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Booster shot

BY OFFERING FUNDS FOR NEW DRUG RESEARCH, THE US FEDERAL GOVERNMENT IS ALLOWING VENTURE CAPITALISTS TO EMBRACE MORE RISK

In a new effort to encourage pharmaceutical startups to invest in riskier medical research, the US federal government is offering to pay for early clinical trials of experimental drugs. For life sciences venture capital, the program may cut down the enormous price tag associated with successfully bringing a product to market.

These clinical trials are part of a recent effort by the National Institutes of Health to provide impetus for breakthrough drugs for diseases that have long stumped researchers, and are a response to drug companies' unwillingness to invest in promising?but untested?early stage ideas that are developed at academic research institutions.

Indeed, according to a report by the US National Venture Capital Association, the average cost to develop a drug from concept to market requires approximately $800 million and takes 10 to 15 years. As a result, drug companies often opt to develop products where the paths to market are less experimental and risky.

?The new effort is a positive sign,? says Patrick Ennis, a managing director at Seattle?based ARCH Venture Partners. ?Funding these clinical trials has in the past solely been the province of the private industry. The government is attempting to bridge the gap.?

The new effort by the NIH is also an attempt by the federal agency to do more than just issue grants for basic research to universities. Rather, according to the NIH, it is an attempt to identify and fix structural problems in US medical research that impede advancements.

Ennis says that though the US federal government has in the past stepped in to support later-stage clinical trials for areas in great demand, such as AIDS and cancer, the orphan diseases, which are rare conditions that affect a limited amount of people, have not encouraged lots of attention. With this new program, the government would be able to leverage its significant resources to areas that private investors often shun due to the high regulatory risks and likeliness of failure.

?Entrepreneurship is the lifeblood of American business, and venture capital is important in its facilitation,? Ennis maintains.? But even venture capitalists don't have enough money to sustain all of this research. If the end product is only marketable to a limited population, venture capitalists would end up spending more money than they'd receive back in profits.?

GP devotion yields better performance
A recent study conducted by consulting firm McKinsey & Company found that among other metrics, private equity deals tend to perform better when deal partners spend the bulk of their time with the company during the first 100 days following the investment. The findings are presented in the article,? Why some private equity firms do better than others,? provided in The McKinsey Quarterly. Private equity firms score their biggest wins by helping the companies in their portfolios to outperform industry peers. The study found that for the top third of private equity deals by performance, the average percentage of a deal partner's time devoted to the portfolio company was between 45 percent and 54 percent. The middle third of deals by performance commanded only 15 percent to 24 percent of a deal partner's time. The report states: ?Although private equity firms add value through attentive governance and direction, they would add even more if they were better organized and applied best practices consistently.?

New investment unit at IBJ
Tokyo's IBJ Leasing has launched an operation to invest in issues of private companies that are planning an IPO in the near term. The company plans to exploit its customer base of 20, 000 firms that it has nurtured through its core leasing operations to cultivate a new business area and diversify its sources of revenue. The company added that it would also begin providing fundraising advice to firms pursuing real estate development. The firm has already been appointed a financial adviser by two customers that are planning to construct multi-purpose building complexes.

Monomoy nabs CFO from KPS
Upstart New York turnaround private equity firm Monomoy Capital Partners has named a chief financial officer. Andrea Cipriani will join the firm from KPS Special Situations Fund, a turnaround?focused New York buyout firm. The founding partners of Monomoy ? Stephen Presser, Daniel Collin, Justin Hillenbrand and Philip Von Burg ? all are former KPS professionals. Cipriani worked at KPS as CFO from 2001 until last year. Prior to that she was CFO of CW Group, a venture capital firm. She began her career at Ernst& Young. In related news, Monomoy has hired Loren Roseman as a senior associate in charge of analysing struggling companies. Loren joins the firm from restructuring consultant Alvarez & Marsal. Monomoy will target investments in ?challenged? businesses with revenues of less than $150 million.

Carlyle opens third China office
The global private equity firm has opened its seventh office in Asia, staffing a new Beijing office with four investment professionals. The Beijing office will initially have four investment professionals ? two in the growth capital team, one focused on buyouts and one concentrating on real estate. Carlyle now has a total of 57 investment professionals operating out of seven offices across Asia, including Hong Kong, Seoul, Singapore, and Shanghai. Last month, Carlyle launched an Indian buyout team in Mumbai under the stewardship of former DSP Merrill Lynch investment banker Rajeev Gupta, who became managing director and head of Carlyle India. Earlier this year, Carlyle lost its former co-head of Asian buyouts, Michael Kim, who left the firm to set up his own private equity firm MBK Partners.