We are thrilled to have passed the Fund’s first year anniversary and are grateful for all of your support. Our affiliated businesses continue to grow beyond our expectations as LifeSci Advisors and LifeSci Public Relations now have 120 corporate clients and 60 employees. The firm’s most recent hire is Tim McCarthy who joins with 15 years of healthcare investment experience at Sabby Capital, Kingdon Capital, Credit Suisse and SAC Capital.
Annual K-1 tax forms will be available by March 15, 2018 and will be posted to your Vistra online portal account. If you have trouble accessing your Vistra account, please let us or Vistra know.
Please make note that as of April 1, 2018 our New York office is moving to the 34th Floor within the same building and we hope you visit us soon.
Paul Yook Andrew McDonald Michael Rice