Foresite Capital’s ambitions swell with $969 million healthcare fund

Foresite Capital’s latest $969 million fund represents a rare feat among growth equity firms: only a handful of investors—including Arch Venture Partners and Flagship Pioneering—have raised comparable or larger sums for life science vehicles in recent years, according to PitchBook data.

But at just a decade old, Foresite is far younger than Arch and Flagship, which have each launched dedicated life science funds larger than $1 billion in the past year. The San Francisco firm now oversees $4 billion in assets and is led by CEO and founder Jim Tananbaum.

The oversubscribed fund, the firm’s fifth, comes at a time of change for Foresite, which is growing an incubator program and has launched itself into the SPAC market both as a blank-check company sponsor and investor. The fundraising also coincides with a pandemic that has seen investors flock to innovative life sciences companies.

“We think COVID is going to fundamentally change the healthcare landscape at least for the next three to five years,” said Michael Rome, managing director and co-lead of the firm’s therapeutics investing division.

Foresite has invested in several diagnostics and therapeutics companies that are targeting COVID-19, including Everlywell and Cue Health. It also backed 10x Genomics in the biotech company’s Series A and has invested in other standouts like MyoKardia and Lyell Immunopharma.

The investment firm also benefited from a flood of initial public offerings in 2020. Foresite recorded more than a dozen IPOs of portfolio companies in the past year, including Relay Therapeutics and vaccine company Vaxcyte, according to PitchBook data. The burst in activity brought Foresite’s total exits via IPO to 37, Rome said.

One of its portfolio companies, Kinnate Biopharma, also went public last year in a deal that exemplified Foresite’s stage-agnostic approach.

Foresite built the cancer drug maker from scratch three years ago with its own cash as well as in-house expertise, which includes a roster of more than two dozen staff with MDs or PhDs. The firm continued to reinvest when Kinnate went on to raise capital from OrbiMed and RA Capital, and it was one of the largest backers of the startup’s December IPO.

Rome sees this long-term approach as vital to capturing the value of life sciences startups.

“When you have long-term winners, especially in biotech, one of the worst things you can do is sell too early,” he said.

Foresite hopes to recreate the success of Kinnate with Foresite Labs, an in-house incubator that launched in 2019 and recently spun out its first company, synthetic biology startup Sestina Bio.

To lead the incubator, Foresite recruited Vikram Bajaj, who was the chief scientific officer at cancer detection company Grail and co-founder of Alphabet’s life sciences arm Verily. Foresite Labs is currently developing five companies and expects to launch a “steady stream” of startups in the next three years, Rome said.

At the opposite end of the startup investing spectrum, Foresite has jumped into the SPAC market by launching two blank-check companies. The first completed a merger with Gemini Therapeutics earlier this month, and the second, FS Development Corp. II, raised $175 million in an IPO last week.

The venture firm also invested in blank-check deals for 23andMe and Quantum-Si by joining the PIPE rounds that accompanied those mergers.

Rome sees the entrance into SPACs as a natural evolution for a firm that frequently invests in pre-IPO crossover rounds. By combining new institutional fundraising with a merger that takes the target company public, SPACs can give healthcare startups a compelling IPO alternative, he said.

Foresite also occasionally invests in public companies, taking stakes in Aclaris Therapeutics and Kura Oncology. What remains consistent about the firm’s investments is its focus on companies in Phase I or II of drug development, Rome said.

Source: Pitchbook