Levrett Plc (LON:LVRT) Chief Executive Officer Pascal Hughes caught up with DirectorsTalk for an exclusive interview to discuss Levrett’s strategy, the biotechnology sector and due diligence
Q1: Now you’ve just floated on the London Exchange as a company with a purpose of acquiring a business or businesses operating in the pharmaceutical and the biotechnology sector. For those new to Levrett, could you briefly outline Levrett’s strategy?
A1: Sure. Levrett Plc, as you say, is a special purpose acquisition vehicle and we’re looking to acquire a company via robust takeover with a promising therapy or technology in the development in the biotech life science area. We look to further develop and commercialise that IP to a point where it becomes attractive to institutional investors or larger pharma/biotech companies.
Q2: So why then the biotechnology sector?
A2: Well biotech is a very exciting area right now, we’ve seen a lot of advances in science and technology which are combining to provide new treatment of therapies across a whole spectrum of medicine and indeed give scientists a better understanding of the nature of various diseases. As investors well 2 key attractions, firstly the size of the markets and the continuing need for innovations to treat chronic diseases etc. due to well documented changes in lifestyle, diet and indeed increasing longevity, the US healthcare economy on its own is already estimated to be the fifth largest economy in the world. Secondly, the prospective returns for those companies that successfully innovate and more importantly commercialise those innovations are often many multiples of the initial investments and there are indeed numerous examples of this.
Q3: You stated that the biotech sector has seen success in recent years, do you see this continuing and if so, why?
A3: Well clearly in the US, the market has seen some very strong gains in recent years, I think at its peak this year, the NASDAQ biotech index was up over 400% in the last five years. We’ve obviously seen some retracement in the second half of this year but of course, in prospective of a company such as ours looking to make an acquisition that’s welcome. To answer your question, longer term we’re still very bullish on the outlook, firstly in the UK we’re still at the very early stages of the biotech really compared to the US, the UK investor base for early stage pre-revenue biotech is still a fraction of what we see in North America. This has a couple of implications, firstly valuations aren’t necessarily going to be much more attractive to investors and founders are more realistic about what level to take investment during the various funding rounds and hence the upside for investors is all the greater. Secondly, much of the innovation in biotech, just as in tech generally, is now happening via small start-ups rather than large scale corporations, this means that the exit strategy is pretty clear for successful innovators in this sector, you can either do an IPO reverse takeover or a trade sale to big pharma and indeed much of the M&A activity we’ve seen in the last couple of years in the sector has been driven by large scale pharma companies looking to replace expiring patents etc. by virtue of takeover of promising start-ups with innovative technologies and therapies.
Q4: Now, when you’re undertaking initial due diligence on a potential target company, do you see Levrett Plc focussing on a specific area of the biotechnology sector for example oncology or therapeutics or even diabetes?
A4: Well I would say that what we’re looking to do firstly is identify a technology or therapy where a step change in development could give us an enterprise with a very significant value but firstly, we are going to have to focus on the major areas like oncology, diabetes and obesity. These areas all share a certain characteristics, firstly the challenges faced by people who have to cope with these conditions on a day to day basis remain very significant and as a result, there’s still very significant opportunities for real step changes in both diagnostics and therapies which will greatly enhance patient welfare and the quality of life. Furthermore, as the population grows and people live longer, the demand for better treatments in these areas is only going to increase, I can give you an example, in the market for diabetes in the US is soon estimated to pass $500 billion.
Q5: I understand the biotechnologies fall into different stages based on their development, from pre-clinical to FDA approved, have you outlined a specific stage of development that you believe presents Levrett Plc with the most value?
A5: Well there’s not necessarily the specific stage we want to target between early stage and stage III, a combination of factors will go into deciding what specific acquisition we make. However, that said, when you consider that roughly 90% of development costs are incurred at stage III then clearly the hurdle for investing in a technology or a therapy at that point of development would be all the greater. I guess ideally we are looking to identify an early stage II/phase II opportunity where a very significant step change in medicine is possible and where there is an outside market opportunity.
