Celtic Pharma, based in Bermuda but with offices in London and New York, is the only fund of its kind that focuses on buying drugs rather than companies. The firm trawls cash-starved biotech companies for promising late-stage drugs that it intends to shepherd through clinical development. The firm hopes that once the drugs get to approval it will be ableto sell them to big pharmaceutical groups.
"There is a capital drought in the biotech sector and a pipeline problem in the pharma sector," said Mr Mayo, the joint founder. "We're basically arbitraging those two conditions."
Mr Mayo, a former banker, helped demerge Zeneca from ICI and then moved to Marconi, where he led a disastrous acquisition spree. The other founder is Stephen Evans-Frekes, who sold his biotech company, Sugen, to Pharmacia, now Pfizer, for $720m in 1999.
Celtic expects to close its first $500m fund next month, and then plans to raise $500m in mezzanine funds to bring its available cash to $1bn.
Since June, the company has accumulated a portfolio of eight drugs and plans to acquire up to 20 in total. "Measured in that way, it would make us one of the biggest pharmaceutical companies in the world," said Mr Mayo.
The firm's first drug due for approval is a pain-relieving gel for osteoarthritis sufferers. Celtic says it could replace the $5bn in sales that evaporated after Merck's Vioxx was withdrawn and others in its class, such as Celebrex, were forced to add strong warnings to their labels.
The drug's approval in Switzer- land is expected next year and approval in major markets would come in 2008.