Rare Form: GSK, NEA Back Orphan Disease Venture Fund
This article was originally published in Start Up
Executive Summary
A new fund offering access to European translational research focused on rare diseases has high-profile backers and reunites key players in the successful Prosensa IPO.
A trio involved in one of the best performing 2013 IPOs is hoping to repeat that success with a new fund. Orphan disease play Prosensa Holding BV saw its share price more than double in the first few weeks following its late June debut. [See Deal] (See (Also see "Prosensa Debuts On The Nasdaq Hours After Getting Breakthrough Designation For Lead Compound" - Pink Sheet, 28 Jun, 2013.).) Now, two Prosensa investors, Kurma Life Sciences Partners and New Enterprise Associates, and Prosensa's development partner, GlaxoSmithKline PLC, [See Deal] are behind a new venture fund specifically aimed at rare disease companies.
The fund is called Kurma Biofund II. KLS Partners is raising it; NEA and GSK are LPs that will be actively involved with the portfolio companies but will have no direct rights. Kurma Biofund II had a first close of €44 million in June and KLS expects to hit a final close of €75 million by year’s end. No investments have been made from the fund yet, but KLS anticipates making one or two later this year.
Based in Paris, KLS Partners closed its first fund, Kurma Biofund I, at €51 million in November 2009. In that fund, KLS has 11 portfolio companies, all of which are virtual or lean companies focused on only one or two assets. Six of these were companies created by KLS from academic institutions, and it will look again to academia as it scouts for rare disease programs to fund. It has relationships with about a dozen European institutes, including Institut Pasteur, Institut Curie, Karolinska Development AB, Flanders Interuniversity Institute for Biotechnology (VIB), and Leiden University Research and Innovation Services (LURIS). The firm expects soon to add new, undisclosed academic partners that are dedicated to rare diseases.
Rare disease companies accounted for about one-quarter of deal flow in the first Kurma fund; the group will invest at least half the second fund in rare disease plays. It’s rare – no pun intended – for life science investors to publicly dedicate cash to a specific disease sector. But rare and orphan diseases remain white hot, with five IPOs and a couple of acquisitions this year. (See (Also see "Early Stage Biotech IPOs Join Late-stage Plays In Appealing to Investors" - Pink Sheet, 12 Jun, 2013.).) KLS is counting on that interest to continue. There's a lack of good, clinical-stage assets that target rare diseases, but a wealth of academic research in orphan diseases could provide candidates that move quickly through to the clinic, KLS Managing Partner Rémi Droller tells START-UP.
The goal with this fund is to identify promising research and help translate it into clinical candidates that will interest biopharma buyers. Droller says the firm has had an encouraging reception from both industry and academics. "We validated the viability of a focused fund on rare diseases. We talked to three Big Pharmas and got positive feedback and an interest to invest. We decided to go with GSK," he says.
The initial meeting with GSK came only months after the Big Pharma set up a rare diseases unit in February 2010. In negotiations, GSK insisted it would have to be the only Pharma in the fund. "We will not accept another,” says Adrien Lemoine, the director of strategy and operations at GSK's Rare Diseases unit. “The reason is we want to be able to share as much of our knowledge as we can with the portfolio companies. If other Pharma companies are at the table it makes it difficult to be involved.”
"We are in much more of a partnership position with KLS than one would be in a general purpose fund,” says Lemoine. “There is a much closer discussion and sharing of insights. You don't really see that in investments that are more general in nature.”
GSK’s investment is part of a larger trend of drug giants – and GSK in particular – backing early stage endeavors, either directly or through venture intermediaries, when there are fewer VCs able to do so. GSK has existing LP relationships with about a half dozen VCs, including Index Ventures, Sanderling Ventures, and Longwood Founders Fund. This is the Pharma's only investment in a fund focused on a specific field. (GSK’s LP investments come from its corporate coffers, not from its own venture group SR One.)
GSK hopes the KLS tie-up will strengthen its academic relationships and provide insight into a field that encompasses more than 7,000 diseases, with myriad scientific approaches and mechanisms of action. Lemoine says KLS has proven its ability to "deliver value in early stage innovation" and that GSK expects a financial return.
KLS has an edge given the dearth of early stage European VCs. Droller says KLS has received several collaboration proposals from academic institutes since the fund’s launch. Other LPs in Kurma Biofund II include European private equity firm Idinvest Partners and French bank Bpifrance through its CDC Enterprises.
The KLS team came from AGF Private Equity, now Idinvest, for whom they still manage a €100 million biotech fund with 12 portfolio companies, including Prosensa which listed on NASDAQ. Five of those companies are publicly listed in France, including diabetes company Zealand Pharma AS, acute leukemia-focused Erytech Pharma SA, and protein drug delivery company Adocia SAS. Another three have been acquired. KLS hasn't had an exit yet from its first fund, but expects to have one or two within 12 to 18 months, says Droller.
KLS isn't the only early stage VC to create a rare disease alliance with industry. Atlas Venture and Shire PLC established a relationship in December 2011, but there's no fund attached. The pair agreed to work together to explore early stage opportunities in rare disease. The only result so far is a May 2013 partnership between Shire and Atlas portfolio company Nimbus Therapeutics to co-develop small molecule treatments for lysosomal storage disorders, according to Atlas' Bruce Booth. [See Deal] Booth said the pair is in "active dialogues on other deals."
As KLS scouts for academic projects around which to build companies, it’s looking to Prosensa as a template. An early investor, Droller is on the board along with NEA's David Mott. In January 2012, NEA came in as a new investor and led a €23 million financing. Idinvest had a 7.7% post-IPO stake in Prosensa, while NEA held 17.7%.
Founded in 2002, Prosensa exclusively licensed RNA modulation exon-skipping technology to develop treatments for Duchenne’s muscular dystrophy from Leiden University Medical Center in 2003. It then secured a deal with GSK in 2009. (See (Also see "GSK Takes Rare Diseases Option from Prosensa" - Scrip, 1 Nov, 2009.).) The partners are in Phase III testing with the biotech's lead candidate drisapersen, which aims to restore dystrophin expression and improve muscle condition and function in the largest known sub-population of Duchenne muscular dystrophy patients. Data are due in the fourth quarter of 2013. In June, FDA granted the drug breakthrough designation.
Prosensa will have made it from early research to Phase III data in roughly a decade. Droller hopes the portfolio companies in the new fund will be similarly expedient. "In rare diseases, we can see transformative innovation coming from academic labs very quickly,” says Droller.
He expects that with the new fund, GSK and NEA will both provide access to rare disease expertise. NEA also brings to the table its network of US-based investors and the ability to co-invest. The imprimatur of one of the bluest blue-chip venture firms around doesn’t hurt either when it comes time to sell a company’s story to public investors. "An NEA investment can make a company a good candidate for NASDAQ," says Droller. Indeed, the firm has been a big shareholder in several of the best performing US life science IPOs since the start of 2012 including Prosensa, Tesaro Inc., [See Deal]Hyperion Therapeutics Inc., [See Deal] and Epizyme Inc.[See Deal] (See (Also see "When To Hold ’Em: Post-IPO, VCs Keep Their Cards" - Scrip, 13 Jun, 2013.).)