innovative investment models

TVM Life Science

is leading the way with an innovative investment model

By: Dr. luc Marengere

TVM Capital Life Science (TVM) is one of a relatively small number of venture groups to have successfully raised a Fund anchored by a major strategic partner. TVM Life Science Ventures VII (TVM LSV VII) closed on March 5th, 2012 anchored by the Indianapolis-based pharmaceutical company Eli Lilly & Co (Lilly).

The successful closing of the TVM LSV VII represents a thoughtful alignment of strategies between TVM, a venture group driven by capital efficiencies, and Lilly, a pharmaceutical company looking to increase its access to differentiated innovations.

Specific to the venture industry, this more direct relationship by pharmaceutical companies with venture groups is not an impediment to venture’s entrepreneurial roots and independence but rather it provides a number of elegant solutions to challenges that have negatively impacted the venture capital industry and driven too many investors to reduce or simply eliminate their allocations to the asset class. The challenges facing venture investors, especially in life sciences, too often included (and still include) a lack of capital efficiency with high fixed costs, a lack of focus, under-estimated timelines and total capital needs, and lastly, opacity on the identity of a buyer, timing and exit enabling drivers.

TVM believes that an investment thesis focused on developing a single asset by a small team of experts with a proven ability to execute on a well-crafted development plan that incorporates thoughtful feedback from pharmaceutical therapeutic area and commercial experts (the same experts that make a recommendation to buy!) will not only improve capital efficiency but will increase the likelihood of success and build more value for all stakeholders. For TVM, the investment strategy of TVM LSV VII is a continuation of an investment strategy initiated in prior funds this time with a formal relationship with the Chorus group, a wellestablished and independent product development unit of Lilly. Chorus is recognized across the pharmaceutical industry for delivering innovative development strategies and has enjoyed tremendous success, over the last 12 years, initially solely developing assets provided by Lilly and, since March 2012, developing third-party assets supported by TVM LSV VII investments. We believe that working with Chorus adds a new dimension to our capacity to focus our capital, reduce development timelines and budgets, as well as providing transparency on exit.

While it is important to note that TVM LSV VII will dedicate a sizable portion of its capital to the areas of medical technologies, dental, late-stage pharmaceuticals, imaging and other sectors of life science, TVM LSV VII will focus its investment activities on single pharmaceutical assets licensed or assigned to project-focused companies (PFCs). Specifically, TVM targets innovative pre-clinical and early clinical assets, whether small molecule entities or biologics, in a number of therapeutic areas including but not limited to metabolic diseases, especially type-2 diabetes and kidney diseases, oncology, CNS indications including pain, cardiovascular, men’s sexual health and inflammatory diseases. TVM LSV VII is specifically focused on investing in assets aimed at targets that

In contrast to the more standard venture capital approach of raising many subsequent rounds of financing where founders and institutions see their equity reduced dramatically and fall behind many layers of liquidation preferences, our model provides a simpler and, we believe, a more equitable value creation formula for asset sources and founders.

provide new modes of action and therapeutic pathways. TVM believes that such assets have the potential to provide a higher degree of differentiation against standard-of-care and other compounds under development. Together with the Chorus team members, experienced managers will oversee the execution of the development plan for a specific asset thus optimizing capital efficiency and maximizing value by positioning assets for exit post reaching proof-of-concept (POC) validation in humans, a major value inflection point recognized across the industry. Chorus works with each PFC and includes buyer relevant feedback in the development plan of every asset. Therefore, prior to every investment, TVM knows how long it will take to execute the development plan, how much it will cost, the endpoints for each asset and who is likely to buy. This model makes TVM a true “one-stop-shop” for compound sources of all sizes, even big pharmaceutical companies. Working with TVM, compound sources get all the capital needed to reach POC, a proven co-development partner in Chorus and a motivated buyer in Lilly.

There are two other important features of our model that deserve to be discussed. These features are driven by our commitment to build value for all stakeholders within the life science industry. The first is aimed at rewarding asset sources with whom TVM LSV VII seeks to invest. We believe that founders and institutions that license their asset to a PFC should get equity that benefit from anti-dilution throughout the entire financing of the agreed upon development plan and the completion of the exit strategy after generating proof-of-concept data. In addition to the shorter timeline as one of many benefits of having an asset developed in collaboration with Chorus and knowing that a motivated buyer is waiting for proof-ofconcept data, founders and institutions have real visibility on what a return might be as their equity is preserved through to the exit and is not subject to liquidation preferences. In contrast to the more standard venture capital approach of raising many subsequent rounds of financing where founders and institutions see their equity reduced dramatically and fall behind many layers of liquidation preferences, our model provides a simpler and, we believe, a more equitable value creation formula for asset sources and founders. The second is aimed at rewarding the local service industry providers. Through its commitment to the Canadian life science industry, PFCs and other investments made by TVM, TVM LSV VII will select and engage Canadian service providers to perform a portion of the pre-clinical and clinical studies, analytics, manufacturing and monitoring services needed to see an asset through to completion of a proof-ofconcept clinical trial. Because our individual PFCs are managed by part-time managers and have very low fixed costs, our same PFCs can then spend a substantial portion of our invested capital to perform research and development activities and accordingly stimulate the service industry.

To date, TVM LSV VII has invested in three assets and all three are being developed as PFCs in collaboration with experience managers acting on behalf of the PFC and Chorus, the drug development unit of Lilly. The first investment was Montréalbased Kaneq Biosciences Inc. The asset and the management team of Kaneq. come from Merck. This pre-clinical asset is being developed for type-2 diabetes. The second investment made by TVM LSV VII is in UK-based Ixchelsis Ltd. The asset and the management team come from Pfizer Inc. The Pfizer asset was at a clinical stage at the time of the initial investment and Ixchelsis is developing the product for a men’s sexual health indication. The more recent deal is in Montréal-based GLWL Research Inc. which is developing a small molecule which originated from Lilly for type-2 diabetes. All three of the above assets have the potential to be first and best in class. TVM plans to make 12 to 15 investments behind single asset companies developed within a PFC and five to eight later-stage investments in a number of sectors of life science.

After reading all about the benefits of our innovative model, the reader may ask for some proof that the PFC model works and that Lilly is indeed a motivated buyer. To this, I point to the recent acquisition by Lilly of a US-based PFC called Arteaus Therapeutics LLC. Arteaus was created by Lilly in 2010 as a pilot project for the PFC strategy by outlicensing the rights to a pre-clinical antibody to calcitonin gene-related peptide (CGRP) as a novel approach for the prevention of migraine headaches. Arteaus, managed by a semi-virtual team, began clinical development in June 2012. The asset provided a clinical POC approximately three years after the inception of Arteaus in 2010. Lilly announced the purchase of Arteaus in January 2014, thus providing a strong endorsement of our investment strategy and validation of our exit aspirations.

Through its presence in Montréal and Munich, its international network and investor base from Korea, Europe, U.S. and Canada TVM has access to innovations on a global basis. The innovative nature of the investment model, the focus on building value for all stakeholders in the life science industry and its proven international network that covers North America, Europe and Asia define TVM as an international partner for Canadian life science innovations and its stakeholders.

Dr. Luc Marengere is a Managing Partner of TVM Life Science Management Inc. and is based in Montreal. Luc oversees the deployment of the investment strategy in North America. Luc joined TVM Life Science in 2012 after more than 16 years of venture capital experience, most notably as a Managing General Partner with VG Partners where he founded the VG Advanced Life Sciences Fund. Luc was a Director on the Boards of Canadian and US-based biotech companies. Prior to joining VG Partners, he was a Partner at CDP’s venture group SOFINOV and conducted research at Amgen. Luc holds a Ph.D. from University of Toronto.

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