BioWorld International Correspondent

MUNICH, Germany - MPM Capital LP, an investment management firm that focuses on health care, closed a $900 million venture capital fund. The company said the fund, MPM BioVentures III, is the largest venture fund dedicated to health care and the largest venture fund raised in 2002.

MPM intends to use money from the fund to invest in biotechnology products, biotechnology platforms and medical technology.

Fund managers will make investments in companies at all stages of development, including private equity offerings from publicly traded companies. MPM will use BioVentures III to make investments of $5 million to $60 million in portfolio companies, with a preferred investment size of $15 million to $25 million per company. The fund will invest in firms in the U.S., Europe and Asia.

"We will be building a balanced portfolio," Ansbert Gadicke, a general partner at MPM, told BioWorld International. "While we do not have a set formula, we expect the investments eventually to be roughly one-third in early stage, one-third in mid-stage and one-third in late-stage companies."

MPM already has made its first pre-investments from the fund. The final closing this week ends a process begun in the second quarter of 2002 when the fund was started. Early investments include ARYx Therapeutics Inc., a private biotechnology company based in Santa Clara, Calif., that focuses on retro-metabolic design for therapeutic products; Tercica Medica Inc., a biotechnology company based in South San Francisco that focuses on therapeutics for hormone-based diseases; and CHF Solutions Inc., a medical device company based in Minneapolis with a novel approach to treating and managing fluid overload in congestive heart failure patients.

Gadicke said that two principles are important for MPM as the company makes commitments from the new fund. "First, we want to be strong lead investors. We believe that it is very helpful for both investors and the company's management to have a strong, single lead." This approach helps to streamline decisions and helps to keep interests closely aligned. "Second, it is critical that the lead investor can support the company through all stages" of its development.

"If we help to start a company, we will earmark approximately $20 million for that company so that we can significantly support later rounds of investment," Gadicke said. The initial investment, he explained, may be much smaller, but MPM will ensure that it has the resources to invest in and support companies in which it is an early investor.

"It wasn't obvious that this [earmark] was important in 2000, but in more normal times it is very important for companies to have strong support from existing investors," he added.

The new fund does not give precedence to investments based on location, Gadicke said. Based on the past strengths of the regions of interest, he expected about 20 percent of the fund's investments to be made outside the U.S.

Asked about the contrarian aspects of investing at a time of widespread pessimism, Gadicke said, "We strongly believe that counter-cyclical investing is successful investing. Raising a huge fund during a bubble and investing at high prices is not successful. Contrast that with raising a large fund when valuations are low."