Already a staunch advocate of “asset centric” investments, Index Ventures has put more money where its mouth is and brought GlaxoSmithKline and Johnson & Johnson on board for a new €150m ($198m) life science fund, to further test this model of venture capital investing.
While big pharma’s place in the world of venture capital has been established for some time now through various corporate funds, the structure of this vehicle is certainly unique – the two drug giants will contribute half of the financing, and act in an advisory capacity with no special rights over any investment. Kevin Johnson, partner at Index, said the aim was to improve on the asset centric model, in particular helping to pick projects with the most commercial potential.
Mr Johnson said the fund took shape from existing relationships with Glaxo and J&J, with all parties keen to develop a way to improve R&D productivity. It is essentially a standard venture capital fund but with two dominant limited partners, who normally remain anonymous.
Index retains control over investment decisions and will be able to tap the resources of the pharma companies through a scientific advisory board on which Glaxo’s head of R&D Moncef Slaoui and J&J’s head of pharmaceuticals, Paul Stoffels, will sit.
The fund will only make life science investments – an uncommon strategy these days where many VCs have diversified into medical technology and beyond – and the bulk of the projects will be asset centric, Mr Johnson said.
“We’ve learned a lot in the course of doing several asset centric companies, what to do and what not to do, and we’re getting better at doing it, but how do we get even better? This is the next level,” he said.
“The idea is we will be better informed when we make decisions on what companies and what compounds to progress, and how we progress them. Whether a company goes public or stays private, you expect to see late stage molecules in the hands of big companies, so really this is helping us to devise programmes that pass the test of what will be picked up.”
Index is not alone in pursuing the asset centric model but it has certainly adopted it with more gusto that most. By directing funds at one molecule and building a company focused solely on its progress through clinical trials and, normally, into the hands of a bigger partner, the venture firm argues new medicines can be developed in a much more capital efficient way.
Developed as a response to dwindling returns on life science investments that prompted a flight from risk and a torrid time for early-stage companies seeking financing, Index also hopes that should the model prove successful investors can be tempted back into the sector.
Of course the real measure of the success of this model will be the exits – preferably in the shape of licensing deals or acquisitions – allowing investors to make a profit. So far these have been few and far between - Index’s biggest win to date has been the sale of PanGenetics’ anti-NGF antibody PG110 to Abbott Laboratories for $170m, which happened back in 2009 (PanGenetics cashes in on Abbott's early stage bet, November 13, 2009).
Many will want to see a clear rise in the rate of deals like this, before declaring this model a confirmed success. No doubt Index is also hoping for more triumphs like PanGenetics (EP Vantage Interview - Index awaiting further validation of asset centric model, March 16, 2011).
But as evidence is awaited, Mr Johnson remains convinced the model is viable, and hopes it can be improved upon with big pharma’s help.
“So far it’s been working well in terms of successful calls about when to go through phases [of clinical development]. Our success rate is good, better than industry average. The question is will this make us better - it should definitely make us more commercially relevant,” he said.