Investor who bought Neuren at $1 a sharelowers sights on $200m...

Investor who bought Neuren at $1 a sharelowers sights on $200m fundHashan De Silva says biotech valuations have crumbled in a tough market, makingit the best time to be an investor.Biotech investor Hashan De Silva - who invested in Neuren at $1 a share before itsoared to almost $20 apiece - is seeking to launch a new biotech/medtech fundworth up to $200m. But says he would be happy with half or even quarter of thatamount, saying current market conditions as the worst to raise capital in 30 years.Mr De Silva has already banked $40m for the fund, which closes on May 31, andsays he is looking at investing solely in Australian and Zealand companies, sayingthey present more of an investors market than the US. Telix founder and chiefexecutive Chris Behrenbruch, Neuren chairman Patrick Davies and Sonic directorLou Panaccio are among those who have already tipped money into the fund.“We’re taking a big fish in a small pond mentality,” said Mr De Silva, who initiallystudied medicine before joining Eli Lilly and refined his fund management skills atKarst Peak.“One institutional LP (limited partner) told me that venture funds need to do threethings… sourcing, selecting and supporting. If we were trying to invest in the US,we are competing with potentially hundreds of other fund managers that have beenaround for a very, very long time. So there will be an adverse selection bias.“We don’t get that in Australia, and we don’t need hundreds of companies for us todeploy capital. We just need 10 or 15 great companies for us to build a portfolio.”But while Mr De Silva’s fund has a hard cap of $200m he said he would be happywith $50m to $100m, saying it was the worst time to raise capital since the 1990s.“It’s the worst market, at least I’ve seen to raise capital, and my former boss who’sbeen doing this for 30 odd years in multiple cycles says that this has been ... theworst kind of downturn he’s seen in this in the innovative space, the tech biotechventure space. I think that’s driven by a lot of things,” Mr De Silva said.“The institutional LPs (limited partners) aren’t in their exits, so they don’t have themoney to recycle the other things. And in 2021, a lot high net worth (individuals),a lot of family offices, started direct investing in the market, and deployed a lot ofcapital. We were kind of crowded out a little bit in 2021 by high net worth, familyoffices who were willing to pay prices we weren’t willing to pay.“The offices now are sitting on assets that they can’t exit and because of that,rightly or wrongly, they taking a bit of a step back.”But Mr De Silva said while the market was tough for raising capital, it was the besttime to be an investor as valuations crumble.“Drug companies that are doing r&d (research and development), medical devicecompanies here that are pre-commercial success are really struggling to raiserevenue, so it’s also paradoxically the best time obviously to be an investor.“A lot of the specialist funds that operate Australia don’t operate where weoperate, they tend to operate in very, very early stage where we tend to be more ofa Series A, Series B, Series C investor. The generalist investors have largely leftthe market, the family office, high net worth (individuals) and generalist fundmanagers aren’t directly investing in healthcare, so these companies have limitedoptions and prices are coming down.“We’re seeing deals that are 50, 60, 70 per cent - even one deal with negotiating isdown 98 per cent on their 2021 (valuation).”Mr De Silva said he is targeting an internal rate of return of 20 per cent, and hisfund is different to others because it uses an external rather than an internaladvisory board.“The reason for that is I don’t think you can create an internal advisory board withthe requisite skills to answer every question you might have in all of medicine.That’s impossible.“So what we do is we go out and we speak to dozens and dozens of key opinionleaders in this particular area of medicine we’re looking at for that company, andthen we try to build an “external advisory board” of five to 10 people.”Mr De Silva said this strategy was crucial to the fund’s success, particularly whendeciding to exit, citing Neuren as an example.“We bought that at $1 a share. After the phase 2 trial, it was $3 a share. We didn’texit and the stock got to $8 a share - we still didn’t exit and the reason was wewere speaking to our advisors.”Neuren soared above $24 a share last December. It is now trading around $19.09.Mr De Silva said he had an open mind toward investing, saying he adopts a“bottom up” approach. “I try not to have any bias of I like something therefore I’mgoing to try something in that field because I feel like that you can get a bit ofconfirmation bias,” he said.“If you look at Karst Peak we’ve got Neuren, which is a rare paediatricneurodevelopmental drug, Avita, which is spray on skin and we’ve got GeneticSignatures, which is genetic diagnostic technologies… none of those companiesare linked in any way. At the time that we invested in them, none of thosecompanies were a hot area. No one was super stoked at the time aboutneuroscience when we invested in Neuren and certainly no one was excited indiagnostic technology when we invested in Genetic Signatures.“We want to stay bottom up and try to fill the portfolio with the best companies wefind rather than - for instance radiopharmaceuticals is red hot right now, so I don’twant to go out there looking for radiopharmaceutical assets to put in the portfoliobecause in one, two or three years time when we’re looking to exitradiopharmaceuticals they may not be a hot sector.”