Mullaney: Debate Changes Investment in Health Care
Wolfe, Lou Anne, THE JOURNAL RECORD
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 capital.
Ventures Medical was one of the first recipients of an investment commitment from the Oklahoma Capital Investment Board.
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. …