Who says early stage life science ventures don’t have access to funding?
GlaxoSmithKline (NYSE:GSK) and Johnson & Johnson (NYSE:JNJ) are joining forces to form a $200 million fund with Index Ventures, Bloomberg News first reported. For London-based venture capital firm Index Ventures, the new fund is the firm’s first dedicated to the life sciences. Index Ventures will contribute $100 million and make investment decisions. Each pharma will contribute $50 million and get seats on the board. GSK’s chairman of research and development Moncef Slaoui gets a board seat and is joined by J&J’s chairman of pharmaceuticals Paul Stoffels.
But the investments and the board seats don’t necessarily mean the fund stands ready to fill GSK and J&J drug pipelines. If either pharma wants to license a compound financed by the fund, the companies will have to join the mix of pharmas bidding for the asset.
The partnership between the pharmas and the venture capital firm comes on the heels of an arrangement between Sanofi (NYSE:SNY) and venture capital firm Third Rock Ventures. That partnership is backing biotechnology company Warp Drive Bio. While that arrangement pairs Big Pharma with venture capital, it works slightly differently than the new Index Ventures fund. Sanofi gets access to compounds that it can vet and possibly commercialize; venture capital reduces its risk by partnering with Big Pharma and also gains a path toward the exit opportunities it seeks. Sanofi CEO Chris Viehbacher later said that he believed more Big Pharma companies would look to partner with venture capital in order to address the funding gap for early stage companies.
GSK already has a venture capital arm called SR One. J&J’s venture capital unit is Johnson & Johnson Development Corporation. Those units invest in companies. In contrast, the new Index Ventures fund will focus on a single asset of a company. Under this “asset-centric model,” a biotech company must agree to focus on one molecule and add to its executive team an entrepreneur affiliated with Index Ventures, Bloomberg reported. If the project doesn’t pan out, development ends and the executive can move on to another Index Ventures-backed company. The model is designed to allow for faster decision making on drug candidates that are promising as well as compounds that are failing.
“Companies think they are de-risking by diversifying,” Francesco De Rubertis, the Index Ventures partner leading the new fund, told The Financial Times. “That is like buying five lottery tickets rather than one, the difference is so marginal. Creating companies with only one molecule allows up-to-speed decision making.”
De Rubertis told Bloomberg that the model yields “multiple shots on goal, but one at a time.” The model also cuts in half the time it takes to reach a return on investment.
“This really focuses the decision making on single drugs,” he said. “This has turned out over the last five years to really improve the profitability, the productivity of the R&D efforts.”