Whether the unprecedented biotech boom has undergone a slight correction or is shuffling toward bear territory, veteran venture group Frazier Healthcare Partners has a new pool of cash to invest. The firm says it has closed on a $262 million fund that it will begin to deploy in 2016, but with a twist on its previous seven funds.
In the past, Frazier has used a single fund to invest across the healthcare spectrum, from early-stage, high-risk biotechs to more staid propositions like lab equipment suppliers and logistics companies. Its sixth and seventh funds, from 2008 and 2013, split much larger kitties—$600 million and $375 million respectively—about 50-50 between venture-like life sciences bets and growth capital. The latter typically goes into more mature companies that need to expand or be drastically reorganized.
But Frazier’s new fund, which it is calling Frazier Life Sciences VIII, will focus solely on therapeutics companies, with half to two-thirds of the capital earmarked for seed or Series A rounds, says managing general partner Jamie Topper (pictured). Topper and Patrick Heron run Frazier’s life science group in Menlo Park, CA. The firm’s growth capital team, including founder Alan Frazier, is based in Seattle.
Topper says most of those early rounds should be in the $20 million to $40 million range, betting on experienced management teams with a development plan in mind. “We won’t be funding science projects,” says Topper, using a common industry term for fascinating, cutting-edge research for which no one has yet figured out a real-world use.
That said, Frazier just participated in a $102 million Series A round for Gritstone Oncology, a financing that went beyond the fiscal parameters Topper laid down. Gritstone aims to develop personalized cancer vaccines, built upon research published in the previous 12 months that explores neo-antigens—protein fingerprints on tumors—that a patient’s immune system could be trained to recognize and attack.
For the first time, Frazier will stick to therapeutics—no medical devices or diagnostics—and with the majority of the cash going to early-stage companies, it will find itself competing or co-investing with groups like Flagship Ventures, Third Rock Ventures, Versant Ventures, and others that have raised new funds recently.
Few new life science venture groups have emerged in recent years to fill the void left by firms that closed up shop during or after the recession. One exception is Bioinnovation Capital, which counts among its partners people behind the LabCentral biotech incubator in Cambridge, MA, and the QB3 incubators in the San Francisco Bay Area. Bioinnovation’s goal of $150 million is all the more notable, as the funds will be dedicated to seed and Series A investments, as Xconomy reported last week.
Frazier’s Topper sees opportunity at that end of the biotech investment spectrum and much later, among biotechs that have raised larger sums of cash but now might find the path to an IPO more complicated. Mutual and hedge funds that typically make public-market bets fueled much of the IPO boom, and boosted record venture investment numbers, by supplying cash biotechs needed for the final push to go public.
Anecdotally, however, those so-called crossover investors have begun to step back this fall, a trend that should be borne out by fourth-quarter venture data in a couple months. Topper is watching closely. “It’s probably easier for us with the crossovers fading away,” he says. “We all benefited from [their activity during the] boom, but having them step back a little creates more opportunity for us. It got difficult to find attractive valuations, what with the crossovers and generalists bidding up so many biotechs.”
Topper says three-fourths of the new Frazier fund’s backers are returning limited partners. He declined to name names, but both returning and new LPs were traditional venture backers, such as pension funds, endowments, and family foundations, with one “strategic”—or corporate—backer added to the mix. Part of Frazier’s pitch to its LPs is an average time from first investment in a life science company to exit of between three and five years. Topper says that remains the target for the new fund.