Memphis Biomed Ventures wrapping up one biotech fund, preparing to launch another

By Ronda Fears

Nashville, July 29 - Being business and financing savvy may be the major contributions to the success of the investment activities of Memphis-based Memphis Biomed Ventures, but the driving force was borne out of a personal tragedy of co-founder J.R. "Pitt" Hyde Jr. when he was diagnosed with prostate cancer.

Hyde was 55 when diagnosed and has survived to see his 62nd birthday. Along the way he invested in GTx Inc., which is now a publicly traded company that focuses on therapeutics for serious men's health conditions such as prostate cancer.

Venture capital is the foundation of MB Ventures' mission, however.

The firm's first fund, launched in November 2001, attracted investment capital of $22.4 million from a variety of individual, corporate and institutional investors. Limited partners include respected medical device companies, health care providers, financial institutions and successful business leaders.

"Pitt is our visionary leader. Out of his own disease he learned a lot about the biotech industry, the needs," said MB Ventures co-founder Gary Stevenson, who manages the fund. "Borne out of his efforts is what we have."

MB Ventures is in the process of making its final investment with the fund and is looking to create another fund, he said.

Quality biotech deals abound

The public capital market for biotechs has been a fickle undertaking in recent times, but Stevenson said there are some very promising investments to be made. Particularly in start-up, ground-floor biotechs where some of the most exciting, and challenging, work gets done.

"We are seeing some quality deals. It's a hectic time for us," Stevenson said, referring to having several investments under consideration as the last peg in the MB Ventures portfolio.

"The interest level of companies receiving funding from venture capital is promising. It's really a neat thing to see."

Stevenson could not disclose any investments currently under consideration, but he said the fund's investment in Franklin, Tenn.-based BioMimetic Pharmaceuticals Inc. was a prime example of the type of deals in which MB Ventures is interested.

In May 2003, MB Ventures led a series B financing round for BioMimetic, which is focused on the development of protein therapeutics for tissue and organ regeneration. Its lead technologies are for the healing and restoration of bone and other tissues, based on recombinant human platelet-derived growth factor BB (rhPDGF-BB).

BioMimetric a classic model

Success in BioMimetic's research, also partly funded through collaborations with ZymoGenetics Inc., led to it being able to raise more than $35 million in two rounds of series C funding. The first closing of the series C funding was led by InterWest Partners, and the participants in the second round included Noro-Moseley, PTV Sciences, Axiom Ventures and HSS Ventures.

"That is a classic story of what we are about," Stevenson said. "It fit perfectly in our strategy and our regional focus. But the exciting thing was that after our investment they were able to import capital from the West Coast."

Further success at BioMimetic has the company on track for U.S. Food and Drug Administration approval this year of its first commercial product - GEM 21S, a fully synthetic regeneration system for the treatment of periodontal-related bone defects. The company also expects to enter human clinical studies this year for products in development for bone fracture repair and several other orthopedic product candidates.

Globally, restoration of bone and other tissues represents an annual $5 billion to $7 billion market opportunity, according to BioMimetic.

Good for one, good for all

Investment consideration in biotech and medical devices is a two-pronged process that can seem like a chicken-and-egg riddle. In the end, however, it comes down to an assessment that essentially translates into a thesis based on what's good for the investment target is good for the investor. The bonus is that it also has a philanthropic angle of being a potential advancement for mankind in the way of curing disease.

"It is very rewarding. It's redeeming," Stevenson said. "You forget about it sometimes. You're putting food on the table for your family but you're also helping companies find cures for diseases that someday may impact someone you love."

MB Ventures' focus is on biotech and medical devices firms, and while GTx was the initial pick as it addresses men's health issues, the fund now is especially interested in product solutions for musculoskeletal disease. It also has a regional preference for the southeastern and midwestern United States but does invest in companies outside that geographic area.

Foremost in considering the investment is core science of the target company. Is it sound? Are there multiple applications - products or indications - for the discovery?

Then comes the dollars and sense questions, which is where Stevenson's expertise shows.

It's off to market we go

From a financial aspect, MB Ventures asks: What is the reputation of any existing investors? What is the appetite and ability for follow-on investments by existing shareholders? Are there any corporate deals that impact ownership structure?

Beyond capital-raising issues, there is the matter of return on investment, which in part requires an assessment of the potential market opportunity for each of the products or indications in development.

Stevenson has perhaps a unique combination of financial and strategic experience in the health care industry including four years in public accounting, seven years with one of the largest and most diversified health care manufacturers - Abbott Laboratories - and six years in investment banking and equity research at Morgan Keegan & Co. and A. G. Edwards & Sons.

In researching potential investments, MB Ventures also discovered all sorts of obstacles that confront biotech R&D in addition to funding, such as scientific talent, raw materials, manufacturing facilities and the like. In the process of compiling its portfolio, MB Ventures' has led to the creation of a biotech research park in Memphis through the Memphis BioWorks Development Council as a means of elevating the profile of basic R&D.

Hyde blends business, vision

Stevenson acknowledged that his financial acumen is an important aspect of managing MB Ventures, but he attributes a great deal of the fund's success to Hyde's combination of personal drive and business expertise.

"Pitt is a dynamo," Stevenson said.

Before MB Ventures, Hyde certainly was no stranger to business, but while in the process of forming the fund he was also involved in a concerted effort to survive cancer, attending to all the treatments that involved.

Hyde brought a colorful business background to formulation of MB Ventures, however. In 1965 he joined Malone & Hyde Inc., a wholesale food company founded by his grandfather in 1907, which was sold to Fleming Cos. in 1988. In 1979, Hyde founded the retail auto parts chain AutoZone Inc. as a division of Malone & Hyde that was spun off in 1987, and served as chairman and CEO until 1996.

He still serves on the board of directors for AutoZone, in addition to the board of FedEx Corp. During his tenure at Malone & Hyde, he served on the board of directors of Wal-Mart Stores Corp. for seven years.

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