Drug companies GlaxoSmithKline (GSK) and Johnson & Johnson (J&J) have committed in aggregate half of a €150m ($200m) healthcare venture fund to be managed by Index Ventures.
Index Life VI will have the other €75m committed by the venture capital manager’s existing limited partners.
The fund strategy is modeled on a plan devised by the European Investment Fund (EIF) last year to encourage corporations to support established venture capital firms, according to a source close to the fund.
Moncef Slaoui, head of research and development at UK-based GSK, and Paul Stoffels, J&J’s chairman of pharmaceuticals, will sit on the Life VI fund’s advisory board.
William Hait, therapeutic area head of oncology for J&J subsidiary Janssen Research & Development, and Paul Peter Tak, head of GSK immunoinflammation therapy area, will also sit on the scientific advisory board of the fund.
Index, which has raised more than $1.3bn for three funds in the past three years, will have Francesco De Rubertis, Kevin Johnson, Michèle Ollier, Roman Fleck and Remy Luthringer on the board. Of the 177 companies Index has backed since it was founded in 1996, 20 are focused on biotechnology and 10 on medical/health, according to data provider Thomson Reuters.
De Rubertis said: "We are delighted by the decision of GlaxoSmithKline and Janssen to participate in this fund. The fact that these two global pharmaceutical leaders are committing substantial resources to seek early-stage opportunities through a pure-play classic venture capital fund is a testament to the visionary leadership behind the companies."
The Life VI fund will use an asset-centric investment approach to support experimental medicines rather than fledgling companies by having professional drug developers with scientific and managerial backgrounds take a role in developing drugs.
The aim is to invest in 10 to 20 companies developing a maximum of 15 to 30 molecules to treat a range of diseases, primarily in Europe.
News provider Financial Times quoted Slaoui as saying: "It’s very important for us to find alternative strategies to access innovation. Index has a very attractive model."
Stoffels added to the news provider: "Efficient use of capital is essential, using the asset not the infrastructure. As pharma companies with a certain experience, we can contribute significantly to success. We also want to foster biotech companies because they are a source of innovation for us."
GSK and J&J said their corporate venturing units, SR One and Johnson & Johnson Development Corporations respectively, would be unaffected by the commitment to Index.
Ogier has acted as Jersey-based legal adviser and Ogier Fund Services has been appointed to provide administration services in relation to the Life VI fund.
Fenwick & West, a US-based law firms, earlier in the month for its inaugural national Life Science Venture Capital Survey looked at the valuations and terms of venture financings for 338 life science companies headquartered in America that reported raising capital during 2011.
Barry Kramer, survey co-author and also a partner at Fenwick, said: "For 2011, up rounds outpaced down rounds 47% to 25%. This is similar to the result we saw for Silicon Valley life science financings during 2010, but represents an improvement over 2009, which averaged 33% up rounds and 31% down rounds."
An up round is one in which the price per share at which a company sells its stock has increased since its prior financing round. Conversely, a down round is one in which the price per share has declined since a company’s prior financing round.
The Fenwick & West Life Science Venture Capital Barometer – which measures the change in share price of life science companies funded during the year compared with the share price of their previous financing round – showed an 14% average price increase for life science financings during 2011. Price increases were highest for companies receiving a series B round of financing, with quarterly results for 2011 ranging from 15% to 44%.