“Let’s say this clearly. We are betting on a specific molecule and one super smart person. This is the phenotype of a company that we will finance with USD 1 million in three serial steps. The majority of these projects are late preclinical, and from our seed pool, only one project in 10 will go to the next level.”
Welcome to asset-centric investing. Born of necessity during the dark days of the financial meltdown, does this super-efficient business model for fast-tracking drug development remain viable as capital begins flowing again for biotechnology? That was the question put to a panel of investors during BIO-Europe Spring® in Turin.
The Editor of SCRIP Intelligence, John Hodgson, challenged the panelists throughout the discussion for sharper definitions of how early they take on projects, how much is available for funding, and the experiments aimed at killing projects as quickly as possible.
“It’s death or fireworks,” said Francesco De Rubertis from Index Ventures, who is the source for the bare-bones description of the asset-centric model given above.
“We see about 2,000 investment opportunities per year. We look at them all with quick filtering and do real work on 10% to 15% of the projects. Last year we did 13 investments,” he said, suggesting that people in the audience can calculate the attrition rate for asset-centric projects based on those figures.
According to Bimal Shah with Spectrum Pharmaceuticals, “The key differentiating feature of asset-centric companies is their specificity. We would like to purchase an asset, not a company. We are not betting on a management team, and not betting on some sort of technology platform that may go in multiple directions. ”
“You don’t get to take multiple shots on goal,” he said. “That is the risk of this model. The acquiring universe is not kind. It is looking for the best deal it can get. If you don’t end up with an asset that speaks loudly enough to generate high values in a bidding process, you are in a difficult position. And people are going to smell that your company is not going to go forward without an acquirer. If we need to wait, we will wait. Sooner or later we will get that acquisition done, probably not at a price that will be attractive to the investors. ”
Editor of SCRIP Intelligence, John Hodgson
“You have to be truth-seeking, willing to run the killer experiment,” said Shaun Hawkins, vice-president responsible for New Ventures at Eli Lilly. “What has given rise to this model is that too many companies were not running those experiments. Too many management teams became invested emotionally, even irrationally, in trying to keep the asset available.”
From a pharma’s perspective, he said, “we are interested in the compound in a model where 70% to 80% of the capital is deployed to answer the most relevant scientific questions, as opposed to spending that money on overhead.”
“On average we can go from candidate selection to proof-of-concept in three and a half years versus an industry average of more than five years. We do this on average for USD 10 million versus an industry average of USD 21 million,” he said, adding that currently in his portfolio there are asset-focused companies and that he expects to add four more before the end of the year.
“People like our build-to-sell model because it is a one-stop shop,” said Hawkins. “There are great scientists to help, the capital is there, and there is a ready buyer at the end of the table. We have a capability engine where with each project, much of the work is done by Lilly’s virtual drug development group called Chorus which keeps things fast and efficient.”
According to De Rubertis, there is a human side that has emerged in the harsh environment where asset-centric companies live and die.
“Index equally is assessing the people behind the projects it funds, people we like to keep backing, even if a project should fail, because there is that 90% chance that it will fail,” he said. “We are committed and clear that the people we fund are acting in a venture partner role. Otherwise how can it be acceptable and even exciting for an entrepreneur? As long as we see there is an absolute focus on the killer experiment and there is no dilution of the intensity on getting to the reality, we will already be preparing a second company. We are concentrating on positive outcomes and positive events. If these projects go through, we will put a lot of capital into that company, and there will be a lot of other venture capital that will be trying to get into the company.”
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