Frazier Healthcare Ventures, one of the nation's largest biotech venture-capital firms, is building its largest investment fund yet and already has gathered more than half of the...

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Frazier Healthcare Ventures, one of the nation’s largest biotech venture-capital firms, is building its largest investment fund yet and already has gathered more than half of the $450 million it aims to collect.


The Seattle-based firm has raised $267 million toward the fund, including a contribution from the giant California State Teachers’ Retirement System, according to a filing with the Securities and Exchange Commission.


A spokeswoman for Frazier declined to comment, citing SEC rules against public comment until fund raising is completed.


The fund would be Frazier’s fifth since 1991, when the firm was started by Alan Frazier, the former chief financial officer of local biotech pioneer Immunex. Once completed, the fund would bring the firm’s total capital under management to $1.2 billion.


It would also cement Frazier’s status among the nation’s top 10 specialized health-care venture investors, with the likes of MPM Capital, Versant Ventures and Oxford Bioscience Partners.


Locally, a $450 million fund would rank among the largest ever raised in the region.


Frazier Healthcare has a reputation for skillful evaluation of biotech and medical-device companies, though its financial performance doesn’t stand out.



Frazier’s earlier funds from 1996, 1998 and 2001 all show negative returns on investment, according to interim statistics from one of its backers, the Washington State Investment Board. Of the 58 funds in the state investment board’s venture-capital portfolio, 40 showed positive returns as of June 30.


Such results aren’t entirely unusual. Biotech funds typically take a long time to pay off — usually five to six years — because biotech companies are trying to solve extremely daunting problems, and must build evidence over years of human testing to see if new ideas for drugs or devices really work.


Robert Nelsen, managing director with Arch Venture Partners in Seattle, who has often co-invested with Frazier, said the firm is succeeding because institutional investors such as the California State Teachers want to diversify through investing in health care, and only a few venture firms are truly qualified to do it.


Frazier has five partners with medical degrees or scientific doctorates, and others with experience in managing startup companies.


“What big investors do is invest in a team; you hire a team to invest money in this sector, and [Frazier] has a good team,” Nelsen said.














Big investments that have yet to pay off




The rates of return shown for Frazier Healthcare Ventures are interim figures as of June 30, and will change as its portfolio companies mature. As a rule, biotech funds take longer to mature than technology funds, typically five to six years.


Fund % return


1996 fund -0.1


1998 fund -13.9


2001 fund -6.4


Source: Washington State Investment Board

The new infusion into Frazier Healthcare won’t necessarily be a boon to home-state companies. The firm says on its Web site that of the 75 companies it has invested in, 15 have been from Washington and 39 from California. The local portfolio includes ZymoGenetics, Corixa, Trubion Pharmaceuticals and Calypso Medical Technologies. Overall, the fund says, 19 companies it has backed have gone public.


The Washington State Investment Board, a $57 billion fund that manages retirement nest eggs for the state’s public employees, will consider investing in Frazier’s fifth fund early next year, said the executive director, Joe Dear.


He said it’s still too soon to judge the performance of the earlier Frazier funds, and 10 years is a better period for evaluating them. Dear said Frazier is impressive partly because it is well-connected with top firms in Silicon Valley, which have the inside track on the best-regarded emerging companies.


“We think very highly of Alan Frazier and the firm,” Dear said. “They’ve got a national franchise in the life-sciences sector. They have the capability to get into the very best deals, which is important.”


Tom Ranken, chief executive of VizX Labs, a Seattle-based computational biology startup, said he doesn’t think Seattle’s biotech companies stand to receive windfall investment dollars anytime soon.


Ranken, whose company has received angel financing but not venture capital, says the number of venture investments in Washington-based biotech startups has been dismal the last four years. By his count, just 15 Washington-based biotech and medical-device companies have been founded with venture capital during the last five years.


Only one of those local startups, Trubion, received founding capital from Frazier.


“It’s clearly an Achilles heel of biotech here locally,” Ranken said. “There’s hardly any biotech venture capital here in town for early-stage companies.”


Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com




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