Forming a pharma fund

Index Ventures, GSK and J&J align to make $240 million in venture-capital funding available to life-science companies with early-stage assets

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LONDON—Companies engaged in early drug discovery efforts nowhave a sizable financing pool from which to draw funds, as globalventure-capital (VC) firm Index Ventures has launched what it hails as itsfirst fund solely dedicated to making investments in the life-sciences sector.
Announced in late March, the fund marries Index Ventures' 15years of experience investing in early-stage R&D efforts and theconsiderable resources and experience of large pharmas GlaxoSmithKline and theVC affiliate of the Janssen Pharmaceuticals group from Johnson & Johnson.Representatives from the three companies will comprise a scientific advisoryboard charged with investing nearly $240 million in companies seeking todevelop assets that have first-in-class or best-in-class mechanisms of actionand target areas of unmet medical need.
The unique VC/pharma partnership, intended to stimulatepromising early-stage drug programs, will primarily award funds to Europeancompanies, but the partners also expect to extend funding opportunities to someU.S. companies.
Since 1996, Index Ventures has invested approximately $300million in dozens of life-science companies at seed or growth-stage levels, andthose companies have raised more than $1 billion for their efforts. Currentportfolio 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 includingGenmab A/S, PanGenetics BV (which was later acquired by Abbott LaboratoriesInc., Aegerion Inc., Addex Pharmaceuticals Ltd., ParAllele BioScience Inc.(which was later acquired by Affymetrix), Molecular Partners AG and ProFibrixBV. Index Ventures has also invested in later-stage rounds of financing incompanies such as Micromet (which was recently acquired by Amgen) and AriadInc.
Many molecules discovered in labs financed by Index Ventures are now partof late-stage clinical pharmaceutical pipelines.
"Our sweet spot is investing in new modes of action andinnovative approaches to preclinical drug discovery and development," saysIndex Ventures Partner Francesco De Rubertis. "We have been very lucky over thelast 15 years, and very happy and satisfied with the returns on ourinvestments—but clearly, the game is becoming more and more difficult. New anddifferent molecules are always hard to come by. R&D is becoming moredifficult because regulatory requirements are higher. We wanted to make surethat in the face of these increasing challenges, we could improve theefficiency of the drug discovery engine."
That led to the addition of GSK and J&J as limitedpartners in the fund. The two pharmas will each two senior executives to theSAB: From GSK, Dr. Moncef Slaoui, chairman of research and development, and Dr.Paul-Peter Tak, head of GSK's Immunoinflammation Therapy Area unit; and fromJ&J, Paul Stoffels, worldwide chairman of J&J's Pharmaceuticals Group,and Dr. Bill Hait, global head of research and development. These executiveswill 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 theentrepreneurial community, and that is what we are trying to encourage here ina project-centric, arms-length-based pharma/VC interaction."
The opportunity for GSK and J&J, Slaoui adds, "istwofold. On the one hand, we are exposed to new ideas and talent and theopportunity to get acquainted with them over time. At the same time, if an exitis needed, either we or J&J will be well-placed to know a lot aboutpossible new opportunities."
Index Ventures will maintain full decision-making rights tothe portfolio companies, and the fund rules and procedures will follow previousIndex Ventures financings. Should GSK or J&J choose to license the rightsto a compound backed by the fund, they will have to bid as any other drugmakerwould, and will not receive special consideration, notes De Rubertis.
"We were very keen on this, because we did not want theindustry and entrepreneurs to perceive that we were in any way showing favor toeither 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 ofaction, where a lot of biology has been explored already, or the mode of actioncan be presented already, but the company must have preclinical data to pointtoward some kind of differentiation, such as better efficacy," he says. "We arelooking for great quality of science, innovative preclinical developmentassets, first-in-class or best-in-class molecules and finally, a financingstrategy and business plan approach that is lean and mean and focused on one ortwo assets at a time."
These criteria, he says, "are simply in place because it isdifficult to raise funds if you do not have a novel molecule to develop."
While it is no secret that life-science companies are facingtremendous financing challenges in the current economic climate, De Rubertissays he believes the root of the problem involves issues currently hamperingR&D innovation.
"The industry has tremendous issues today with getting drugsacross Phase II or III approval lines, given that regulatory pathways arebecoming more difficult. Because of those challenges, venture-capital fundingmay become more difficult in the future. This partnership hopes to addressthose challenges by incorporating the wisdom and experience of largepharmaceutical companies and financing experience, which we think will reallyhelp out in the decision-making process for investments," he concludes.

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

The transaction is subject to certain closing conditions,and is expected to be completed shortly after Theravance's annual meeting inMay.

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