Karolinska Development, the investment arm of Sweden’s Karolinska Institute, has been busily spinning out its portfolio companies, most recently Pharmanest and XSpray Microparticles. Its new chief executive, Jim Van heusden, is trying to sharpen the group’s focus, and while this means some divestments, he tells EP Vantage that his company will be staying with others for the long haul, and in a break with former strategy it will invite other investors on board too.
“In the past Karolinska were doing everything themselves,” Mr Van heusden says. “Life science and bioscience is a risky business, it’s long-term, it has high financial requirements and capital needs. It is better to share that risk with other people … in syndicates.” But, worryingly for the medtech sector, Karolinska will only consider early-stage investments in biopharma companies. “We won’t be doing early-stage medtech,” he says.
Karolinska Development is an independent fund that gets first look at the technologies emerging from its namesake institute and decides whether to invest in them. But it also looks beyond, with Mr Van heusden saying he is agnostic about where technologies come from as long as they will be good enough to attract interest from other investors and allow the formation of a syndicate.
The company specialises in the Nordic region – fertile ground, according to Mr Van heusden: “I see potentially a very prominent role for us as there are not many players in the Scandi region who are doing this early-stage investing.”
And VC funds’ unwillingness to invest in companies at the earliest stages creates an opportunity for investment groups specialising in the Nordic area, he says. But, while biopharma start-ups might be able to work with Nordic investors like Karolinska and Novo Seeds, their medtech peers will, as usual, find it trickier.
Karolinska’s current portfolio is around two thirds biopharma to a third devices, and in general the medtech companies are at a later stage. One example is OssDsign, which makes cranial implants to repair skull defects, and is already selling them in Sweden, Germany, the UK and Spain. Here, Karolinska wants to expand its sales efforts, bring the company to break-even and then seek an exit.
The example Mr Van heusden gives of a good biopharma investment is nowhere near market. Dilaforette is soon to enter phase II with its project for sickle cell disease. Sickle cell being an orphan indication, the trial will be cheap and quick to run – results are expected by the middle of next year – but it is salutary that medtech start-ups are once again denied the opportunities routinely offered to biopharma.
“Therapeutics are higher risk, higher return. In medtech, for companies close to commercialisation or which have a product they are commercialising, it’s not a matter of technical risk any more, it’s a matter of marketing. That’s less risky and still gives you a very decent return,” he says.
He is considering looking into other areas beyond traditional devices, such as diagnostics or e-health. These are perennially popular for investor cash, tending to offer high returns for relatively little up front.
Mr Van heusden says that, while venture cash in general is scarce at the earliest stages, start-ups can take advantage of the increased activity shown by corporate VCs in healthcare, an unmistakable trend over the past couple of years. Forendo Pharma, a Finnish company developing therapeutics based on sex hormones and founded by Karolinska and Novo Seeds, received funding from Merck Serono Ventures and Novartis Venture Funds.
Mr Van heusden says corporate VCs participate in most of the early financing rounds for European companies – but they are not all alike.
“You have two kinds: one that is purely financially driven, they will look at the opportunity like a standard VC. Then there are those that have a strategic motive as well. In their investment theses there will always be a strategic aspect: could this be of interest to us in the end? Would we acquire this company?”
Roche and MedImmune Ventures, he says, are financial investors, whereas Merck Serono tends to have a more strategic aspect. Overall there are more strategic corporate VCs than purely financial ones.
He has an interesting piece of advice for companies looking for corporate VC backers: make sure to snare more than one in a round. That avoids putting across the image that the start-up is linking up with one party, and enables it to keep exit options open.
Despite the uptick in funding from corporate VCs, though, there is still alarmingly little cash for early-stage companies. And even the definition of “early stage” has changed over time, Mr Van heusden says.
“Typically people used to invest at the very early stages when a group had some nice compounds in an animal model, but four or five years from the clinic. You talk now about early stage, and the compounds are at most one year away from the clinic.”
As for exits, he says backers are looking beyond a traditional trade sale, and despite the recent wobble in company valuations IPOs remain viable.
“Karolinska until now has no track record of successful exits. That’s why I’m on board,” he says. “We’ll try to aim for an exit in the end – but we will explore all options. For a company like Dilaforette, if we can get a good licensing deal that might be more interesting than selling the company at that stage.”