BioWorld International Correspondent
LONDON - The investment firm Seven Hills Venture Partners has developed a new model for early stage funding, investing directly in the clinical development of a named compound, rather than a company as a whole, but taking the same hands-on approach as venture capitalists that take an equity stake.
The first investment of £500,000 (US$932,596) has been agreed to for the preclinical development of a small-molecule cancer compound being developed by LinkCore Pharma Ltd.
Alan Muir, co-founder of Seven Hills, told BioWorld International: "We are looking at a product development model in which we are investing in the technology rather than the company. We are taking rights to future milestone or royalty payments, not waiting for an exit before getting a return for our investors."
Muir said the process seeks to manage the risk involved in drug development in a far more proactive way. "We're not saying, 'Here's the money, go away and develop a pipeline of drugs, and we'll see you in seven years when you are ready to exit.' Instead we are focusing on the possibility of near-term cash returns from out-licensing products."
One of the factors that have driven venture capitalists out of earlier-stage funding is the cost of making the investment. Muir said the overheads involved in investing directly in a product are much lower. "We don't have to spend the same amount of time negotiating term sheets and so on, and it is a far more cost-effective way of making an investment."
One of the terms of the deal was that LinkCore Pharma had identified a pharmaceutical partner who wants to in-license the compound once it has completed early stage development.
"Having a partner lined up is one of the boxes that has to be ticked when we are making these kinds of investments," Muir said. "This means we can get a quick return, but if on the other hand the worst happens and the compound fails, we haven't lost a large amount of money."
LinkCore Pharma Ltd., based in Vancouver, British Columbia, in-licensed the compound, and during development the intellectual property will be co-owned with Seven Hills. "At the end of Phase I, we will hand all the rights back, so LinkCore is not encumbered when negotiating with partners," Muir said.
Muir carried out an extensive search before choosing LinkCore for its first development funding investment. "As ever in this business, the attraction was the people, but we were impressed also with their ability to identify early stage compounds," he said.