Ascent Medical Technology Fund II, L.P.
Ascent Medical Technology Fund II, L.P.
The Ascent Medical Technology Fund II, L.P. was established in 2006 by Ascent Private Equity II, LLC to make privately negotiated investments in seed, early and mezzanine stage growth companies principally in the medical device industry and, to a lesser extent, in other medical technology industries. To diversify access to scientific innovation, enhance the profitability of investments, and streamline proof of clinical efficacy, the Fund is establishing medical technology developmental and manufacturing infrastructure in the Middle East, and investing in medical technology innovation. The Fund is now wholly committed.
All Fund investments have availed themselves of opportunities that exist in the Middle East for clinical research, manufacturing, and intellectual property. The Principals of the General Partner are Peggy Farley and Karl Groth, Ph.D.
Peggy and Karl have brought their expertise to bear on the companies in which the Fund has invested, as they have with Fund I, and are working closely with each company on clinical regulatory matters, on sales and marketing, and distribution issues, and on financial strategy as well as monitoring cash expenditures. Peggy and Karl work closely with certain of the Fund’s Limited Partners as well as institutions and individuals in the Middle East region that provide strategic support to the success of the Fund’s investments. The Fund enjoys support from the Ministries of Health of countries in which it works as well as from key medical business leaders.
Summary of objectives and terms
The Fund is dedicated to advancing medical innovation through investing in early-commercialization stage companies based in the U.S. and the Middle East that have technologies sufficiently innovative to effect dramatic changes in the treatment of serious global health issues such as cardiovascular disease and cancer. The Fund has as a condition for investment the establishment or development by the company in which it invests, whether domiciled in the US or in the Middle East, a sustainable business in the Middle East (manufacturing facility, lab, clinical research organization, etc.) that will itself seed the emergence of a locus of medical technology activity in the Region to enable the Region to eventually compete with the U.S.
Harvest of each investment is targeted for three years from the time of having established the business. The Fund’s General Partners have an investment track record of 824% IRR (annual return) and 29.7x average multiple. They have worked together for over 25 years. The Fund has invested in four companies of which they founded three.
- Fund Diversification: no more than 30% of the Fund to be invested in any single company
- Company Control: Fund is guaranteed one or more Board positions
- Capital Disbursement: At contractual milestones with time limits
- Term of the Partnership: 10 years from the first close
- Commitment Period: 5 years from the first close
- Preferred Return to Limited Partners: 8% per annum
- Management Fee: 2% per annum
- Distributions: immediate, upon harvest of an investment. First, all capital related to the investment returned to Limited Partner; then, Limited Partners are given 8% per annum preferred return on the investment; General Partner is then made whole on its investment plus its preferred return; finally, remaining profit is split: 80% to Limited Partners, 20% to the General Partner.
- Drawdowns: 20% upon closing; thereafter, semi-annually and upon 10 days’ notification of an investment.
- Domicile: The Fund is a Limited Partnership registered in Delaware in the U.S. An offshore Fund was established in Bahrain as an alternative. The Bahrain Company, Ascent Medical Technology Middle East Company, BSC, is a Limited Partner of the Delaware Limited Partnership, but with no duplicate fees.
- Co-Investment: Preference and priority for co-investment is granted to Limited Partners; General Partner can co-invest if, after all limited partners have been apprised of the opportunity, there is investment availability.
The Fund has a Scientific Advisory Board that comprises prominent physicians from the disciplines in which the Fund’s General Partner plans to invest. There is also a Business Advisory Board that is a resource for due diligence on new investments and for developing and harvesting investee companies. As well, the Fund’s General Partner has developed many resources in the Middle East in both the public and private sectors to ensure the success of the Middle East component of the Fund’s strategy.
Fund II had its final closing on June 20, 2007, and is now fully committed.
Initial Investments of the Ascent Medical Technology Fund II
Bioheart, Inc. is the leader in the realm of cell therapy for heart disease. Its existing technology has been proven to be better than that of all of its competitors and the scope of its intellectual property encompasses many potential drivers of more innovative treatments.
Our fund’s first investment, totaling $3,000,000, was into Bioheart. Proceeds from the offering have supported further development of Bioheart’s patented cellular based therapy products for the treatment of cardiovascular disease, including myocardial infarction, congestive heart failure, and arrhythmias. Bioheart grows myoblasts from muscle cells extracted from the patient’s leg. These are inserted into the patient’s heart’s dead tissue and, within weeks, begin to function as heart tissue. Bioheart also has a treatment for acute myocardial infarction using stem cells derived from adipose (fat) tissue. Treatment is administered soon after a heart attack using the patient’s own cells. Indications are that the treatment results in regeneration of heart muscle to the extent that there is little or no damage. The company believes that its patented products and procedures hold the key to revolutionizing the treatment of cardiovascular disease. Several key opinion leaders in the cardiology realm have stated that Bioheart has the potential to become a new standard of care. As an alternative to the current treatments in this $120 billion market, Bioheart’s treatments are less invasive, more cost effective, and clinically superior. Phase II FDA clinical trials are demonstrating safety and efficacy.
Bioheart will be putting a cell engineering facility into our Philadelphia BioMed Product Development Centrein Jordan, described below, giving the Middle East access to this wonderful technology. The Centre’s Cell Engineering Division will serve hospitals throughout Europe and the Middle East that will wish to utilize the technology. Growing myoblasts requires a lab in close proximity to treatment centers since, outside the body, the cells have a short life. The company has targeted the Middle East as a site for a lab, given location and efficient transportation to many parts of the world. The lab will diversify its activities by offering viral diagnostic testing for the region, manufacturing of other cell therapies as well as pre-clinical quality testing for drugs and medical device materials. This testing is currently being conducted in France and Germany. This facility can become an extremely important factor in many areas of research, testing and diagnostics.
It is our view that this investment will reward our Limited Partners well. Bioheart’s two publicly traded competitors have seen rises in their stock despite problems with their clinicals that Bioheart does not have and despite much weaker patent positions than Bioheart’s. Bioheart completed an IPO in 2008, the only biotech IPO in the US during that year. The current turmoil in the US markets has affected the company’s share price, but we feel that this will reverse. The stock symbol is BHRT.
Ascent Medical Product Development Centre Inc./Philadelphia BioMed Product Development Centre, PSC (www.ascentmed.com)
Our Fund has put into Jordan the first organization in the world to house under one roof preclinical testing, cell engineering, viral diagnostics, and clinical research. At present, most of these capabilities are found only in the United States. The Fund is using its relations with academic institutions in Jordan (the University of Jordan and Jordan University for Science and Technology) to draw their exceptional medical talent into the world’s most sophisticated research. We are adding capability through a business alliance with a US based Clinical Research Organization.
Bioheart’s cell engineering facility, discussed above, will also be a part of the Product Development Centre. Finally, a core lab facility will complete the Centre’s activities, enabling the reading of diagnostic tools such as MRI’s by Jordanian medical specialists for clinical research purposes. The Centre serves not only the Middle East, but sees a great deal of business from the US and Europe, as its testing standards for all activities are those required by the US FDA and the European authorities. Companies in the US and Europe are able to see substantial cost savings by transferring their analysis and testing to our Centre.
As stated in our documents, the goal of the Fund is to develop a viable and sustainable medical technology industry in the Middle East region. The Product Development Centre is the key and is critical to furthering medical technology developments.
In the region, there currently exists an abundance of ideas which, if developed, could improve the quality and duration of peoples’ lives world-wide. To move these ideas through the product development process to worldwide use, there exists a well defined development path. This path requires the capability to perform pre-clinical safety testing as well as conduct controlled clinical studies. These tests and studies must comply with international clinical/regulatory standards including the U.S. FDA, EU and regional regulations. These capabilities either do not exist or are not yet fully developed in the region, so our Product Development Centre will be the route to taking medical technology concepts through product development and to providing what is necessary to obtain product approvals from governments so that new products can be marketed world-wide.
Our US partner for clinical research (testing on humans the products that have satisfied the US FDA’s and European authorities’ requirements for safety and have been approved by those organizations for human clinicals) is Alquest, one of the largest private clinical research organizations (CRO’s) in the US. The company works with pharmaceutical and medical device companies to conduct medical research, establish quality systems, and generate reports on product efficacy for the US and other regulatory authorities. Alquest is also involved in the design, conduct, and analysis of preclinical and clinical studies as well as defining and implementing regulatory and compliance strategies. The company develops analysis plans for pre-clinical and clinical trials and monitoring activities.
Without exception, pharmaceutical and medical device companies can and do initiate clinical trials outside the US. Alquest’s strategy is to grow internationally.
A product development center that has US ties has enormous potential for returns and is the necessary adjunct to a successful Middle Eastern medical technology industry. The critical ingredient is the proficiency with US and international standards that this center brings to bear, along with its existing business ties to the US medical industry for clients. It, too, can foster innovation that comes from the Middle East region.
The CEO for the Product Development Centre is an extremely well experienced individual in Jordan who has both US and European experience and medical degrees and has been on the University of Jordan medical school faculty prior to joining our Centre. The Centre’s staff comprises a group of highly intelligent, experienced individuals who are passionate about their work.
The Centre works closely with Centers of Excellence in Jordan and other countries in the Middle East, as well as with the University of Jordan, Jordan University of Science and Technology, a number of Jordan’s hospitals, and Jordan’s Royal Scientific Society.
There are several alternatives for harvest: (1) an IPO of the entire organization in the US; (2) an IPO of the Middle East CRO in the Region; (3) an acquisition of the entire organization by another, larger CRO; and, (4) an acquisition of the Middle East-based CRO by another organization.
Heartland Biosciences International, PSC, a life science company, is a Jordan-based company with a US subsidiary that does research and development on products in the cardiovascular arena. Heartland focuses on the development and global commercialization of high value medical, pharmaceutical, and nutritional products using D-ribose and other molecular compounds as base elements.
While D-ribose is found naturally in the body, enhancement of the body’s natural production ameliorates cell stress. D-ribose is the backbone for cellular energy used to convert ADP to ATP. D-ribose can be used in sports medicine, cardiovascular health, and for treatment of a multitude of medical problems: myocardial infarct, congestive heart failure, angina, and fibromyalgia. It helps patients recovering from cardiovascular therapies, including by-pass surgery, PTCA, and peripheral vascular reconstruction. D-ribose has applications for cell life and viability with platelets, red cells, and stem cells. Studies have indicated that life and viability can be extended so significantly that there will be vast impact upon blood banks and usage of both platelets and red cells. Stem cell life extension will be very meaningful to the efficacy of transportation of these important cells. In the $65 billion nutritional market, D-ribose is currently being marketed to improve athletic performance and to speed recovery from exercise and sports activities, reduce muscle soreness, and prevent muscle stress.
Finally, the use of D-ribose for enhancing the diagnosis of cardiovascular disease enables greater accuracy than current methods. It is the pharmaceutical application of D-ribose based compounds that will produce the highest returns. This arena is $100 billion in size.
We expect that Heartland will be harvested first as an IPO and then through a series of acquisitions of its products. Based on similar situations, we believe that Heartland has the potential for a market capitalization of $1-3 billion within four years.
Salalah Medical Device Manufacturing Company, SAOC (SMDM) has been formed by an existing Omani medical supply manufacturing company, Salalah Medical Supplies Manufacturing Company, (www.medikoman.com) and our Fund. SMDM has a marketing subsidiary in the US, Ascent Medical Corporation, Inc. (www.ascentoem.com) This company brings to the Middle East the capability to manufacture therapeutic devices beginning with guidewires and to develop prototypes for new device concepts. Such manufacturing is not done at this time in the Middle East, despite the many ideas and concepts that arise in the Middle East. Our manufacturing centre will be the first in a highly profitable business sector for the region.
Throughout the U.S. and Europe there are hundreds of contract medical device manufacturing facilities that conduct innovative proprietary medical device development and manufacturing for small private medical device companies and large scale manufacturing for component products for large medical device companies, including Medtronic, Guidant, St. Jude, Johnson & Johnson and others.
In order to keep profit margins high, contract manufactures have historically located in areas that have offered highly skilled but low wage labor. For the past fifteen years much of this geographic outsourcing has been placed in Ireland. With the decrease in the strength of the dollar and the increase in labor costs, Ireland has now become more expensive than the U.S. Our Omani joint venture will enable us to compete on both cost and quality bases for guidewire sales in order to benefit both large and small medical device manufacturers. Products manufactured at this facility can also be labeled "manufactured in GCC". These products can then be shipped to local distributors for sale in the MENA region. This will help expand the markets for the customers. Finally, local physicians and engineers can bring their product ideas to this regional facility and work with the company’s design engineering team to develop their ideas locally instead of sending them abroad.
Our CEO for the joint venture has a wealth of experience managing successful guidewire businesses. He has overseen the transfer of our manufacturing equipment and technology to Oman and the development and marketing of the joint venture’s products. Initial products will be guide wires first and then surgical kits, both of which have broad and deep markets globally. We believe that the OEM facility will be able to IPO in the Middle East regional markets within three years. We expect returns to be no less than our 60% IRR standards, likely above. If our views on innovation coming into the OEM from regional scientists, engineers and physicians are on target, we see the potential IRR as well into the triple digits.
Investment dynamics: Our Fund does milestone based investing. The principal milestones are establishing and developing the activities that are to be Middle East-based. We work closely with the business leaders of the companies we invest in to ensure that the best possible foundation is laid in the Middle East for thriving businesses.
The four projects discussed above can all be increased in scope, once they are established, to become much larger businesses. As well, they all enhance the medical industry in their home countries, and provide a business base for all of the Middle East. Finally, they provide a first look at treatment innovations. Our Fund III, to be launched in September of 2009 will enhance the operations of all four of these companies.
We remain involved in the development of all of our investments, both on the US side and in the Middle East. Our focus, in terms of health issues, is cardiovascular disease and diabetes, which have a high prevalence in the Middle East, with unusually high growth rates. The prevalence and growth rates have caused both government and private sector leaders in the countries we have visited to pay special attention to these health problems. Diabetes affects nearly 20% of the Middle East population as compared to 5.2% of the populations of the rest of the world. In the Middle East, there has been a 170% per annum growth rate as compared to 48% for the rest of the world. Cardiovascular disease affects 20.4% of the population in the Middle East as compared with 15.6% of the rest of the world’s population. The annual rate of increase for the Middle East is 13%, as compared with 8% for the rest of the world.
Now that we have overseen the development of four terrific companies, we believe that our Fund II will be unusually successful for our investors.