Index Ventures has just participated in the US$ 13 million second round funding of Sequenta, a San Francisco-based company that is developing technology for the routine DNA profiling the human immune system.
Behind this investment lies a plan to devote between 40 – 50 per cent of the $400 million fund the leading European venture capital firm raised recently, to life sciences companies. And of this, between 20 – 30 per cent will be invested in personalised medicine start-ups like Sequenta, on both sides of the Atlantic.
For Index Life Sciences senior partner Francesco de Rubertis, the move to investing in companies developing drugs that are highly efficient - but for only for a specific group of patients who are selected by new molecular diagnostics - is triggered by the very logic of the life sciences industry. As he told Science|Business, “The productivity of the pharma/biotech industry is decreasing and the number of newly-approved drugs is falling.” In other words, there are fewer blockbusters drugs, yet the amount invested in R&D is skyrocketing.
Maturity calls for new models
For de Rubertis, this situation is in part a consequence of the past performance of the industry. “If you have drugs that function well to treat a disease, it becomes more difficult to prove new drugs will do better. The level of maturity of the industry triggers a need for new models,” he says.
According to de Rubertis, this new model needs to be found in the emerging new paradigm of personalised medicine, because three major trends in society, in the economy and in science have to be accommodated. First each molecule that reaches the market has some side effects. This has always been the case: however, if many new drugs are going to provide only a marginal incremental benefit for the patient, then the side effect profile has to be more and more favourable, to maintain the risk/benefit equation underlying any medical treatment decision.
Secondly, it is becoming more and more difficult to justify a high price with payers who decide on the level of reimbursement.
Finally, clinical trials have to demonstrate efficacy and a low-side effect profile for a significant proportion of patients. “If your drug is efficient for 51 per cent of subjects, it may earn approval. But if it is efficient for 49 per cent, all your efforts may be lost,” de Rubertis says.
What causes response to vary?
Given this, de Rubertis concludes that determining what causes the variability of responses among patients becomes crucial. Armed with this insight, clinical trials can be designed with much better chances of success. For him, this represents the first step toward personalised medicine. “Recent progress in molecular diagnostics may allow us to predict and stratify trials, preselecting patients for whom a drug will be both low-risk and highly efficient,” he explains.
But with a reduced patient population, the market for each drug becomes smaller. Will the expected return also decrease? De Rubertis does not think so. “If treatments are more efficient it will be possible to agree a higher price with the reimbursement body.”Does the logic of patient stratification mean the end of one size fits all blockbusters drugs? De Rubertis does not believe 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.”
Nichebusters will steal the limelight
That said, de Rubertis does believes in the potential of “nichebusters” - drugs with companion diagnostics that will be highly effective not for all, but for a significant subsection of the patient population. “Within 15 years, half of the market will be dominated by nichebusters. The healthcare sector is under strong pressure to curb and maybe reduce its costs. Better productivity for pharma and better predictability for physicians and patients will be a huge cost reduction factor.”
As a VC, de Rubertis sees another advantage in smaller, targeted markets. “Our cash investment becomes also smaller.” Drugs that are developed for smaller or niche markets will require less investment and also be lower risk. “Think of clinical trials: if you can predict for whom a given drug is going to be efficient, you can reduce the size of your clinical trials and drastically reduce the risk of failure. For VCs, that means we can probably support investee companies for longer.”
Exits still required
Still, venture capitalists will need to exit those investments. De Rubertis recognises Index Ventures is at the early stages of getting to grips with investments in personalised medicine. For him, the field still needs few success stories to gain momentum. But he sees the recent initial public offerings of two US companies, Pacific Bio and Complete Genomics, as a clear endorsement of the potential of personalised medicine. “When four, five, six companies of that kind are public and showing steady growth in their revenues, investors will see them as different from classical biotech companies, which inevitably lose money until their drugs reach the market.”
However, those first IPO successes were not based on the type of business model Index favours, being platform technology companies developing high throughput screening methods to find biomarkers associated with diseases. “The quest for personalised medicine is like orienteering,” says de Rubertis. “You have companies that are building the compass and others that are planting the flags on the biological map. We prefer the flags.”
Biomarkers are the future
As a matter of fact, Index has also recently made two un-disclosed investments in companies that have discovered biomarkers for autoimmune diseases. De Rubertis recognises it is a difficult business because proving the commercial utility - and therefore the patentability - of biomarkers is challenging.
Still, he favours this type of investment. “It is the future. Thanks to bioinformatics, the enormous amounts of data gathered through high throughput sequencing is starting to make sense. Genomics, but also proteomics and other disciplines are generating significant biomarkers,” de Rubertis notes. In the meantime, in the last 12 months, the cost of sequencing has decreased dramatically, and is now on its way to being commoditised. “Once sequencing becomes cheap, it will make commercial sense to develop new biomarker tests. This situation creates plenty of opportunities for biomarkers companies,” says de Rubertis.
Being based in Europe, Index considers it has a competitive advantage in investing in biomarkers companies. “If in sequencing Europe was globally lagging behind the US, it is not the case for biomarkers. European academic centres are huge providers of those,” says de Rubertis, citing EMBO (Heidelberg), Cambridge University, University of Geneva, ETH (Zurich), University of Strasbourg, Uppsala and the Karolinska Institute in Sweden, as well as the VIB Institute in Belgium.