Frazier Healthcare Partners, a 24-year-old venture firm that invests only in healthcare and has offices in both Seattle and Menlo Park, Ca., has just closed its eighth fund with $262 million from mostly earlier backers.
While a coup, the pool is much smaller than Frazier’s predecessor fund, a $375 million vehicle raised in 2013. Yesterday, to find out why, we talked with general partner Jamie Topper, an M.D. and Ph.D who joined Frazier 13 years ago.
TC: You’ve raised a far smaller fund this time around. What happened?
JT: In the past, we’ve had multiple strategies within the same fund, including life sciences and health care services. Our newest fund is dedicated exclusively to life sciences.
TC: For people who don’t follow healthcare, what distinguishes life sciences investing from health care services?
JT: Life sciences investing is drug development, diagnostics, funding pre-clinical drugs and even drugs on the verge of getting commercialized. Health care services are things like pharmaceutical services or companies that package pharmaceuticals or deliver dialysis to patients and may have hundreds of centers. The latter more or less requires growth-stage capital.
TC: What happens now to the partners who focused on those bigger, later-stage deals?
JT: No one has left Frazier. It’s not splitting up. We’re likely instead to have multiple offerings.
TC: Meaning you’re raising a separate growth fund?
JT: I can’t comment on anything.
TC: What are some of your hits over the last five years?
JT: We’ve had 10 M&A [exits] over the last five years and 7 IPOs, including Calistoga Pharmaceuticals’ sale to Gillead Sciences for $600 million; Incline Therapeutics’ sale for $275 million [to The Medicines Company]; and PreCision Dermatology’s sale to Valeant Pharmaceuticals for $575 million. We also had Collegium Pharmaceuticals and ProNai go public over the spring and summer.
TC: Good timing. Life sciences IPOs have slowed down dramatically in the last two months, correct?
JT: They have, after a four-year bull market in biotech. It’s not a terrible thing. It’s not the crash that happened in 2000.
The biggest issue for life sciences investors is that we have to improve healthcare and develop new drugs at lower cost. We don’t need another drug where there are three other examples and we’re just going to jack up the price. Also, reimbursement and access to novel therapies receive more scrutiny in the past. So we look for teams that are innovative; companies that addressing a true, unmet need – not just because we think we can sell it but to ensure that regulators and reimbursers will agree with the companies; and we look for opportunities where we can see certain inflection points met within three to five years.
TC: What size checks are you writing?
JT: Two thirds of our investments have been seed or Series A deals, so we’re comfortable coming in early, but it has to be the right opportunity. We also create one to two companies per year. We created Calistoga and Incline. In terms of check sizes, we typically syndicate deals, investing around $5 million to $10 million up front, and between $15 million and $25 million across the life of a company.
TC: Are you seeing many IT investors coming into deals suddenly? We hear a lot of talk about how big data is making drug development a more accessible, affordable endeavor for everyone.
JT: There’s no question that technology is making drug development more effective. I could sequence your genome for $1,000 today and it used to cost $3 million just a few years ago. Computing power is an amazing thing. But you read about these guys from wherever who think, “This drug stuff can’t be hard. I’m going to take my strong computers and figure it out.”
I’ve been hearing that a long time. Biology is incredibly complex and leveraging your insights is an enormously difficult enterprise. It takes a lot of experience and teams that are committed to doing it over time. So I don’t care how smart you are or how big your computer is, you won’t solve all the problems. It’s an iterative process.