Omega emerges as direct secondary player

Geneva-based Omega Fund has acquired a portfolio of six healthcare companies from Waltham, Massachusetts-based Atlas Venture in a debut secondary transaction for both firms.

Terms of the deal were not released.

Omega Fund is a Cayman-registered entity advised by Omega Advisors, which is led by Geneva-based Otello Stampacchia, who previously was a life sciences investor for Dutch pension investor AlpInvest Partners (formerly NIB).

The transaction involved the sale of interests in portfolio companies from previous Atlas Venture funds. The interests sold were all life-science related – Cropdesign NV; DeveloGen AG, Entomed SA; Micromet AG; publicly traded Nitromed; and VascA.

Omega was formed specifically to target direct secondary private equity opportunities in the biopharmaceutical and medical device opportunities. In an interview, Stampacchia said that as financing rounds for biopharmaceutical companies in particular become larger and larger, private equity investors in this sector don’t have the capital reserves to support older portfolio companies. “If you don’t participate you’ll be substantially diluted,” Stampacchia said.

Stampacchia said Omega Fund is a traditional limited partnership, but declined to state who the LPs are or how much he has raised. He added that his firm is able to do “pretty sizeable transactions.”

Stampacchia, who has a doctorate in molecular biology, began his career as a healthcare investment banker at Goldman Sachs in London. He joined AlpInvest in 2001 and founded Omega this year.

Omega has three professionals including Stampacchia, who says his firm is about to announce two “major hires” and may open an office in the US.

In a statement, Stampacchia said that direct secondary transactions are “particularly well suited to healthcare companies, with their long product development life cycle and high capital intensity, which can apply some pressure to the traditional venture capital fund length.”

In the past two years, a small crop of specialist firms have emerged with the stated strategy of buying “tail end” or “orphaned” portfolio companies from mature partnerships. Among these firms are several backed by Goldman Sachs, including W Capital and Protostar Partners in New York, and Vision Capital in London.

Stampacchia said his firm had no backing from Goldman Sachs.

He said the Atlas investment was one of many similar deals to follow. “A substantial number of investors that raised large funds [in the late 1990s] will be in the same situation as Atlas,” he said.