Six Quick Questions: Mike Carusi

Things are going well lately for Mike Carusi. In the last four months, the Advanced Technology Ventures GP has sold two portfolio companies—cancer therapeutics maker Plexxikon and hypertension device developer Ardian—in deals collectively worth $1.6 billion.

Plexxikon was a long time in the making. ATV invested a decade ago in the Berkeley, Calif.-based company, which recently wrapped up Stage III trials for a drug targeting metastatic melanoma. Japanese pharma Daiichi Sankyo announced on Feb. 28 that it will acquire the company for $805 million, plus up to $130 million in milestone payments. Carusi called it a 10x plus return.

ATV backed Mountain View, Calif.-based Ardian about five years ago. Medtronic announced in January that it completed the acquisition of the company for $800 million, plus cash payments tied to revenue growth. That was a 15X to 20X return for ATV, depending on milestones.

Carusi, who joined ATV a dozen years ago, tells VCJ Senior Editor Joanna Glasner that the deals bolster his conviction that early stage health care and medical devices are the place to invest.

Q: Any tips on how to generate high returns in health care VC?

A:

There are two ways to get a great multiple. One is to get a great number [from an acquirer] and the other is to not require a lot of capital. Plexxikon did not require a lot of capital. It raised about $66 million.

Q: What made Plexxikon such a popular acquisition target?

A:

There are few treatments available for patients who have advanced stage melanoma. If the melanoma is limited to the skin, you can excise it, but once it spreads, it’s a very aggressive cancer. What is unique with Plexxikon is they are targeting a particular mutation that is tied to a diagnostic by Roche. Response rates have been very high and they’re seeing tumors shrinking dramatically.

Q: Acquirers generally prefer to pay a minimal amount, plus potentially more in milestone payments. For Plexxikon, how did they manage to get such a large initial sum?

A:

They had not yet completed the Phase III study. As the probability of approval goes up, you can argue that more of the dollars should be up front. Also, Daichi was not the only entity bidding for Plexxikon, and that never hurts.

Q: You’ve had two big exits in recent months. A coincidence?

A:

They didn’t happen overnight, and I don’t just mean the development of the companies. In both cases we had been talking to potential acquirers for years. With Medtronic, they invested in Ardian, and we’d been talking to them for a long time. It’s a relationship-building process. The acquirers need to get comfortable with the company and the team.

Q: Where are you currently looking to invest?

A:

We are still very interested in early stage investing and are working out of our eighth fund, which is roughly half committed. It may be contrarian, but we continue to look for early stage investments in pharmaceuticals and devices. We look for things that are very disruptive, like a recent Series A in Altura Medical, which is developing a novel treatment for abdominal aortic aneurisms with a device that’s much smaller than existing devices.

Q: How would you characterize the environment for early stage health care?

A:

There’s less competition than in years past. You’re seeing more health care investors move to later stage. Capital is getting a scarcer and the timeline is longer.