BusinessTN

“It started on the unhappy note of prostate cancer,” says J.R. “Pitt” Hyde III, the co-founder of AutoZone and general partner/major investor in MB Venture Partners. Despite the ominous beginning, Hyde’s current surroundings suggest the tale ends on a happier note than it begins.

More than 10 years after his initial diagnosis, Hyde sits in the corner office of an old factory he recently renovated. Located on the bank of the Mississippi river in downtown Memphis, the building sports thick, tempered glass panes on the outside and sophisticated art lining exposed concrete and brick walls on the inside. It exudes an aura like that of a corporate headquarters plucked from a hip business district in San Diego or Boston. “One thing led to another,” Hyde continues, “and I learned about the opportunity we had here in Memphis to develop [the biotech] industry.

“One thing led to another,” indeed. But while countless individuals everyday come face-to-face with their own mortality, seldom do such moments of private crisis translate so directly into industry transformation. The diagnosis of the then-53-year-old Memphian, whose net worth was fast approaching $1 billion, signaled the beginning of a biotech burgeoning in West Tennessee.

This was not the first time illness had profoundly changed Hyde’s life. In 1968, his father’s grave illness left Hyde in charge of the wholesale grocery business Malone & Hyde. Instead of running the company into the ground, or selling it, as many a 26-year-old might have done in his stead, Hyde worked hard, taking the chain public eight years later. And he didn’t stop there. In 1979, in an effort to diversify and thereby offset the dangers associated with the slim margins of grocery sales, Hyde opened an auto parts division. The move was inspired by the advice of a friend who had observed that people gripe about the most minute changes in grocery prices, yet seldom ask about prices when shopping for car parts. It was advice well-taken, as it signaled the birth of AutoZone, America’s premier auto parts retailer, which generates $6 billion a year in revenue, employs 30,000 people, and boasts a share price that reached its 52-week high of $132.92 in April.

Hyde modeled the AutoZone culture of driving down suppliers’ prices and scrutinizing local markets after Wal-Mart. (Sam Walton sat on AutoZone’s board.) In the early 1980s, he retained buyout powerhouse Kohlberg Kravis Roberts to buy back Malone & Hyde for $589 million when its market value was just $180 million. When Hyde and KKR sold the grocery chain to Fleming Cos. for $600 million eight years later, he and KKR ended up owning AutoZone, which by then was a stand-alone operation, for nothing.

While much has been written of the hard work and vision that went into building AutoZone, from one perspective its story can be summed up as follows: One man’s illness transforms an industry. In this sense, in a doctor’s office 28 years later, history was about to repeat itself.

Hyde reacted to his prostate cancer diagnosis by bringing to bear the resources one would expect from a multi-millionaire businessman. He traveled to the Mayo Clinic and Johns Hopkins University, intent on getting the best medical advice and treatment possible. There, Dr. Patrick Walsh of Johns Hopkins’ urology department told Hyde that if he wanted the best surgeon available to operate on him, he needed to turn around and go back to Memphis. Dr. Mitch Steiner, who had trained under Walsh, was currently on the faculty of the University of Tennessee Health Science Center. The surgery was a success, but rather than traveling the world, hitting the golf course 24-7 or retreating from public life to better enjoy the simple things, Hyde decided to do something to help others in the fight against the disease he had survived.

Hyde became an angel investor in Steiner’s biopharmaceutical company, GTx, elevating Steiner to CEO, and providing the funding needed to keep GTx local and the reputation to grow it. It was the first pebble down the hill in the formation of Hyde’s Memphis Biomedical Venture Partners and the raising of millions in new cash for GTx.

When it came to increasing biotech in the Bluff City, Hyde was not starting from scratch. Memphis had outposts of spinal implant maker Medtronic Sofamor Danek and British orthopaedic giant Smith & Nephew. Hyde rounded up a group of biotech-savvy, business-minded people to start the Memphis Bio- works Foundation “to create more GTx’s, to take something from the lab for commercialization,” Hyde says.

Just as Hyde was turning his attention toward building a venture capital firm to focus on biotech investment, Gary Stevenson, a talented Morgan Keegan alum, was arriving from Missouri to interview for a job at GTx in 2001. Stevenson came to Steiner’s company seeking the same vibrant and fraternal environment present at Morgan Keegan before its merger with Regions Bank, but Hyde had other plans for him. “We were impressed with his background,” Hyde says. “He seemed like a natural fit for the venture firm.”

Six years later, Stevenson oversees MB Venture Partners and its two funds of $76 million and $54 million. The success of the first fund, which invested in GTx and Nashville-based BioMimetic, caused out-of-state pension funds and other high-stakes investors to take notice. “Musculosceletal disease is to Memphis what hospital management is to Nashville,” says Stevenson, who considers Memphis the only logical place in the United States in which to organize a musculosceletal-focused VC firm.

Reviewing roughly 250 business plans a year, and investing, on average, in only four companies, Stevenson says he and his partners Mike Sherman and Steve Snowdy are “in the business of saying ‘no’ a lot.” But given the hundreds of millions of dollars that biotech companies usually need for research, coupled with the typical morass that is the approval process at the Food and Drug Administration, biotech investing requires plenty of due diligence. GTx alone, for instance, burned through $104.1 million between 2003 and 2006. (The company went public in 2004, raising nearly $80 million.)

But as GTx awaits approval of its prostate cancer drug Acapodene and muscle- and bone-strengthening drug Ostarine, its future should not worry Stevenson too much. After all, MB Venture exited its shares in GTx at a profit last December. Two months later, the fund sold its stake in BioMimetic, also at a profit. “A very attractive return to our limited partners on both of those companies,” Stevenson adds.

Even with those two companies off his plate, there remains plenty to do. On a typical day in early spring, Stevenson finds himself reviewing 10-12 business plans, which he gets from other venture firms, investment banks or the entrepreneurs themselves. There is always a board meeting or two that requires his attendance. (Stevenson and gang sit on the boards of 11 of MB Venture’s 12 portfolio companies.) That’s about 90 days a year just attending board meetings, but Stevenson says he and his partners prefer to be more involved than some other firms might want to be. If a firm is having trouble getting a drug or technology approved, MB Venture Partners might just have what the doctor ordered: “We know several doctors in the spine industry and some in orthopaedics,” Stevenson says. “We’ve been down the road a few times on regulatory strategies.” Also of value is the fact that both Smith & Nephew and Medtronic Sofamor Danek are investors in MB Venture.

Although he has free reign in investing, Stevenson says he and Hyde (who is not part of the MB Venture investment committee) sometimes chat about broad ideas for the fund. And of course, MB Venture benefits greatly from Pittco Management, Hyde’s family office, which is run by John Pontius.

Temporarily housed in an office a few steps away from Hyde’s, Stevenson echoes a sentiment shared by many business titans in Tennessee who know Hyde: “I’m not sure if I were in his shoes I’d be doing what he’s doing.”

More than a decade into his new lease on life, Hyde keeps expanding his influence. Already a part of the group that owns the Memphis Grizzlies, an NBA franchise that Hyde helped recruit from Vancouver, it has been reported that he is in talks to buy the team outright. Then there is the charter school project. Through the Memphis Bioworks Foundation and the Hyde Family Foundation, led by his wife Barbara, Hyde helped launch the first charter school in Memphis, which is now gearing up to open the 11th and 12th grades. In the midst of Hyde’s numerous business pursuits, he still finds the time to be a father to three young children. (Twins Alex and Claire were born after Hyde’s prostate surgery.)

Clearly, a lot can happen in 10 years. Companies can be built and funds invested. And a story that began on the “unhappy note of prostate cancer” can conclude as a tale of the transformation of Tennessee’s biotech industry.