Turning sickness into cents

BioVitas founder Gabriele Cerrone is looking to grow his business by tapping into the region’s high net worth individuals while kickstarting a biotech boom in the Middle East

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By  CEO Middle East Published  February 16, 2006

|~||~||~|Finding a cure for cancer and making a boatload of greenbacks are not normally the ambitions of the same man. Gabriele Cerrone, founder and chairman of BioVitas, is one of the exceptions. His firm is a biotech incubator focused on nurturing biotech intellectual properties. Funded by a network of high net worth angel investors, Cerrone uses BioVitas to funnel capital into research and development projects aimed at treating or curing major disease, including the dreaded ‘C’. “Biotechnology plays a vital role in both diagnostics and pharmaceuticals… and it has been a long cherished dream of mine to find cures or treatments for life limiting illnesses,” he says. The 33-year old’s fascination with all things medical began at an early age, as he spent many a childhood hour wondering just how his grandparents lived for so long in Sora, Italy. This initial curiosity was enhanced as Cerrone helped his sister study for her medical exams. Today he combines his layman’s scientific knowledge with expert advice from his board to identify scientists and biotechnology start-ups in need of investment but unable to score cash injections from the larger pharmaceutical firms. “We look for elite scientists who have patented technologies that the big pharma companies are not willing to fund,” Cerrone says. “Big pharma has a very sophisticated business model, which is developed by actuaries in fact. To them is just statistics, and they think it is more profitable for them to pay US$700 to 800 million for a company that has alleviated its risk and is in phase three trials than it is to spend US$5 to 15 million at the beginning,” he explains. “That model may be correct for them, but if it weren’t for companies like BioVitas then you would never have companies getting to phase three in the first place and the good ideas would die. We build a bridge for start ups that allows them to live.” By backing inspiration rather than operation excellence, Cerrone is able to pick up biotechnology firms in their pre-clinical period for a song, help build them up and then deliver excellent returns for his cadre of high net worth angel investors. “My strategy towards investment is not about buying at US$200 [per share] in the hope that someone will buy it at US$250. My strategy is that I buy at a dollar because it is easier to turn a dollar into two dollars than it is to turn US$200 into US$250,” Cerrone explains. “That’s what I do. I get in at a value at which my investors have a high probability of making a return, rather than getting in three of four years later when a company like Roche would have validated the technology and driven the value [per share] towards US$150 to 200." The ability to pick a winner is something Cerrone claims to have had for some time. He was investing on Wall Street at the age of 12, and was a qualified as a broker before he turned 20-years old. It’s not just in biotech that Cerrone has waved his financial divining rod, and the 33-year old also claims to have made a killing in the property market by adopting the same investment policy. “I bought real estate in New York two months after 9/11, for example, and bought in ghetto areas that came up, such as Washington Heights and some areas of Harlem,” he says. “When it’s bullish on the market I tend to go short, and when things are bottoming out I buy,” he adds. While the ‘I invest in things others won’t touch’ mantra certainly has a devil-may-care appeal to it that undoubtedly goes down well with more gung-ho investors, Cerrone’s approach to investments is based on what he sees as sound business rationale that offers investors lower downside risk levels. “The reason why our model has less downside risk is that it is easier for investments bought at the higher level ― say US$200 [per share] ― than it is to fall from one dollar,” Cerrone says. “Because we get in at an early valuation we buy low and, as the company progresses through the phase one and phase two trials we still have an opportunity to provide investors with an exit strategy before the company has reached its climax for a higher risk ratio,” he explains. “When you get into post-phase two companies have already proved whether the drug will work or not. At that point you get the biggest transformation in terms of value and risk,” Cerrone adds. To date, BioVitas has had some excellent results. The three success stories of which Cerrone is most proud are Callisto Pharmaceuticals, Fermavir and Xenomics. The first he took from nearly nothing to a publicly traded company that is currently developing a drug Atripomod for multiple mieloma, while the second is an anti-viral company established with well-known scientist Professor Eric De Clerq. As for Xenomics, a molecular diagnostic company that owns patented technology for DNA based tests; Cerrone believes this particular firm is a prime example of how his biotech investment business works. “The two founders of this technology, one of which had been involved in the Chernobyl aftermath, had discovered in a serendipitous way that DNA was located in urine. This was a groundbreaking discovery but none of the big diagnostic companies would go near it with a 10-foot pole,” Cerrone says. “After sending it to some of my experts on the BioVitas board we examined the patent and we confirmed that there was no prior art on this, and even though the herds did not want to sponsor the project I believed in it and we invested,” he adds. In fact, BioVitas’s three existing projects have been so successful that Cerrone says some investors have realised a return of 350%. “The returns vary with each investment, but in the last 18 months the DNA diagnostic company [Xenomics] gave a 350% return at its highest point, and is now around the 120% mark,” he adds. In order to drive his business faster and expand the capital he has to invest Cerrone has now turned his attention to the Middle East, which he believes could provide him with a whole new band of investment brothers. “I’ve been very successful in raising money but I’ve never tapped into the Middle East region, but with the enthusiasm to invest it is the place to be,” Cerrone says. “My goal for the Middle East is to do what I’ve done in Europe and the US and put together high net worth angel investors with the projects that are at an early stage,” he adds. Certainly the region’s high net worth population is showing increased willingness to invest its cash. Last year the region’s stock markets enjoyed a boom time as investors dug deep and ensured record growth for firms including Dubai property giant Emaar and vastly over subscribed initial public offerings (IPOs) for a number of companies. For example, Sharjah-based gas company, Dana Gas, saw its offering oversubscribed 140 times as 413,000 subscribers bid US$78.4 billion for shares, while RAK Properties reported that its IPO was 50 times oversubscribed. Yet this spate of local investment could also see Cerrone’s plans for Middle East expansion meet an untimely end, as it not only reveals there are plenty of high returning investment opportunities closer to home, but also that local investors still have a preference for adding more traditional investments to their portfolios. “Middle East investment is still a brick and mortar mentality, which may be even more entrenched since the tech bubble burst back in 2000. In order to diversify out of oil there needs to be investment in technology,” says Cerrone. However, Cerrone has a plan that may help overcome this obstacle, namely ensuring his overseas biotech firms have a local presence and forging closer links with medical and biotechnology organisations in the Middle East. As such, the 33-year old has already met with Dubai Healthcare City (DHC) and is convinced there is a solid future for biotech in the Middle East. “I want to explore expanding the R&D operations of the companies we already have investments in with some of the scientists that are on their way to Dubai. The Harvard collaboration with DHC is going to be a plethora of elite scientists, for example, and we want to capitalise on the discoveries made by those post-docs in Dubai,” Cerrone says. “We want a partnership and if having relationships and partnerships in Dubai is a better way of stimulating investment in these companies then we are willing to do this. If I can gain investment from a group or individual here then that would quickly foster subsidiary offices from our existing companies and new start-ups here in the Middle East. If the funds come everything else flows into place,” he adds. Cerrone may be right about the region’s increasing interest in the opportunities presented by biotech. In addition to the discoveries that may be made in the DHC and Harvard labs, there are also R&D parks planned for Jeddah in Saudi Arabia and Qatar. On top of this there is also Dubai’s own Dubiotech, a US$400 million project that is destined to provide research facilities for life sciences firms (see box out). “The impression I get is that they [Dubai Government] wants to attract brain power to Dubai… With enough economic stimuli anything can happen. If they start paying post-docs and scientists US$100 000 plus per year when they are only getting US$42 000 per year at the Rockefeller Centre in the US then I think it will happen,” Cerrone says. “It is all about putting the money with the brain power and the BioVista model is not that different – we take patents from the bench lab to commercialised projects. We want to bring this to Dubai and combine it with the liquidity of the Middle East. This means that when the oil has gone there will be a diversification of investment for the local market,” he adds. Whether medical research and locally developed biotech solutions are a long-term reality for the Middle East only time will tell, however, Cerrone is certain that should it happen he doesn’t want to be the one to miss out. “We are here as semi-pioneers. We do not know whether there is gold here, but it is my aim to be an early-armed visionary that funds brilliant biotech research,” he says. “I don’t know what is here but I know there is a lot of money in circulation and there is a lot of innovation. It has never been my philosophy to wait for something to be established. “I would hate to find out in five years time that the locals in the Middle East were actually fans of investing in biotech but 50 companies were already tapping into it. We want to be the pre-eminent incubator for biotech in the Middle East,” he adds. If Cerrone’s latest hunch is a successful as some of his others, there is little doubt that BioVitas will be around in the Middle East for some time to come. And if it is, the 33-year old founder and chairman will become a key player in the region’s fledgling world of R&D.||**||

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