Even though nothing has been decided about national health
care reform, the mere idea of it already has restructured
financial investment in the health care industry, a Houston
venture capitalist said Wednesday.
William T. Mullaney, managing general partner for Ventures
Medical, addressed an Oklahoma Venture Forum luncheon at the
Petroleum Club in Oklahoma City. Ventures Medical, founded in
1986, specializes in the health care industry and manages two
limited partnerships with over $30 million of investment
Ventures Medical was one of the first recipients of an
investment commitment from the Oklahoma Capital Investment
Talk of health care reform stimulates industry growth and a
shift toward preventative care, earlier diagnosis and increased
benefits, Mullaney said. A demographic shift toward a larger
elderly population means more people will require health care and
more money will be spent, he said.
If health care reform provides health insurance to people who
do not or cannot get it now, there is a question how broad that
coverage will be, he noted.
Reform discussion has squelched the exceptional growth enjoyed
by the health-related industries in prior years. "Analysts were
coming down negatively on companies with health care stock,"
Mullaney said. "But during the last 90 days, pharmaceuticals and
medical devices have come up 20 to 30 percent." For example,
Schering-Plough Corp. stock closed Tuesday around $70 per share,
up from around $50 per share a few months ago, he said.
The term "biotechnology" has been used loosely, but actually
it refers to such research discoveries as the cloning of
antibodies or gene therapy _ not pharmaceuticals, Mullaney said.
The industry "was rolling along in high gear, financed by venture
capital companies, but in the last year there was a change.
Biotechnology products that got into Phase II and Phase III
studies were found not to be showing efficacy, so the whole
industry has taken a hit," he said.
From the early 1980s, when biotechnology was something new and
exciting, the industry evolved and by the mid-1980s was spawning
a number of corporate partnerships, which gave it credibility,
Mullaney said. As the investor market has become more educated,
safety and efficacy are primary criteria for biotech products.
And it's not a cheap prospect. Mullaney said a general first
round investment in biotechnology is between $2 million and $3
million, "and that's the tip of the iceberg." It takes another $6
million to $10 million to bring a product to the point of
clinical trials, and another $25 million to $50 million on top of
that. "The investment banking companies are saying they are not
going to take companies public until they see data," he said.
The Ventures Medical II Limited Partnership is a $15 million
fund that is one-half to two-thirds invested. The company
provides seed capital for early stage transactions. "The second
fund was raised before Bill Clinton was elected. If we had tried
to raise it during the health care discussion, it would have been
tough," Mullaney said.
Of about 1,300 biotech companies today, few have revenues or
are profitable, he said. "You're going to see a lot of
consolidation take place over the next few years, in corporate
partnerships and joint ventures. …