Brandon Capital scores $210m for fifth medical research fund
May 1, 2019
Brandon Capital has closed the first tranche of funding for its new $250 million biotech fund, with the venture capital firm’s earlier funds successfully outperforming the S&P/ASX 200 for the past 10 years.
The VC has raised $210 million from its existing backers including HESTA, StatewideSuper and Hostplus, as well as biotech giant CSL, but is also hunting for a few new institutional investors to contribute the remaining $40 million to its Medical Research Commercialisation Fund (MRCF) 5.
Brandon Capital managing director Dr Chris Nave told The Australian Financial Review it still had some capital remaining in its $200 million MRCF 3, but this was reserved for growth capital to support the 16 companies it had already backed through that fund.
“We’re going to do what we’ve always done and invest in drugs, medical devices and enabling technologies,” he said.
“About 80 per cent of the portfolio companies are drugs and vaccines, while 20 per cent is medical devices and platform technologies.
“But we are spending more time looking at digital health and opportunities in that area. We think digital health will have a significant impact on medicine in the next 10-15 years, but how you monetise it we’re still trying to work out.”
While its newest fund has been named MRCF 5, there is no MRCF 4, with its fourth fund considered to be the $230 million in capital it is managing as part of the government’s $500 million Biomedical Translation Fund.
Having launched in 2007 with a $30 million fund, Brandon Capital is one of the older VC funds on the block and it now has more than $700 million million in capital under management.
Some of Brandon Capital’s most notable successes include drug developer Spinifex, which was sold to Novatis for $US200 million ($284 million) upfront, Fibrotech Therepeutics, which was snapped up for $US75 million (plus possible earn-outs) by Irish company Shire and Parkinson’s medical device company Global Kinetics.
Other companies in its portfolio include biotech start-up PolyActiva, cancer therapies business Que Oncology and animal medicine firm Nexvet.
“The amount of employment and jobs outweighs the short-term impacts of the R&D tax incentives.”
— Dr Chris Nave, Brandon Capital
Brandon Capital’s early funds have produced an annual internal rate of return of more than 20 per cent for more than 10 years, net of fees. This is more than double the returns of the SAP/ASX 200 stocks over the same period, with the index averaging 9.8 per cent per annum growth in the last decade, according to research by Fidelity.
The time it takes to get a return on a pharmaceutical or biotech start-up is typically substantially longer than for software stocks, which is the investment focus for many local VC funds. While most VC funds expect to close off a fund within 10 years and start getting exits after five years, Brandon Capital has a 15-year lifetime on its funds, but its exits to date have been within five to 10 years since the first dollar was invested.
Dr Nave said that, when starting out in 2007, the fund’s biggest change was it was now able to support portfolio companies through the clinical trial phases to an exit or commercialisation.
“In the past, we had to go offshore to raise the $30 million or $40 million that is needed to get an asset through all its pivotal clinical studies,” he said.
“The other thing that’s happened is if you’d taken a snapshot of our portfolio in 2011, we had about 14 companies with only a couple of late-stage clinical trials and a lot were pre-clinical trial assets.
“Now, we have a bunch that are revenue-generating and have launched products, 11 that are in phase-two clinical trials or later and another group that are in phase one or pre-clinical trials. We have an ecosystem of maturing assets, so our investors will continually get returns.”
An outspoken critic of the government’s cuts to the research and development tax incentives, Dr Nave said the R&D scheme was critical for supporting biotech start-ups, but more broadly was also a major driver of jobs growth.
“The amount of employment and jobs outweighs the short-term impacts of the R&D tax incentives,” he said.
“It’s really disappointing that in the last federal election there was a feeling that the word innovation really hurt the Coalition. Now, both parties are trying not to use the word at all.
“If we don’t innovate, even sectors like manufacturing can’t remain competitive. I wish I had a magic wand to wave to get the conversation back on track.”
The Australian Financial Review
1 May, 2019