Question & Answer

You have a new look to go with your new website. Why the new look?

Over the years we’ve evolved – from our role a dozen years ago when I founded the firm as an advisor to life science companies, to the organization we are today and have been for some time: a highly-focused, life science venture capital firm. The early years allowed us to develop a reputation for deep domain expertise and industry-wide relationships, a foundation that helps us really stand out as a venture investor. The new look is intended to preserve our legacy, while also reflecting what we do today.

How long has Pappas been in the venture business?

As a firm, we’re now investing our third venture fund – or fourth fund, depending on how you count it. We got our start 12 years ago when I founded the company as a life science advisory and project financing firm.

Many of our activities were very similar to a merchant banking firm and during that period we worked with and invested in companies such as AtheroGenics, BioChem Pharma, Quintiles, and SciQuest. Our first true venture investment was back in 1995, when I became involved in the startup of AtheroGenics, which had its IPO in 2000 and currently has its lead product in Phase III clinical trials. Before that I had been an executive for Glaxo and other multinational pharma companies. I invested in AtheroGenics and went on the board, and have continued as a director ever since.

We then became an advisor to a Montreal genomics fund, for which we managed a number of U.S. investments, including Gene Logic, one of the early, successful platform companies. We raised our first Pappas fund in 1998, raised our second fund in 2000, and began investing out of our third fund in early 2005.

So, for Pappas, venture capital investing has been a rewarding and fulfilling focus since 1994.

What kinds of life sciences companies are you looking for?

The general answer is that we are looking for companies that have an experienced and effective scientific and management team; a proprietary product or technology that can lead to better, faster and less expensive healthcare outcomes; a solid patent portfolio and intellectual property estate; an opportunity to attain a leadership position in a large market; and a syndicate of knowledgeable, well-financed life science investors with a demonstrated track record of providing growth capital over the long term to their portfolio companies.

Of course, that’s what every VC is looking for.

So, what sets us apart?

For one thing, we tend to focus more on drug discovery and drug development investment opportunities than many of our brethren. This doesn’t mean that we won’t invest in drug delivery or medical devices, because we have and we will continue to do so. But drugs are our sweet spot.

We also differ from many life science VC firms in that we invest about half of our capital in pre-clinical companies where there is a clear path to a value-driving development milestone; as opposed to putting all or almost all of our capital in clinical-stage companies. And finally, if you look at where, geographically, we invest, you’ll see that we have a long track record of investing in California and the Northeast (and, of course, North Carolina), but an equally long record of investing in under-served regions – Texas, Indiana, Montreal – that have outstanding research centers, but which don’t attract a commensurate share of venture capital. We continue to see these under-served markets as an important, and growing, opportunity.

What are some of your most promising recent investments or successes?

We’ve had several very interesting – and successful – exits lately. For example, Panacos Pharmaceuticals, which is developing an HIV drug, accessed the public markets in 2005 through a merger with an existing publicly-traded company and, about six months later, raised over $80 million in a shelf offering. We first invested in Panacos in 2001 when we led the company’s Series B round. Another interesting transaction was the sale of Peninsula Pharmaceuticals, a company focused on small molecules for the treatment of hospital-based infections, to Johnson & Johnson. That deal included the spinout of the Peninsula management team, along with a set of compounds that JNJ did not acquire. The resulting company, Cerexa, promptly raised an over-subscribed financing round, in which we and all of the former Peninsula investors, along with two new investors, participated.

We see on the order of 800 deal proposals a year and invest in perhaps five or six – so we've got to really love a deal in order to take the plunge.

We just began investing our third fund at the beginning of 2005, and none of these companies have had time yet to separate themselves from the pack via either good or poor progress. Hence, we feel well about all of them!

Most recently, we co-led the first investment round for a new company called CoLucid Pharmaceuticals. It’s a spinout from Eli Lilly, based in Indianapolis. Later this year we expect its lead program, a compound aimed at treating migraine headaches, to begin Phase 2 trials. We’ve participated in the funding of Spherics, a company with novel nano-based bioadhesion drug delivery technology, and in the funding of BrainCells, a drug discovery and development company using a proprietary nerurogenesis platform. Most recently we also participated in seeding Syndax, a new cancer therapeutics company; and we invested in CeNeRx BioPharma, a preclinical CNS company located in Cary, NC, here in our backyard.