Readers of last year’s retrospective will well remember a theme that introduced the interesting dichotomy of MEC in isolation and in juxtaposition with the marketplace in which we toil. We related our continued firm belief that, while the industry contracted, both metaphorically and in reality, relative to investment activity, we saw an opportunity. Voices of doom are only that – voices. Recall our reference to Buffett (Warren, not Jimmy) and his investment philosophy of “never bet against America” and ergo if market sentiment dictates a downcycle – that’s the time to be buying.  We remain committed to the fundamentals of venture capital investing: First, we have the most vibrant, resilient, and innovative economy on the planet. Second, the science produced in America towers over the rest of the world. Third, assemble a top-level investment team and due diligence machine to identify and win the best projects. This is the context in which we ask you to consider the Medical Excellence Capital portfolio as a whole and via each individual company.  As an organization, we are pleased to report that MEC’s 2023 performance can be viewed positively using well-established industry metrics. You will find these metrics in some detail in the recently published MEC 2023 Q4 newsletter available on LinkedIn or on the MEC website – www.medexcelcap.com.

2023 – The Life Sciences/BioTech Market and MEC Working Through It.

Or, as I put it – “When you are going through Hell, keep going” (It was really Winston Churchill…). Building momentum in a historic down year truly tests the thesis and selection abilities of fund managers. I will not for a moment downplay the considerable headwinds we experienced in 2023, not the least of which was finding willing syndicates to fund our promising portfolio. As a matter of fact, we had to unfortunately close one of our portfolio companies that produced only mediocre results in the lab. Mediocre does not cut it. In this market, and quite appropriately in our estimation, only exceptional and measurable results qualify for even minimal syndicate support. So goes the Darwinian Market of 2023. Interestingly, even exceptional companies are having issues finding new funding to propel promising science. This, we cannot understand and as a result call for change in the industry. Medical Excellence Capital remains steadfastly committed to true venture capital – that is, we take significant, well-researched risks in funding companies of high merit, fully expecting high rewards for success.

Normalization of the industry’s economic sentiment and activity seems to have been slowly evolving in the past few months and looks to a more promising 2024. Balanced venture methodologies and practices is critical to the long-term health of life sciences. It is not at all in the interest of the industry to engineer “irrational exuberance to despair” business cycles over relatively short periods of time. For example, poor projects with a wisp of good science could and were easily funded in 2020, whilst very good science in 2023 had a very tough time raising money at all. Cycles such as this are not a good way to remain the most resilient, innovative, and vibrant industry in the largest economy on the planet. A successful ecosystem for developing miraculous new medicines requires great science, many years of toil, a ton of smart, well-reasoned funding, and markets resistant to wild swings in sentiment. Staying power is a key component to a successful prosecution of new medicines. We hope the industry returns to its senses this year and syndicates again begin to collaborate in supporting great science in ever greater numbers.

Within this backdrop, I am quite pleased to report that, after 3 years into our investment process and making 10 investments, 9 MEC portfolio companies continue to produce promising science. That ratio is a very, very good one. I give my partners, Eric, Brian, Kim, and Joni full credit for building the business operations that enable strong portfolio selection. Equally, the management teams of MEC’s portfolio companies are outstanding examples of the steadfastness and toughness needed to drive strong science through roiling waters. Lastly, I want to make a point about the need for consistent, balanced support of strong of science and valuations. Valuations, for an extended period of time, became at least a bit excessive. We actually feel the downward valuation adjustments of the past 2.5 years are helpful to the industry in the long term. Moreover, in the short term, we believe we picked up some very nicely priced companies and believe we can continue to do so over the next few months.

We have lots of data supporting these notions for you to review in our recently published MEC Quarterly Newsletter.

Looking Ahead to 2024

MEC is most certainly a “glass half full” kind of venture capital firm. Our LPs pay us, however, to look at opportunities with withering clarity, and to peer around the corners for unseen or undue risk. This is why we have only made 10 investments while having a deal flow that numbers close to 900 companies. As noted earlier, we see 2024 as a very challenging time that also will present great opportunity. We have several very promising companies that will require greater funding because they have made significant scientific progress. This funding will require MEC to successfully catalyze or participate in syndicate financing. This was extremely challenging for the entire industry last year. And, despite the green shoots of early 2024, we note that the MEC team is working very hard to ensure our portfolio companies have the needed funding to aggressively progress their scientific and operations programs. This will continue to be a combination of both allocating reserves to fund our companies, as well as building like-minded investment syndicates. Regarding reserves, we have no issue whatsoever plowing forward with new funds from the MEC fund reserve pool to fund our best opportunities. One either believes in their programs or one does not. This confidence and leadership often engender others to wade in with us. With respect to syndicates, the MEC team has been expending considerable energy in building effective trusting relationships with high-quality venture capital investment houses. In addition, we are looking to our well-established family office network as potential investors in MEC portfolio companies. We think this would be a win-win scenario for MEC and our closely connected family offices to partner and fund high-quality life sciences companies.

We expect 2024 to be a strong year for the MEC portfolio companies. We very carefully selected our portfolio companies for their individual characteristics, while keeping in mind how they fit within a balanced portfolio. Basically, it is identical to making a very fine wine. Individually, one must select the right grapes, hand-picking and using the judgment of quality that comes with experience. But it is equally essential to craft the right blend to create the whole. This is the essence of our portfolio philosophy. Pick great individual companies, but build the balance needed to maximize return potential and minimize risk.

Many of our companies have very important milestones on the horizon. This is the glass half full. That said, much of these milestones are also contingent upon adequate funding to prosecute the opportunities successfully. This is the world we live in. Fortunately, the MEC investment team has, over the last 20 or so years, seen it all.

Medical Excellence Foundation, Inc. – A moment or two to reflect on the progress of The Medical Excellence Foundation’s MERIT program. Thanks to the generosity of several LPs and MEC team members, we were able to adequately finance a compelling charitable giving program for funding very early-stage experiments at the very best research institutes in the United States. The MEC team has reached out selectively to high-potential programs and conducted due diligence activities on many really great scientific programs. We are pleased to report solid engagement with Weil Cornell, Salk Institute, Cold Spring Harbor Laboratories, the Innovative Genomics Institute at Berkeley (Nobel Laureate Jennifer Doudna), Stanford, UC Davis, and The ALS Core at Columbia. Last year, the Foundation disbursed or committed funding specifically to The Precision Medicine Institute at Weill Cornell Medical College, Cold Spring Harbor Laboratories, and Columbia. We realize the unique and enduring value of using the MEC platform to direct and fund bleeding-edge science through the Foundation. Much more to come!

Those in the Trenches with MEC  – We thank our LPs for believing in our vision and backing it with their hard-earned money. We work every day to build a successful fund as measured by returns and its effect on patient care. I know both are very important to you! Thanks to our incredibly prolific and world-class Scientific Advisory Board – Euan Ashley, Gregg Semenza, Olga Troyanskaya, Steve Tsang, and Doug Wallace. Great appreciation for the achievements of each of the team members within our portfolio companies. Working closely with you this past year has been an inspiration. Warm thanks to the dozens of contributors within the MEC Council. Your considerable experience and wise guidance provide the investment team with invaluable insight into our due diligence.

I generally close the introductory part of the MEC Annual Letter with some thoughts on the MEC team. John Kennedy famously said, “Happiness is the full use of one’s talents along lines of excellence.” We are then a happy team. On the surface, the daily grind of venture capital is just that, a grind, as evidenced by looking at over 900 companies to arrive at investing in 10. On the other hand, the opportunity to work with a cadre of the world’s finest medical research institutes, scientists, and entrepreneurs to build the next generation of meaningful medicines – what better pursuit of excellence? What better way to spend one’s time? This journey is shared with an outstanding, dedicated, and truly delightful team. It is a joy to work with a cast of characters each excellent in and of themselves. Greatest admiration and respect to colleagues Brain Halak, PhD., Eric Heil, Kim Kamdar, PhD., Joni Mancini, John Hornbostel, Esq., Olga Prufeta, and Annabel Stoddart.

2024 marks the 4^th year of investment activity for the MEC Fund. Basically, middle age for a VC investment fund. I close this note with excitement and anticipation of the next year, fully realizing Winston Churchill’s quote “Now is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning”.

On to the next exciting phase and reaping what we sow!

Wishing you all a great year ahead!

Managing Partners – John Prufeta; Brian Halak; Eric Heil; Kim Kamdar; Joni Mancini

Key Contributors – Olga Prufeta; John Hornbostel; Annabel Stoddart