Ready To Make Bigger Biotech Investments, Vida Raises $600m For Second Fund
Executive Summary
Scrip spoke with Fred Cohen, who co-founded Vida Ventures with former Kite Pharma CEO Arie Belldegrun, about the venture capital firm's investment focus after raising its second fund in two years.
Vida Ventures raised two times as much money for its second venture capital fund than it did for its first fund less than two years ago, but it will invest in the same number of companies with its new $600m pool of cash, according to senior managing partner Fred Cohen. The larger fund will allow Vida to make bigger investments in each opportunity and make sure that its companies can reach their next value inflection point even if the economy shifts into a negative cycle.
Cohen co-founded Vida Ventures in 2017 with Arie Belldegrun, who was the CEO of Kite Pharma Inc. when the chimeric antigen receptor T-cell (CAR-T) therapy developer was sold that year to Gilead Sciences Inc. for $11.9bn. (Also see "What's Gilead Getting From Kite For Nearly $12bn?" - Scrip, 29 Aug, 2017.) Scrip spoke with Cohen about Vida's beginnings and its plans for the future when the firm announced that it closed Vida Ventures II LLC on 1 Aug.
Vida I initially raised $255m from its founders and family offices with which the founders had connections in November 2017, but the inaugural fund grew to $295m by the time Vida Ventures officially announced its arrival on the biotechnology scene in April 2018. (Also see "Finance Watch: VC Investment Soars In Q1, Putting Biopharma On Track For A Record Year" - Scrip, 15 Apr, 2018.) The unveiling was concurrent with its investment in the $300m series A venture capital round for Allogene Therapeutics Inc., which launched with a portfolio of allogeneic CAR-T candidates licensed from Pfizer Inc. and is helmed by former Kite executive David Chang, a Vida Ventures partner.
With Vida II, the firm is tripling its assets under management to more than $1bn and it is doubling the size of the its team by recruiting three former Kite employees – Helen Kim, Rajul Jain and Heba Nowyhed – and entrepreneur Eric Trac.
Vida managing director Kim most recently was a partner at The Column Group, an investment firm, but previously was executive vice president of business development at Kite; Jain left his role leading the development organization at Kite, now operating as a Gilead subsidiary, to become a director at Vida; and the former Kite scientist and associate director Nowyhed was named a senior associate at Vida.
Trac worked at two VC firms prior to Vida, but recently earned a medical degree and a master of business administration at Stanford University; he earned his bachelor of science in chemical-biological engineering at the Massachusetts Institute of Technology (MIT), where he worked in the lab of frequent biotech start-up founder Robert Langer.
Investing In Boston Area, California Biotechs
"We believe the bulk of the opportunities are in the Boston area and in California," Cohen said, which is why the expansion of Vida's team was especially focused on building its California presence. "We can serve a large part of the market by being in those locations."
As with Vida Ventures I, Cohen said, "we continue to believe that 15 companies is about the right number of companies to invest in. You want a concentrated portfolio so that your winners actually matter, but you don't want too much concentration so that stochastic risk works against you."
But instead of investing about $15m in each company, with the exception of some opportunities where Vida raised special purpose vehicles to make bigger commitments to certain companies, he noted that Vida II will put about $40m into each of its investments.
"What we observed during the Fund I investment was that with an average check size of $15m per company, we were a junior partner in any of the rounds that we participated in most of the time," Cohen said. "We believe that the average investment into a biotech company for a venture capital group that presumes they will lead investments is $40m."
Vida Ventures invested or committed about 75% of the money from its first fund by March of this year and decided then to raise its second fund so that it could make those bigger bets in its next set of opportunities. Its limited partners agreed that it was time to raise a new fund, because of the first fund's success to date.
Vida has invested in 14 companies and most recently co-led a $105m series A round for Kronos Bio Inc., whose CEO is former Gilead R&D head Norbert Bischofberger. To date, three of Vida's portfolio companies have gone public, including Allogene, while several others have successfully advanced their development programs. (Also see "Finance Watch: With The Year's Biggest IPO, CFO Says Allogene Is Ready To Go 'Full Throttle'" - Scrip, 11 Oct, 2018.) In addition, Merck & Co. Inc. agreed in May to pay $1.1bn up front for Vida portfolio company Peloton Therapeutics Inc. (Also see "Merck Buys Peloton On Eve Of IPO, Expands Kidney Cancer Portfolio" - Scrip, 21 May, 2019.)
"With that momentum behind us and with the general tailwinds that the biotechnology market has been enjoying of late, we went out and talked to our existing investors and some new investors," Cohen said. "At the same time, we as the general partners agreed that we would be a substantial part of the fund and we're over 25% of the capital in our new vehicle."
Vida II investors include members of the firm, investors in the first fund, endowments, foundations, family offices, funds-of-funds and various individuals from within and outside the US.
75% To Be Invested In Therapeutics Firms
Three quarters of the companies receiving venture capital from Vida II will be in the therapeutics space, Cohen noted. In addition to drug developers, Vida I also invested in a contract research organization and an autism services opportunity.
Vida II's investments won't all be start-ups, but Vida Ventures will play an active role in starting about a quarter of the companies backed by the new fund, Cohen explained. He noted that about half of the companies will be opportunities that other firms played significant roles in and the remaining quarter of investments will be opportunistic. The latter category is "other areas where we thought we had insights that would allow us to be differentiated investors," Cohen explained.
"We've all started companies – Arie and Helen and I have started a number of different companies over the years and sometimes starting a company is the right answer," he said. "But what we try to ask is where is the value inflection and how long is it going to take to get it."
For instance, he pointed out that investors who backed biotech companies between 2000 and 2007 then ran into the economic downturn of 2008 and found that it would take quite a while to see a return, if any, on those investments.
"So if we see an opportunity that is interesting, but the capital that is being raised is not going to take you past the next value inflection, we will probably wait for the next round," Cohen said. "But if we see a great team and a great asset and we think we can shape the company, then we'll be the founders of that and we're happy to do that."
However, he added, "we also appreciate that founding companies is a lot of work" and noted that VC firms such as Third Rock Ventures and Flagship Pioneering specialize in company formation and have built the infrastructure to create start-ups. (Also see "Finance Watch: Flagship Raises $824m To Speed Growth Of Its Portfolio Companies" - Scrip, 22 Mar, 2019.)
"We don't have the capital to do that, so we've chosen not to do that exclusively, but that's not to say we won't do it," Cohen said.
Therapeutic Areas Of Interest
In terms of therapeutic areas of interest to Vida Ventures, "there are a group of disorders where what everybody cares about is efficacy and they're willing to accept a certain amount of adverse events. Pancreatic cancer is a great example; if you cured a third of the patients with pancreatic cancer with some new drug, there are a whole lot of side effects people would be willing to tolerate," Cohen noted.
Therapeutic areas where the clinical opportunity can be adjudicated in a shorter amount of time with a smaller number of patients are what Vida is focused on, including monogenic orphan disorders, various cancers, and certain epilepsy syndromes or autoimmune syndromes.
"In contrast, there are another set of disorders where what people are really worried about is idiosyncratic toxicity or rare toxicity that is related to the mechanism of action – that might include metabolic disorders, including diabetes, or cardiovascular disorders," Cohen said. "If you look at many of the trials for new diabetes agents or new treatments in cardiovascular disease, the trials are at least 1,000 patients [and] we think that trials of that size and that timeline are outside of the pocketbook of venture capital and the de-risking step occurs largely in Phase III, so we tend to focus on those places where the capital that we have can create value."
Vida Ventures will back companies primarily in the US, but it is working on an ex-US start-up now and will continue to look at European companies, he said, adding that the firm has experience investing in Israel and Asia as well.