ABOUT THE HOPKINS CAPITAL GROUP

Johns Hopkins was a successful Baltimore entrepreneur whose business fortune helped start a world class university. The principals of The Hopkins Capital Group are committed to the entrepreneurial spirit of Johns Hopkins, recognizing that the fruits of tomorrow's success have their origins in the seed capital of today.

Another historical figure who inspires us is JP Morgan. His venture capital investing supported Thomas Edison, and eventually this stream of innovation gave birth to General Electric. But what really inspires us about JP was his commitment to fairness. Typically, if an associate of JP’s sat on the board of a company, investors felt there was a commitment to “doing the right thing”. This commitment to fairness is really the foundation upon which our partners invest with us and upon which we deal with principals and shareholders in our portfolio companies.

The principals at The Hopkins Capital Group have been early stage venture capitalists for high tech health companies, many of which have gone on to be publicly traded with a combined market capitalization in excess of one billion dollars.

Our 16 years of principal experience in startup medical companies has provided us with the ability to anticipate and respond to the spectrum of challenges facing early stage medical enterprises, such as capitalization, management, regulatory (device and drug) compliance, domestic and international intellectual property, mergers and acquisitions, audits, investor relations, IPO, SEC, etc. We have helped management deal with adversity such as alleged patent infringements, strike suits, and aggressive shorts.

A hallmark of our participation is first hand experience with the core technology. As part of our due diligence, it is typical for us to purchase the service, the medical technology, etc. in order to develop a complete familiarity with the core competence. We have often been able to assist in product development, emphasizing those user and performance features that help to carve out market share upon commercialization.

In some cases, the participation of our group has helped launch an entire new industry. A case in point is the laser refractive marketplace. Our private placement participation in VISX, Inc. in 1988, our subsequent arrangement of its IPO the following year, our participation as the first clinical research center, and out comparative quantitative studies helped VISX become the leading manufacturer of excimer lasers for photorefractive keratectomy in the USA, with over 70% market share in 1998.

Our commitment of personal monetary and human capital flows naturally from our carefully researched assessment of the core competency.

 

RISK MANAGEMENT

In modern portfolio management, there is a recognition that diversification into asset classes that have low correlations with each other achieves a portfolio with typically less risk and greater return than a single asset class within the portfolio.

This modern approach recognizes that risk management is of paramount importance in creating wealth. In fact, the single most important benefit of diversification across multiple asset classes, including the alternatives, is the blunting of the downside swings of the portfolio value. It is this downside volatility that reduces investment returns expressed as compounded annual returns compared to “average annual returns”

In other words, the main difference between a high compounded annual growth rate and a low compounded annual growth rate is essentially that the former has managed to limit its downswings in valuation compared to the latter. Sure it helps to have greater upside, but that will not mean much if there is significant downside volatility.

Risk management means protecting the downside and in particular it means limiting the risk of loss of capital. Most investors are more powerfully motivated by loss aversion than the chance for a gain. This can be accomplished through two means. Prospectively, by picking investments that are more likely winners than losers, and real-time by managing crises that threaten to impair the value of the investment.

These principles of portfolio management (which is really risk management) can be applied to investments in biopharmaceuticals at the single entity level. Simply substitute portfolio companies for asset classes, and products for uncorrelated assets.

At Hopkins Capital, we are focused on risk management. We limit risk prospectively by investing in healthcare technologies that are disruptive, which means that upon FDA approval, they compete against non-competition. These kinds of technologies are based on a paradigm shift in pathogenesis, diagnosis, and/or treatment so they typically are tremendously undervalued due to skepticism in response to adherence to the old paradigm. We carefully research and vet the paradigm shift, then try to identify therapeutics based on already approved active pharmaceutical ingredients to further limit risk. As opposed to investing in new paradigms using already approved drugs, new chemical entities (NCEs) are simply too risky for us because we can't accurately gauge efficacy and toxicity. In addition, we can apply proprietary bioinformatics analysis and modeling procedures developed by Dr. Carlos Santos and our biostatistical team to assist in the exhaustive analysis of early clinical trials. These are the clinical studies that lead up to a pivotal phase 3 trial. Whereas most groups rely upon simple review, we go beyond that. We analyze the raw data of these early stage trials looking for correlations and predictive factors and then extract meaningful insight that helps us validate the paradigm shift and to optimize phase 3 trial design for success. We then use these same tools to assess the likelihood of success during the course of pivotal phase 3 trials while they are still blinded.

Within each invested company, we also build product pipelines that are diversified and uncorrelated, meaning that the products are not all based on the same platform technology. Beyond just a prospective approach to risk, if we sense that risk in a portfolio company is building, we are quick to diversify the pipeline either thru in-licensing or merger-acquisitions. Capital formation for these ventures can be extremely dilutive if based on current valuations so structuring financings that can be redeemed and thereby limit the risk of dilution is of paramount importance.