DUBLIN – Sofinnova Partners closed its ninth early stage venture capital fund, Sofinnova Capital IX, at €333 million (US$369 million) and is bringing the same playbook to bear on current investment opportunities that it has followed in the recent past.
The Paris-based fund will continue to operate as a seed and early stage investor in biotech and medical device companies, taking large stakes in 12 or 13 companies, each of which will have the opportunity "to move the needle" on the fund's overall return, managing partner and Chairman Antoine Papiernik told BioWorld. It's the same team and the same strategy that it pursued with its eighth fund, which it closed four years ago. The final close this time round was €33 million ahead of target.
Even if Wall Street may be currently cooling on biotech, at least to an extent, the last four to five years have been transformative for the sector, particularly in Europe, which had endured an extended funding drought in the preceding decade. "It's pretty damn good to be honest. It's never been so good," Papiernik said. "Venture funds in general are starting to show performances in line with what investors want." European investors finally have enough cash to "do their job," although late-stage investing is still a problem.
The outlook in the U.S. is even more bullish. "We have so much more money than we're used to, but the U.S. has even more," he said. For that reason, getting U.S. funds interested in European opportunities is no longer so difficult. Although it could have syndicated the deal more widely, given the level of interest, Sofinnova brought in just one U.S. investor, New Enterprise Associates, into the CHF22.5 million series A round which Basel, Switzerland-based Polyneuron Pharmaceuticals AG completed to fund development of its glycopolymer-based therapeutics designed to trap pathological auto-antibodies. (See BioWorld, March 29, 2019.)
The new fund has already made a number of seed and capital investments. Those include a next-generation CAR T-cell firm, a company developing an innovative drug in a large but underserved cardiovascular indication, and a medical device firm focused on women's health. Fund IX will, like its predecessor, invest in both therapeutics and devices, with about two-thirds of its cash going into European firms and most of the rest going to U.S. companies.
Papiernik is agnostic about particular areas – new science and new therapeutic modalities are opening up new possibilities in fields that were a no-go area a decade ago. Back then, he said, people would have laughed if you expressed an interest in neurodegeneration. "Today CNS is mainstream," he said. Even if large, challenging indications like Alzheimer's are not a good fit for VC finance, rare CNS diseases with a genetic involvement are. Oncology remains a mainstay, although its relative importance is declining. "It's not 50 percent of what we do any more," said Papiernik. Inflammation and immunology also loom large.
Sofinnova has so far completed just two exits from Sofinnova Capital VIII, a €300 million fund it closed in late 2015. Both moved the proverbial needle – each had just completed one significant financing round. (See BioWorld, Dec. 11, 2015.)
Its first exit was with Delinia Inc., a Cambridge, Mass.-based immunology play focused on modulating regulatory T-cell populations, which Summit, N.J.-based Celgene Corp. picked up for $300 million up front plus up to $475 million more in milestones just months after it completed a $35 million series A round. The second was with Munich, Germany-based Breath Therapeutics BV, which had been in phase III trials with a drug-device combo that delivers a nebulized form of the immunosuppressant cyclosporine to patients with bronchiolitis obliterans syndrome (BOS), a fatal form of airway inflammation that can arise in lung transplant recipients. Milan, Italy-based Zambon SpA acquired the firm – which had raised just €43.5 million in a series A round in 2017 – for €140 million up front plus up to €360 million more in milestones. (See BioWorld, Jan. 27, 2017, and July 26, 2019.)
It's not yet clear whether the current coolness to new biotech issues on Wall Street is a temporary issue or a harbinger of a lengthier freeze. But Papiernik remembers 2001 and 2008. "I remember very well when Nasdaq was closed – and not just for biotech," he said. For that reason, finding alternative exits is always important. "You should never have all your eggs in one basket."
Back then, Nasdaq was not open to European biotech in the way that it has been since 2013 when the current European migration began. "We've used the European markets as a stepping stone to get to Nasdaq." The European public markets now effectively function as a junior exchange to Nasdaq. Not all firms that are listed on Euronext, AIM or other exchanges are Nasdaq candidates, however, and some are marooned with a low market capitalization and little prospect of raising significant amounts of new finance. "We are responsible for that collectively as an industry," Papiernik said. "We brought companies to the public markets in Europe often too early, because we didn't have a choice."
But for the current generation of early stage companies, the investment horizon has never looked brighter. Although Sofinnova has not drastically increased the size of its flagship capital fund, it is extending the scale and scope of its investments by opening additional complementary funds, including funds dedicated to industrial biotech, medical devices, a crossover fund for late-stage investments and a fund dedicated to cell and gene therapy firms in the Milan region. All of those are relatively recent initiatives. Sofinnova now has more than €2 billion under management and has, Papiernik said, raised more cash in the last four years than it has in the preceding 43. It began life in 1972 as an evergreen investment fund and entered venture capital in 1989. Since then, all of its health care capital investments – "the good, the bad and the ugly" – generated net internal rate of return of 50%, he said. "It was not always bliss," he said. The present era, in contrast, must resemble Wordsworth's "very heaven."