Whoever said the apple doesn’t fall far from the tree definitely didn’t have Apple Tree Partners in mind.
The Cambridge, Mass.-based firm, which spun out of Oak Investment Partners just over a decade ago, takes a far different approach to venture investing than much larger Oak.
Whereas Oak has invested in more than 480 companies over the last 30-plus years, Apple Tree has followed a fewer-is-better strategy. Its current portfolio includes just three companies. And while Oak has billions under management, Apple Tree has stayed small, having raised just about $135 million in two funds combined.
Apple Tree specializes in early stage life sciences companies. It typically commits about $25 million per deal and takes an active role its portfolio companies. For example, Seth Harrison, founder and sole managing general partner of Apple Tree is also CEO of Tokai Pharmaceuticals, a developer of treatments for prostate cancer. Venture Partner Scott Chappel co-founded Tokai and serves as its COO.
“We like to bring them to a certain point of maturity ourselves and then bring in co-investors,” Harrison says. In Tokai’s case, the co-investor is Novartis Venture Fund, which led a $22 million Series D round last May.
HOW WE’RE DIFFERENT…
Apple Tree will invest in a concept-stage company without a seasoned management team in place. Struggling, later stage companies with promising technologies are also an option.
“We don’t look at deals; we look at assets,” Harrison says.
For example, one of the firm’s earlier investments was in a former Oak portfolio company called Kriton Medical, now known as HeartWare, a manufacturer of implantable heart devices. “It had an interesting asset, but was not in the best shape, so we restructured,” Harrison says.
Apple Tree went from having a 12% stake in HeartWare to a $100% stake, and then took the company public on the Australian Stock Exchange in 2005. HeartWare moved to the Nasdaq last year, and today has a market cap of $570 million.
DEAL FLOW ADVANTAGE…
The firm boasts tight connections to large pharmaceutical researchers, providing an inside track to technologies that lend themselves to spin-outs. Tokai, for instance, licensed compounds from Roche and Japanese food and pharmaceutical company Meiji Seika Kaisha for its product pipeline.
The firm’s focus at present is on its existing companies, Harrison says. He would not say when he would seek to raise a third fund, but he noted that he’s “not in any rush.” Apple Tree raised $60 million for its first fund in 1999. It tried to raise $200 million for a second fund in 2001, but wound up closing with $45.4 million, a reduction Harrison attributed to the difficult economic climate at the time. In 2008, Apple Tree raised another $30 million.
Apple Tree’s team isn’t short on credentials. Harrison earned an M.D. and an MBA from Columbia University before joining Sevin Rosen Funds as a venture partner. He later left Sevin to become a general partner at Oak.
Also on the Apple Tree team is Venture Partner Scott Chappel, who has held senior management positions at several pharmaceutical companies, including Serona. Chappel has a Ph.D. in endocrinology and is listed as an inventor on 18 U.S. patents.
The firm has seen some departures over the years. Martin Vogelbaum, a partner in the second fund, left in 2004 to be a partner at Rho Ventures, and Mark Pruzanski, formerly a venture partner, left to head up Intercept Pharmaceuticals, a developer of drugs for chronic liver and metabolic diseases.
In addition to HeartWare, Apple Tree has several other exits under its belt. Most recently, portfolio company Gloucester Pharmaceuticals, a developer of cancer treatments, was bought by Celgene in December for $640 million. Apple Tree invested about $21 million in Gloucester. Harrison declined to disclose the return on the investment but says it was “very handsome.”
Other exits include Coelacanth Chemical Corp., a developer of a drug discovery platform acquired by Lexicon Genetics. Harrison says Apple Tree made money on the sale, but calls the deal “sub-optimal and notes that “it could have been better.”
Another exit was SGX Pharmaceuticals, a developer of a proteomics drug discovery platform that was acquired by Eli Lilly & Co. in 2008. Harrison describes that as a “decent” exit.
Profile: Apple Tree PartnersWebsite: www.appletreepartners.com
Location: Cambridge, Mass.
Funds: Manages two venture funds with combined capital of $135M.
Team: Seth Harrison, managing general partner; Scott Chappel, venture partner; Joseph Yanchik III, venture partner; Rosana Kapeller, associate venture partner; and Huw Nash, associate venture partner.
LPs: Only disclosed investors are The Monitor Group, SITRA and Finnish Innovation Fund. Harrison says that other investors include funds-of-funds, insurance companies and non-U.S. institutional investors.
Did you know? The name Apple Tree Partners derives from two sources. One is a play on the tree theme, as the firm spun out of Oak Investment Partners. The other is rooted in biology. The initials ATP also stand for Adenosine Triphosphate, which is considered by biologists to be the energy currency of life, as it transports chemical energy within cells for metabolism.