Venture capitalist moves to San Diego for biotechs
By Padma Nagappan Special to the U-T
Aug 29, 2012 | 6:00 AM
Title: Venture partner
Company: Thomas, McNerney & Partners, health care venture capital firm
Grew up in: Mumbai, India
Comes from: A family of cardiologists, grandfather was one of India’s first cardiologists.
College: University of Chicago, Ph.D in Chemistry and Molecular Biology and M.B.A;
University of California, Irvine — Bachelor of Science in Biological Sciences.
Career: Co-founder of Kalypsys Inc; consultant at McKinsey & Company; Co-founder and V.P. at NephRx Corp.
Heads: West Coast office, which he relocated from the San Francisco Bay Area to San Diego in 2011.
Local investments: Upward of $100 million, including $8 million in Tioga Pharmaceuticals; led $17 million Series B round in SG Biofuels; Zogenix (now public); Ocera Therapeutics; Cebix; Altair Therapeutics (now defunct); Auspex Pharmaceuticals.
Firm collectively manages: $600 million
Investment sectors: Companies in any stage in medical device, pharmaceutical, biotechnology and diagnostics sectors.
Passionate about: Flying, has a pilot’s license and flies a Cirrus SR-20 out of McClellan-Palomar Airport in Carlsbad. The plane has an emergency parachute that surrounds the whole aircraft — “I like my adventure but safety comes first.”
How his son describes him in school report: ‘Adventure’ capitalist, since it made more sense to him.
Pratik Shah is betting big on San Diego biotech firms. So much so that the venture capitalist moved the West Coast office of his firm, Thomas, McNerney & Partners, from San Francisco to San Diego last year.
He’s no stranger to the region, having worked here before he joined the health-care venture capital firm.
Shah’s first stint in San Diego was for a three-year period from 2001, when he co-founded the biotech startup Kalypsys, a spinoff from the Genomics Institute of the Novartis Research Foundation that focused on high-end robotics to expedite drug research.
He established many relationships and felt like he was part of the local community.
“I was struck by how close-knit and cooperative the biotech community here is,” Shah said.
In 2004, he left to join Thomas, McNerney and moved to the Bay Area, but continued to associate with San Diego’s biotech industry since the firm made about one local investment each year.
Last year, he moved back and set up shop in San Diego, recognizing that while the region is one of the top three biotech clusters in the country, there were very few venture capital firms here in comparison to Boston and the Bay Area.
This makes Thomas, McNerney one of a handful of local venture capital firms, something the industry has been canvassing for years.
Shah spoke to U-T San Diego about his local investments and where he sees the local industry heading.
Q: Why did you decide to move to San Diego?
A: We felt that there was a real opportunity in San Diego. When you look at the number of biotech and life sciences companies in Southern California, it’s one of the top three clusters in the nation, but when you compare the ratio of venture capital firms to the number of companies in the Bay Area and here, the ratio is massively skewed.
But it has been very successful in attracting venture capital and it’s clear that having local investors has not been necessary. That being said, we are big believers in San Diego biotech and moved our offices here because the ratio of venture investors in Northern California versus Southern California is closer to 10:1. We felt it made sense to be local to SoCal and that we could cover Northern California just as effectively from here.
Also, we had made several investments in San Diego over the years, so we felt it would be nice to have portfolio companies close by. We were the lead investor in all of the local companies we’ve invested in, over $100 million since I joined the firm. And as lead investor, you also tend to attract co-investment capital. I haven’t run the figures lately, but the total capital we indirectly brought in is over $300 million.
Q: Tell us about some of your local investments.
A: With SG Biofuels (a bioenergy crop company), we’d been looking for an industrial biotech firm for some time. It really impressed me with how they’d used a very fundamental approach to create meaningfully improved, high yielding cultivars of jatropha. Jatropha is currently on everyone’s top three list of feed stocks that can make an impact on biofuels. The key bottleneck is yield. If you can create high-yielding hybrids, as we know from every other crop, that fundamentally changes the end product.
Cebix is in phase-2 clinical trials for a drug for diabetes treatment complications. Type 1 diabetics cannot produce insulin, so they take insulin shots. What drew me to it is that it’s a replacement therapy for a natural hormone, which is a basis for the success of many biotech products.
We also invested in Zogenix, which develops pain medication. It’s now a public company.
Q: Tell us about your investing principles. What are the top three things you look for in a potential company?
A: We invest for the long haul. Three key things? I guess it’s the magical combination of: 1) a product that will make a real difference and is likely to work, 2) a business plan that takes the company to sustainability and 3) a team that can take the company there. We tend to put the business model and plan ahead of other things.
The technology and science are obviously key in enabling the business model, but that is not the primary driver in how we think about investing capital. In fact, one thing that we need more of is direct dialogue between the remarkable scientific talent here and the venture community, with a goal of collaborating to find more efficient business and financing models for growing innovative companies.
Q: Most VCs like mature companies, but your firm invests in companies in any stage. Can you explain your strategy?
A: We think having the capability to handle investing in life sciences companies at all stages, seed, early, growth or late is very important to ultimately generating good returns. This is because at any given moment, the best investment opportunities are not either all early stage or all late stage. Business cycles come and go, and there are times when it is best to come in early and help create the company and at other times, we see better opportunities by coming in at a later stage of development. This has been a successful strategy at our firm and our team has highly diverse backgrounds and knows how to recognize these diverse opportunities and work with those companies effectively.
Q: Where do you see San Diego biotech heading in the future?
A: I am a big believer in the promise of the San Diego biotech community. We have the best entrepreneurs, scientific minds and a great sense of community. It’s not an accident that this is one of the top three clusters, and I see that continuing to be the case.