Hoping for healthy returns
Article Date: Nov 19 2008
Ron Petersen, Longbow Capital
Ron Petersen and Edward Rudd, partners at healthcare investor Longbow Capital, are in upbeat mood.
‘Innovation doesn’t dry up because the economy slows down,’ says Petersen. ‘Scientists and inventors have great ideas regardless of whether they’re living in a heated garret or not.’
Despite the downturn, Peterson and Rudd are confident that spending on healthcare, much of which comes from the public sector, will continue, and that innovation is in more demand than ever. They point to the fact that pharmaceutical giants such as GlaxoSmithKline are cutting their in-house research and development spend, preferring to buy in innovation from young companies.
‘[Large companies] aren’t reducing their fixed costs as a result of the credit crunch; this is part of a longer-term trend,’ says Rudd. ‘They have recognised their cost per output is inefficient.’
‘We’ve turned businesses 180 degrees around'
Since its launch in 2004, Longbow has invested in ten companies, most recently medical imaging innovator Biotronics 3D. It tends to invest after entrepreneurs have proven technology (‘we’re not taking the eureka risk,’ says Rudd) but before a viable product has been developed.
That means there is often room for rethinking the entire business plan – and Longbow’s partners are not afraid to get stuck in.
‘We’ve turned several businesses 180 degrees around by saying, “We’ll back you but you have to do it this way, not that way,”’ says Petersen, a hearty American who has worked in the UK for more than 30 years.
Rudd quotes the example of Lumicure, which had run clinical trials of a pioneering skin cancer treatment. Longbow invested, but only after the business had agreed to focus initially on developing a product for acne sufferers. ‘The market is two to three times larger than skin cancer and is much less regulated,’ he explains. ‘We could get a product to market in two years as opposed to seven or eight.’
Talking tough
Sometimes the message to a potential investee is harder to swallow. ‘Once I said we’ll invest but you can’t be chief executive,’ Petersen recalls. ‘That didn’t go down too well, especially with him surrounded by his acolytes.’
So far Longbow has achieved no exits – nor chalked up any failures, Rudd is keen to add. He expects ‘definitely two, possibly three’ trade sales in the next 18 months.
If the firm could sell optimism, it would be already be rich. Says Petersen, ‘You’re looking at companies with massive reserves. Bristol Myers has $7.7 billion, Johnson and Johnson has $14 billion. These are cash buyers.’
