Oncology Focused Investment Comes Into Its Own

Thilo Schroeder: You can achieve a totally different level of expertise and depth in that specific domain. Being only in oncology has allowed us to recruit a world-class scientific board of key opinion leaders and that helps us to make the best investment decisions in the field. A fund that is not equally focused could not achieve that degree of detail and knowledge in the sector.

Alfred Scheidegger: Even specialized in oncology, it is still a broad field, because there are many approaches to deal with cancer. There are at least 250 different cancers. It's a vast field of scientific knowledge and it deserves to be carved out as one area of investing.

TS: Our first fund was a mixed technology fund… In 2006 we wanted to raise a new fund and we had learned fast that you need a very deep understanding of the particular industry you are investing in. If you are not a huge company with 40 investment managers you have to concentrate on an [specific] area, and cancer was an area that was very dynamic although still a bit early from a scientific point of view.

TS: We were the first to launch an oncology-focused vehicle. There were some natural challenges that came with being first. We had to convince people that this was the right strategy. Now other groups are heading in the same direction. One notable event was in April this year when UBS, raised $471m for an oncology fund. We had to convince people that this was the right strategy and now that we see additional vehicles coming up it's a validation of our strategy.

On the investment side, we don't perceive it as having any challenges. Obviously when you focus on an area, other areas such as infectious diseases have some success and you don't participate in them, but focus has more advantages than disadvantages.

AS: We have three basic investment criteria. One is the scientific concept; and it is why we involve the scientific board very closely in the due diligence process. The second is the track record of the management team. We want to see skilled and experienced drug developers in the cancer space, so people who have experience of how to develop a cancer drug, that have a relationship with regulators, who know the industry, know their customers, and know their competitors. Thirdly, we want to see a strategically aligned, strong investor syndicate that is willing to support the company in difficult times but also has an aligned exit strategy.

TS: A stage where you can achieve scientific validation, so the company has a set of data that allows an expert investor to judge what the likelihood is of the succeeding in clinical trials. In oncology, if you look at how science has developed and how the market behaves, this is typically around IND stage. But it could be as early as two years before the IND, it depends on the asset and the disease.

TS: When we invest, the trade sale is always the preferred primary exit hypothesis that we have. So when we invest we want to understand what kind of data the company can show with the [proceeds of the] financing round and if this data allow an acquisition at the right price, typically by a big pharma or biotech company.

There are alternative exit strategies that can prove to be valuable, such as an IPO or signing a very large partnership or co-development deal. We have done IPOs in the past such as with Blueprint Medicines that have proven to be very attractive. But having a compelling acquisition [strategy] allows us to be very independent of the public markets.

TS: The ideal case would be that we join the last financing round where scientific validation is emerging, but we are certainly prepared to go another financing round to support the company to the value inflection point of clinical data. We stay with a company for between two and five years.

TS: So clearly immuno-oncology is in a very successful pharma space today where scientific maturation has achieved a level where you can make educated bets and have a good understanding of certain targets and drugs and why they should work or not, so clearly that's not only on the high priority list for many big pharma companies but logically also for us.

But we are very aware of the many other technologies and strategies that exist because we all know that with immuno-oncology it is the minority of all cancer patients that will profit from these drugs. So it's about asking the question: how can you extend that to other patients? How can you add other drugs, give combinations, to extend that efficacy? Or how can you use other technologies to include patients that wouldn't otherwise profit from immuno-oncology?

And to give a few examples, small molecules - especially targeted therapies against kinases - remain very attractive because as standalone therapies they have been shown to work well, and then in combination they can work very well. One example has been the partnership of Blueprint Medicines, one of our portfolio companies, and Roche, that closed in February. (Also see "Roche Commits Up To $1bn For Blueprint's Immunokinase Inhibitors" - Scrip, 16 Mar, 2016.) Roche is seeing the advantages that small molecules can bring to the field of immuno-oncology, especially when given in combination.

Then of course there are other technologies especially the field of gene editing. As a therapeutic agent gene editing is mostly interesting in monogenetic diseases, so that typically is not oncology, some rare diseases are where you can apply that. It is important for oncology but not necessarily as a therapeutic, rather as a research tool so here we behave more passive at the moment.

TS: The Blueprint case is almost a perfect case for the investor, where we invested at the beginning of 2014 at a very attractive price, the company went public about one-and-a-half years later, has met all its goals, is about to publish some clinical data later this year. So if you look at the three-year investment horizon to significant value inflection, this is absolutely in line and they have been able to not only develop five proprietary programs of which three are now in the clinic but also signed that large collaboration with Roche and on top of that was Alexion, so it's been a tremendous value generation in the last three years, which really goes back to the excellence of the management team and also the investor syndicate that allowed such a fast and positive development of the company.

AS: We expect to invest into six to eight companies and that should happen within the next one-and-a-half years roughly.