Intellectual property and advances in medical technology can originate in the Middle East – and be kept here – if funds are diverted into developing clinical research facilities and medical technology manufacturing facilities, according to medical investment specialist, Peggy Farley.
Farley is General Partner in the $100 million Ascent Medical Technology Fund II, a private equity vehicle to promote the development of the medical technology industry in the Middle East. This is the first fund of its kind in the region.
The injection of $100 million, likely to be from American firms in the first instance, will catapult the value of the regional medical technology investments sector to levels that will surpass any non-oil sector in the region, according to Farley.
“If the Middle East can install a framework authorised by the FDA (Food and Drug Administration), it will become one of the most important developing markets in the world for medical research,” she said.
“By enabling companies from around the world to redirect their clinical research procedures to the Middle East, they can reduce their time to market with a new product by up to 40 per cent, and their costs by up to 50 per cent.
“FDA procedures in America are long and unwieldy, and can sometimes take up to eight years. For a small entrepreneurial company with a new discovery, these costs can be prohibitive, and are restricting research.
“The Middle East has the capacity to provide competition to a fat, lazy and complacent American healthcare sector that is stifling innovation through its bureaucracy.”
Healthcare is predicted to be the major driver of the American economy over the coming decade. The industry was responsible for almost $200 billion in worldwide sales in 2004, with approximately 40 per cent of that in the US alone. Products less than two years old – Ascent’s area of expertise – were responsible for 30 per cent of the total sales.
Through its association with American companies, including those looking to set up joint venture manufacturing, research and testing facilities in the Middle East, one of the Fund’s first objectives is to create a clinical testing and research platform as well as medical device manufacturing in the region.
A portion of the Fund will be allocated to the establishment of pre-clinical testing facilities, clinical research organisations, and manufacturing facilities that comply with worldwide regulatory and quality standards.
Karl Groth, Ph.D., Farley’s Partner in the Fund, said: “Standards that are FDA-compliant are relatively easy to implement; the knowledge and best practices can be transferred easily from companies in the US.
“While there are the grass-roots of a medical technology industry in the Middle East, this is principally the manufacturing of basic supplies in Oman and generic drugs in Jordan. But the real money is to be made in new patents, and the Middle East can be supported and nurtured to the extent that localised discovery of new drugs, new medical devices such as therapeutic products that enable heart function, new cell therapies, and new cures will follow.”
The Fund will provide venture capital in the GCC and Jordan, as well as advance medical innovation and tap invention, manufacturing and clinical strengths in the Middle East, which is recognised as potentially one of the leading emerging research markets in the world. The lead investor is the International Finance Corporation (IFC), a member of the World Bank Group.
The Fund will also be working towards the effective resolution of serious global health issues, particularly those that are prevalent in the Middle East such as diabetes and heart disease, through the creation of sustainable private enterprise.
Medical technology investments have traditionally performed well: Ascent medical technology investments are exceptional, having had an average return on investment of 824 per cent year on year.
“One of the principal reasons for the high returns, beyond selecting outstanding technologies, is a history of successful IPOs from the US medical technology sector; our Fund II investments can connect with a wave of IPOs currently being experienced in the Middle East, to achieve the levels of our historical returns” explained Farley.
While the fund is based in America and is a Delaware Limited Partnership, Ascent Medical Technology Fund II has set up a sister company, Ascent Medical Technology Middle East Fund Company BSC, which will be a feeder fund registered in Bahrain. Investors can therefore choose to deal directly with the US-based fund, or the Bahrain fund company.
The Fund will concentrate its investment in the Middle East, specifically the Gulf Co-operation Council (GCC) states and Jordan. Initial harvests from its sister fund have already seen dividends of 240 per cent, and a third fund is likely to be launched in three years, when Fund II is 75 per cent invested.
EDITOR’S NOTES AND EXECUTIVE SUMMARY
The Ascent Medical Technology Fund II, L.P. (the Fund) is being established by Ascent Private Equity II LLC to make privately negotiated investments in seed, early and mezzanine stage growth companies principally in the medical device industry and, to a lesser extent, in other medical technology industries.
To diversify access to scientific innovation, enhance the profitability of investments, and streamline proof of clinical efficacy, the Fund will be involving certain emerging markets in growing the companies in which the Fund invests. The International Finance Corporation (IFC), a member of The World Bank Group, is the lead investor in the Fund.
IFC’s mandate is to further economic development in developing countries through the private sector. Working with business partners, it invests in sustainable private enterprises in developing countries and provides long-term loans, guarantees, and risk management and advisory services to its clients. IFC invests in projects in regions and sectors underserved by private investment and finds new ways to develop promising opportunities in markets deemed too risky by commercial investors in the absence of IFC participation.
All Fund investments will avail themselves of opportunities that exist in selected emerging economies for clinical research, manufacturing, and intellectual property. This objective will be achieved either by (1) investing in US companies which will in turn invest in joint ventures or wholly owned subsidiaries located in developing countries; or, (2) by establishing businesses directly in emerging markets.
The Fund is seeking to raise aggregate capital commitments of $100 million. The minimum commitment is $1 million for individual investors and $5 million for institutional investors. A first closing will take place when the Fund has raised a minimum of $30 million of aggregate commitments.
Fund II is a Delaware Limited Partnership. The General Partner, a Delaware Limited Liability Company, has established in Bahrain a Feeder Fund Company that will be a Limited Partner of the Fund. The Bahrain Company is for those non-US investors who do not wish to invest directly into the US Fund.
The Principals of the General Partner managed Ascent Medical Technology Fund, L.P. ("Fund I") and Ascent Private Equity, LLC, established, respectively in 2000 and 1999. The advisor to the Fund, Ascent Capital Management Inc., is a US Securities and Exchange Commission Registered Investment Advisory firm. Fund I is more than 75 per cent invested, thus, enabling the principals of the General Partner to develop the Fund. Fund I has seen two harvests. The ROI is in excess of 240 per cent. All of Fund I’s other investments are operating; many have seen tremendous success since the time Fund I invested in them.
