Interview – Medicxi emerges from Index Ventures with life science focus

Index Ventures still sees plenty of mileage in its novel concept of investing in assets rather than companies. Today the venture capital group announced the spin-out of its life science business into a new firm, Medicxi Ventures, and the closing of a €210m ($250m) fund that will largely be dedicated to this investment theme.

“We are doubling down on that strategy because it looks like a nice way to go about early-stage R&D investing,” Francesco De Rubertis, general partner of Medicxi Ventures, tells EP Vantage. The move is a progression from a previous fund raised in 2012 that saw Index bring Johnson & Johnson and GlaxoSmithKline on board; its big pharma partners contributed around half of the money for the new venture.

Medicxi will take in all of Index’s current life science investments and will focus solely on this sector – a strategy that might have looked a lot more attractive six months ago, before the current turbulence in the market hit investor profits and sentiment.

It follows in the footsteps of Atlas Venture, which split its technology and life science interests into two separate VC firms, though this happened in 2014, when the biotech bull market was in full swing.

Faith in the fundamentals

Despite jittery equity markets, a 21% drop in the Nasdaq biotechnology index so far this year and a marked slowing in IPOs, Mr De Rubertis believes that this is still an excellent time to be investing in European healthcare.

“We think the fundamentals are sound. What is happening right now is a normal adjustment; there have been three, four years of an incredible run-up, driven by good reasons, and what investors have to do after a certain amount of time, and usually year end is a good time, is take some money off the table,” he said.

Medicxi is hoping that the market’s desire for new drugs, an ageing population and big pharma’s inability to meet this need without the help of smaller companies will encourage those with strong balance sheets to keep up the demand for early-stage assets, giving it the exits it needs to succeed.

The firm will follow the blueprint first laid out by IL-6, the last fund raised under the Index marque. Cash will be directed at early-stage single molecules and the necessary infrastructure – management teams, labs and corporate development staff – will be built around them.

And, while Glaxo and J&J are coming along for the ride once again, Medicxi retains full control, and the two pharma groups have no preferential rights over the molecules developed.

Working the imbalance

In what will come as a big relief for cash-starved early-stage companies on this side of the pond, which have watched the majority of capital flow to the US, Medicxi Ventures will be mostly focusing on European assets.

“[Europe] is not as expensive as the US, where there is much more capital available,” Mr De Rubertis says, adding: “As one of the large firms in Europe focusing on early-stage life sciences there is a big role for us to play in Europe – much more than what we could play as one of another 50 companies in the US.”

With €210m to spend what can be expected from Medicxi Ventures? “There is an upper limit, but not a hard upper limit; we can go as high as we like, but 10% of the fund per company is really the maximum we feel comfortable with.”

But Mr De Rubertis says that level of investment is highly unlikely for a single asset, and the average outlay per portfolio company will be in the region of €5-10m, delivered through a series of small micro financings.

While the amounts might seem small, the group has staked its reputation on "asset-centric" investment providing a much more efficient way to move early projects to the point where they will be picked up by bigger companies.

Proof of the pudding

As with all venture companies, of whatever hue, Medicxi will be judged on the number and size of exits it can deliver. The firms’ partners are keen to point to XO1 – a company set up around an anti-coagulant spun out of Cambridge University with an $11m investment in 2013, sold to J&J two years later for a considerable sum.

In a world where early-stage companies are still finding it hard to access funding it will be hoped that Medicxi’s faith in this part of the market, plus further success stories like XO1, could bring others out of the woodwork despite the downturn.

To contact the writer of this story email Lisa Urquhart in London at [email protected] or follow @LisaEPVantage on Twitter