Wednesday, November 23, 2011

Changes at Versant

Last week’s column in Fortune Magazine by venture capitalist Lisa Suennen of the Psilos Group appropriately asked “Hey, where are all the health care investors going?” As evidence, Suennen cited the departures of CMEA Ventures from medical devices and Highland Capital from health care (both of which were reported in Start-Up several months ago). But Exhibit C – “that Versant Ventures appears to be on the verge of reducing its health care practice” – surprised us.

After a few days of beating the bushes and collecting rumors by the bushel, we reached Managing Director Ross Jaffe, one of the founders of the firm, to get the details. Jaffe (careful not to tread into talk of fund raising so as not to violate securities regulations) did speak to changes that will occur at Versant.

The good news is the firm isn’t going anywhere. Versant will raise a new fund, although we believe that it will likely be smaller than the $500 million partnership it closed in 2008.

The less than good news is the roster of Versant managing directors is shrinking. Jaffe says four of the firm's managing directors opted out of participating in the next fund.   The departures shouldn’t impact the firm’s overall investment strategy. Two of the departing partners – Brian Atwood and Camille Samuels – invested in biopharmaceutical companies while the other two – Kevin Wasserstein and Rebecca Robertson – managed medical device investments. The firm generally balances its fund between the two sub-sectors. Jaffe declined to discuss specifics of a fund but said their fund size always derives from the number of partners sitting around the table

All four will continue to invest from Versant’s fourth fund. The decisions not to continue as active investors came during Versant’s planning for a fifth fund, Jaffe said, when each managing director was asked outright if they’re in for the long haul of a 10-year partnership. “If you are going to build a venture capital firm for the long haul you need to be thinking about individual partner’s plans and how the firm itself will evolve,” Jaffe says.

The four partners in question either declined comment or did not return requests for comment for this story.

According to Jaffe, Atwood and Wasserstein intend to remain active in the life sciences industry, while Samuels and Robertson are backing away from active investing. Atwood will concentrate on his current portfolio and may assist in new deal flow but won't be taking on new board seats. Wasserstein will work more closely with smaller device companies, including possibly some within Versant's portfolio.

Versant did promote Kirk Nielsen in January to managing director. He joins Bill Link in Versant's Orange County office while Brad Bolzon, Charles Warden, Jaffe and Samuel Colella work from Menlo Park.

No doubt, some might see Versant's decision as another knock on the prospects for life sciences investors as firms like Prospect Venture Partners and Scale Venture Partners scrap plans for raising news funds. Jaffe says Versant’s intentions shouldn’t be seen as a sign of weakness for the firm or the industry. “While everyone agrees this is a challenging investment environment with the FDA, reimbursement and other issues, we continue to see great opportunity for firms that have capital,” he says. “And we’ve had pretty good success.”

The firm was an early investor in several medical device companies that commanded significant prices from acquirers including LenSx, developer of surgical lasers for the eye, atrial fibrillation company Ablation Frontiers, balloon sinuplasty device marker Acclarent, laser vision correction company IntraLase,  and St. Francis Medical, maker of a spinal implant.

On the biopharma side, the firm exited Amira Pharmaceuticals this summer through a sale to Bristol-Myers Squibb for $325 million upfront plus earnouts. More recently it participated in the much-anticipated IPO of Clovis Oncology, in which Versant and other investors bought more than 40% of the offering at the $13-a-share offering price. That leaves Versant holding 2.2 million Clovis shares, worth about $27.6 million at the end of trading Monday, November 21.  

Like other biopharma investors, Versant has recently explored new models in acknowledgment that the traditional build-a-biotech strategy is increasingly difficult to justify. One idea, which sprang from the Amira exit, is a drug discovery kitchen dubbed Inception Sciences (we wrote about it here) that will spin out compounds into separate corporate entities that let potential buyers choose assets a la carte instead of having to buy the whole restaurant. The second idea binds a potential acquirer to a start-up right away, which Versant did recently with the cancer genomic analysis firm Quanticel Pharmaceuticals. At launch, Celgene paid $45 million upfront for exclusive technology rights, a small equity stake, and exclusive options to buy Quanticel a few years down the road. 

Several non-Versant sources familiar with the firm's plans told us that Versant is under the same pressures as its peers, as LPs become increasingly fearful of larger funds and unwieldy teams. Jaffe sees it differently: “We have a very different business culture at Versant. Each of my partners is thoughtful about how we approach our business and how we handle our careers. People will believe what they want to believe but this is what is going on.”

Alex Lash contributed to this report.

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