Edmond De Rothschild offers light in market gloom

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Timing is everything. In the midst of jittery markets Edmond De Rothschild has provided some hope for small private companies worried about future funding, closing a €345m ($430m) life sciences venture fund.

The French investment group’s decision, however, also comes at a time when many might want to take a wait-and-see approach to healthcare investments to gauge where the previously overheated market settles. This appears not to worry Raphaël Wisniewski, a partner, who told EP Vantage: “We have invested in all economic crises or stock market downturns in the last 15 years and always managed to distribute money to our LPs.”

Helpfully for EdR the foundations for its Biodiscovery 5 fund were laid long before the current market turmoil, with the group drawing on existing investors, alongside insurance and health companies.

Interestingly, Biodiscovery 5 does not include any big pharma or tech company donors, indicating that, unlike the fund launched by Medicxi last year, which saw Google’s life science arm, Verily, come on board, the EdR fund will have a more traditional focus.

Steady wins the day

Mr Wisniewski described the fund’s sweet spot as a four to five-year investment period in private, preclinical to early-stage clinical companies, with trade sales remaining the preferred exit.

“Investing in private companies de-correlates us from the market, also because [of] the time it takes to develop products they can ride out short-term volatility and you can always find exits through the pharma companies who have cash,” he said.

The fund will be split roughly between two thirds biotech and one third medtech. And, at a time when many early-stage European companies are bemoaning the lack of funding as capital has flowed to the US, 70% of Biodiscovery 5 will be invested in Europe, with the remaining 30% dedicated to US and the rest of the world.

Up to 10% of the €345m fund can be invested in a single company, but historically initial investments have been around the €10m mark. The fund also has the ability to divert money to listed companies, a strategy that could allow it to use any further turmoil in the public markets as a buying opportunity.

Picking your assets

Interestingly, Mr Wisniewski argues that rather than the whole market being overpriced there are certain areas in which investors need to be careful of overblown valuations. “Some sectors are favoured by investors, and it is there where we have to keep a disciplined approach, especially in immunoncology and certain areas of gene therapy.”

The fund has already made three investments, including Logicbio Therapeutics and Complexa, and the listed company Erytech Pharma, although it is not clear if Biodiscovery 5 placed its bet before or after the group reported a miss in a phase IIb AML trial in December, which wiped more than a quarter off its value.

This volatility in listed stocks explains why Biodiscovery’s core investment policy is private companies with the aim of a trade sale. While it is not yet clear whether the current market wobbles will shut the IPO window, Mr Wisniewski cautioned: “The enemy of IPO is uncertainty”.

But with his fund safely closed, most of his investments likely to ride out near-term volatility, and most of his future exits independent of stock movements, he appears sanguine about the fickleness of markets. “With cycles they come, they go. When the storm has passed people will go back to work.”

To contact the author of this store email Lisa Urquhart in London at lisau@epvantage.com or follow @ByLisaU on Twitter

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