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Forming a pharma fund
May 2012
by Amy Swinderman  |  Email the author


LONDON—Companies engaged in early drug discovery efforts now have a sizable financing pool from which to draw funds, as global venture-capital (VC) firm Index Ventures has launched what it hails as its first fund solely dedicated to making investments in the life-sciences sector.
Announced in late March, the fund marries Index Ventures' 15 years of experience investing in early-stage R&D efforts and the considerable resources and experience of large pharmas GlaxoSmithKline and the VC affiliate of the Janssen Pharmaceuticals group from Johnson & Johnson. Representatives from the three companies will comprise a scientific advisory board charged with investing nearly $240 million in companies seeking to develop assets that have first-in-class or best-in-class mechanisms of action and target areas of unmet medical need.
The unique VC/pharma partnership, intended to stimulate promising early-stage drug programs, will primarily award funds to European companies, but the partners also expect to extend funding opportunities to some U.S. companies.
Since 1996, Index Ventures has invested approximately $300 million in dozens of life-science companies at seed or growth-stage levels, and those companies have raised more than $1 billion for their efforts. Current portfolio companies include Acutus Medical, Cellzome, Profibrix, Cyrenaic, Funxional Therapeutics, Sonkei, Molecular Partners, Mind-NRG and Novocure. Index Ventures has been involved in the start-up rounds of companies including Genmab A/S, PanGenetics BV (which was later acquired by Abbott Laboratories Inc., Aegerion Inc., Addex Pharmaceuticals Ltd., ParAllele BioScience Inc. (which was later acquired by Affymetrix), Molecular Partners AG and ProFibrix BV. Index Ventures has also invested in later-stage rounds of financing in companies such as Micromet (which was recently acquired by Amgen) and Ariad Inc.
Many molecules discovered in labs financed by Index Ventures are now part of late-stage clinical pharmaceutical pipelines.
"Our sweet spot is investing in new modes of action and innovative approaches to preclinical drug discovery and development," says Index Ventures Partner Francesco De Rubertis. "We have been very lucky over the last 15 years, and very happy and satisfied with the returns on our investments—but clearly, the game is becoming more and more difficult. New and different molecules are always hard to come by. R&D is becoming more difficult because regulatory requirements are higher. We wanted to make sure that in the face of these increasing challenges, we could improve the efficiency of the drug discovery engine."
That led to the addition of GSK and J&J as limited partners in the fund. The two pharmas will each two senior executives to the SAB: From GSK, Dr. Moncef Slaoui, chairman of research and development, and Dr. Paul-Peter Tak, head of GSK's Immunoinflammation Therapy Area unit; and from J&J, Paul Stoffels, worldwide chairman of J&J's Pharmaceuticals Group, and Dr. Bill Hait, global head of research and development. These executives will join as five Index Ventures-appointed executives, including De Rubertis, Kevin Johnson, Michele Ollier, Roman Fleck and Remy Luthringer.  
"We had a strong philosophical and intellectual alignment," says GSK's Slaoui. "We strongly believe the market needs to govern the entrepreneurial community, and that is what we are trying to encourage here in a project-centric, arms-length-based pharma/VC interaction."
The opportunity for GSK and J&J, Slaoui adds, "is twofold. On the one hand, we are exposed to new ideas and talent and the opportunity to get acquainted with them over time. At the same time, if an exit is needed, either we or J&J will be well-placed to know a lot about possible new opportunities."
Index Ventures will maintain full decision-making rights to the portfolio companies, and the fund rules and procedures will follow previous Index Ventures financings. Should GSK or J&J choose to license the rights to a compound backed by the fund, they will have to bid as any other drugmaker would, and will not receive special consideration, notes De Rubertis.
"We were very keen on this, because we did not want the industry and entrepreneurs to perceive that we were in any way showing favor to either GSK or J&J," he says.
The partners have two different conditions for investment, explains De Rubertis: "Either the company must have a completely new mode of action, where a lot of biology has been explored already, or the mode of action can be presented already, but the company must have preclinical data to point toward some kind of differentiation, such as better efficacy," he says. "We are looking for great quality of science, innovative preclinical development assets, first-in-class or best-in-class molecules and finally, a financing strategy and business plan approach that is lean and mean and focused on one or two assets at a time."
These criteria, he says, "are simply in place because it is difficult to raise funds if you do not have a novel molecule to develop. "
While it is no secret that life-science companies are facing tremendous financing challenges in the current economic climate, De Rubertis says he believes the root of the problem involves issues currently hampering R&D innovation.
"The industry has tremendous issues today with getting drugs across Phase II or III approval lines, given that regulatory pathways are becoming more difficult. Because of those challenges, venture-capital funding may become more difficult in the future. This partnership hopes to address those challenges by incorporating the wisdom and experience of large pharmaceutical companies and financing experience, which we think will really help out in the decision-making process for investments," he concludes.

GSK increases ownership in Theravance
LONDON—GlaxoSmithKline PLC (GSK) also announced in April that it has entered into a stock purchase agreement to acquire 10 million shares of common stock of biopharmaceutical company Theravance Inc., at a price of approximately $21.30 per share. The investment increases GSK's ownership in Theravance from approximately 18.3 percent to approximately 26.8 percent. GSK's total investment in the transaction is approximately $212.9 million.
The price per share was determined based upon a 7.5-percent premium to the volume-weighted average price per share of Theravance's common stock over the five-day period ending March 30, which was approximately $19.80.
The companies have worked together since November 2002, when Theravance entered into a long-acting beta2 agonist (LABA) collaboration with GSK to develop and commercialize a once-daily LABA product candidate, either as a single agent or in a combination medicine, for the treatment of asthma and/or chronic obstructive pulmonary disease (COPD). The inhaled corticosteroid (ICS)/ LABA combination, Relovair, has now completed its Phase III development, and GSK intends to submit regulatory applications for COPD in the United States and Europe sometime this year. For asthma, GSK also plans to submit an application in Europe in mid-2012 and will continue discussions with the U.S. Food and Drug Administration on the regulatory requirements for a U.S. asthma indication. The long-acting muscarinic antagonist (LAMA)/LABA program is in Phase III development in COPD.
In March 2004, the companies also entered into a strategic alliance under which GSK has licensed a Bifunctional Muscarinic Antagonist-Beta2 Agonist (MABA) for the treatment of COPD. This program is currently in Phase II development.

The transaction is subject to certain closing conditions, and is expected to be completed shortly after Theravance's annual meeting in May.
Code: E051204



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