“Index Ventures is hunting for nichebusters”
What share of its cash Index devotes to personalised medicine?Our last fund raised 400 million dollars of which 40% to 50% will be devoted to life sciences investments. Among those, between 20% and 30% will be invested into personalised medicine companies. That is pretty significant. Why that interest?If you look at the performance of the pharma/biotech industry, productivity is decreasing and the number of newly approved molecules is falling. There are less new blockbusters while the amount invested in R&D skyrockets. Partly, this is the result of the past performance of the industry. The level of maturity of the industry triggers a need for new models. Which new models?New models will have to accommodate three major trends in society, economy and science. First, each molecule that reaches the market always has some component of side effects. It has always been the case: however, if many of the new drugs are going to represent only a marginal incremental benefit for the patient, then their risk profile associated to side effects has to be more and more favorable, in order to keep in place the risk/benefit equation underlying any medical treatment decision. Secondly, it is becoming more and more difficult to justify a high price toward under pressure reimbursement authorities. Finally, when you design a clinical trial you have to demonstrate the efficiency and low side effect of your drug for a significant proportion of patients. To simplify, if your drugs is efficient for 51% of the panel the drug may earn the approval. But if it is efficient for 49%, all your efforts may be lost. If you become able to determine what cause the variability of responses among your patients, you are suddenly able to design clinical trials with much better chances of success. Recent progress in molecular diagnostics may allow to predict and stratify accordingly the patients.But if your patients population is reduced your revenues will also diminish…Yes the market of each drug becomes smaller. But because the treatment is more efficient it is also possible to expect a higher reimbursement price. What type of personalised medicine are you investing in?You find two types of companies. Some are offering new technologies, essentially high throughput screening methods to find biomarkers associated with diseases. Most of those companies are in the US where the market is mature from a VC perspective. Beside those technology providers, you find companies that are more in the content. They discover the useful biomarkers. The quest for personalised medicine is like orienteering. You have companies that are creating the compass and others that are planting the flags on the biological map. And which business do you prefer?We prefer the flags. We have recently made two investments in companies that have discovered biomarkers for autoimmune diseases. Still, it is a difficult business because proving the commercial utility and therefore the patentability of your biomarkers is challenging. Still you favor them. Why?Because it is the future. Thanks to bioinformatics, the enormous data gathered threw high throughput sequencing start to make sense. Genomic but also proteomic and other disciplines provide significant biomarkers. In the mean time, in the last 12 months, the cost of sequencing has decreased dramatically. It means sequencing is on its way to be commoditized. And if it becomes cheap, it starts to make sense to develop new tests. This situation creates plenty of opportunities for biomarker companies.Where do you find those?If in sequencing Europe was globally lagging behind the US, it is not the case for biomarkers. European academic centers are huge providers of those. And what about Western Switzerland where you are based?With the logic of cost reduction and massification that prevailed in the sequencing business, Switzerland had no specific advantages. Now, that is an entire different story when it comes to biomarkers. Why do you think Swiss universities, with the Geneva one in the first place, reach such high ranking in international comparison? That is partly because their output in biology is properly unbelievable. And a significant part of that output comes from the dynamism of new biomarkers discoveries.
The logic of patient stratification that goes with the discoveries of biomarkers is seen by many as the end of blockbusters and their promises of high return on investments. How do you see this issue from a venture capitalist perspective?First, I don’t think there will be no more blockbusters in the future. There is still room for highly successful drugs in therapeutic fields where there are no or only poor treatments today. That said, what we hunt are “nichebusters”, drugs with companions diagnostics that are highly efficient maybe not for all the patients but still for a significant group. Also, as a VC, the fact that the targeted market is smaller is a clear advantage because our requested cash investment is also smaller. How that? Molecules that will be developed for smaller or niche markets require by definition smaller investment both in terms of size and risk. Think of the costly clinical trials. If you can predict for whom a given drugs is going to be efficient, you can reduce both the size of your clinical trials and drastically reduce the risk of failure. For VC, that means we can probably accompany our invested companies longer. What potential do you see for “nichebusters”? I believe that within 15 years half of the market will be dominated by those. The truth is that the healthcare sector is under strong pressure to stop and maybe reduce its costs. Having better productivity for pharma and better predictability for physicians and patients will be a huge cost reduction factor. Still venture capitalists will need to exit those investments. Do you think public markets are ready for personalised medicine? It needs a few success stories. Today only a company like Genomic Health made it to the market. Others are lining up. Pacific Biosciences and Complete Genomics, two US companies that are the Rolls Royce of sequencing, have recently filed for IPOs. When four, five, six companies of that kind will be public, showing steady revenue growth, investors will identify them as different from classical biotech companies which naturally lose money until their drugs reached the market.