Frazier Healthcare Partners raises $617M fund to invest in life sciences companies

The firm also made a series of promotions, including Dan Estes to General Partner

Developing new drugs isn't easy, or cheap; in fact, the cost of bringing a new drug to market has been estimated to be over $2 billion. Yet, that's one of the main areas of focus for venture firm Frazier Healthcare Partners.

The firm has a dedicated life sciences team, led by Patrick Heron, James Topper and Dan Estes, investing in therapeutics-focused companies that develop and commercialize pharmaceuticals. On Thursday, Frazier announced that it made a number of promotions, including Estes, has been at the firm since 2011, to General Partner, while also unveiling that it closed its latest fund, Frazier Life Sciences X, with more than $617 million in capital commitments.

With this, the firm, which was formed 29 years ago, has now raised roughly $4.8 billion in total.

"We do two things at Frazier: we have a private equity group based up in Seattle that invests in profitable healthcare services and pharmaceutical services companies; we call it a growth buyout strategy. I work on our life sciences venture team, based in Menlo Park, and we invest in early stage companies, developing novel therapeutics," Estes explained to me in an interview.

While this is the twelfth fund for Frazier, it's only the third that is dedicated specifically to life sciences. The first fund, raised in 2016, was $262 million, and the second was a $419 million fund raised in 2018. Prior to that, the company would invest in both prongs out of the same fund. The reason for the split, Estes said, was that the two sides of the firm had very different investing strategies.

"Creating separate funds dedicated to growth buy out and to life sciences was a function of the fact that investment strategies and mindsets are pretty different between a late stage buyout fund, and an early stage venture fund. We basically realized that to really grow the firm it made a lot more sense to separate into two separate funds," he said, noting that have a dedicated fund also allowed the life sciences division to bring on more institutional LPs. 

"A lot of the LPs who had supported us historically stuck with both strategics, but we were also able to bring in new investors in our funds who wanted specifically that strategy. In our first dedicated life sciences fund, we were able to attract some really high quality institutional investors, who have stuck with us across all of our life sciences specific funds, and, in our most recent fund, the vast majority of the fund was taken up by insiders, although we did add several high quality investors who were looking to add their exposure to this sector." 

A strategy of creating new companies

When it comes to its life sciences division, Frazier invests in three types of companies: early-stage venture, late private/public opportunities, and companies that it creates itself. The last group are generally involving spin-outs from larger biopharmaceutical companies, and they represent around half of the firm's investments, while 30 percent are other private deals, and 20 percent are public companies.  

"We are able to spin out a drug that is not being developed, for whatever reason, at a company, create a new company around it, then also bring in a team who can focus on developing that asset to make the company successful," Estes told me. 

"We’ve got a group of entrepreneurs in residence and venture partners who are focused on talking to every pharma company, understanding what’s available, sometimes even proposing drugs that are in their pipeline that we think could make sense for a new company, and then working to spin those drugs out and form new companies."

Frazier has created 24 companies in the past 15 years, and 14 of them have been formed in just the last five years alone. One of the most recent ones, for example, was Phathom Pharmaceuticals, a spin-out from Japanese pharma company Takeda, thanks to Frazier venture partner Tachi Yamada.

"Tachi was one of the most senior R&D executives in the world. Before joining Frazier, he was the head of R&D at Takeda, so he knows the Takeda pipeline extremely well, he developed quite a few drugs in that pipeline, and one of the drugs he developed was a drug that treats acid-related gastrointestinal disorders. It basically goes after H. pylori and other very common diseases," said Estes.

"He developed drug in Japan, and it’s an extremely good drug that treats acid-related disorders, but he also knew that Takeda was not developing this molecule in the US and Europe. That was for various reasons, but they were choosing not to do so. So, for the past few years, he has been trying to convince Takeda, now that he’s at Frazier, to spin that drug into a new company that he would help to run and get started. After several years of having this discussion, Takeda, this year, was ready to do that."

Having that connection to Takeda gave Frazier "unique access," and it also allowed the firm to spin out the drug with Phathom, which went public last year. 

Another company that Frazier formed is one called Mavupharma, which was acquired last year by Abbvie. In this case, the idea to form the company came from one of Frazier's clinical advisors, who often have decades of experience in the pharma space. 

"One of our advisors, together with a former employee at one of our companies, came up with a target that had just been described in literature. They read journals all the time and they said, ‘We think that this target could be relevant for oncology,’ and it was in a very hot pathway at the time called STING, that we knew that if you had a drug that had a certain profile on this pathway it would be attractive," said Estes. 

Mavupharma was seeded with $1 million from Frazier, which was put toward understanding if the target was druggable, and if it would have the biological effects in cells that Frazier believed it could. Once those were proven, it was funded with a Series A round to invest more in the chemistry and biology, after which Abbvie came in and bought it. 

"Ideas come from all over the place, so it’s really important to have a broad set of people who are looking, have ideas, are following the literature, and our job as investors is to pick which ideas to go after. That's what we’ve done pretty successfully over past funds, especially life sciences funds," said Estes. 

Frazier expects to invest in around 8 to 10 companies a year, the vast majority of which will be private investments, at $30 to $40 million each.

Growing the team

In addition to promoting Estes to General Partner, Frazier also announced a series of promotions, including Jamie Brush to Partner; Gordon Empey to Partner and General Counsel; Aditya Kohli to Principal; and Liz Park to Vice President of Investor Relations.

Brush has been with Frazier since 2016, and has led investments in companies that include Krystal Biotech and Translate Bio. Empey, who joined in 2017, was previously a partner with biotechnology and technology law firm Cooley LLP, while Kohli, who joined the Frazier Life Sciences team in 2016, co-founded Phathom Pharmaceuticals and Scout Bio.

Park originally joined Frazier in 2003, and re-joined the firm in 2015, helping to raise nearly $1.3 billion across the three Life Sciences funds.

"I think Frazier is really unique in the investment world, especially in life sciences, because we are very focused on development of people, and we’re also very willing to promote people when they perform. A stat that we’re really proud of is Frazier, both on the life sciences and the growth buy out side, is that seven of the 10 partners in the firm started as associates and worked their way up. So, developing people is a huge focus of what we do," said Estes.

"For me, going from partner to general partner, obviously I’m very thankful that the firm continues to believe in me, and has invested in my development. I’ve been involved with a number of successful deals we’ve done, and I particularly enjoy working on the early side, so Series A deals and company formation, and the promotion is an opportunity to keep doing more of that."