How do you feel that the venture unit has changed the parent, particularly given how long you have been at Merck?
I started this venture unit as part of Merck, and as a pure-play healthcare therapeutics focused fund, investing strategically for the benefit of Merck’s pharma business. It improved the reputation of the corporate to a large extent. It has also put them in a place where they have been able to partner several of our portfolio companies. One of our earliest investments in 2009 was in a technology that we developed for in vitro fertilisation (IVF) clinics at a time when Merck’s IVF business was purely pharma, purely therapeutics. That investment really helped them to transform, over time, their fertility business towards what is today a fully integrated pharma and technology business. We made our investment in 2009, and Merck made a decision in 2013 to acquire the commercial rights to the technology. That has really opened the eyes of our executives to what we can achieve with venture to build things that we would not be able to build internally.
We also have an agreement with Merck that we will take a look when they decide to shelve assets, where historically they would sell off the intellectual property, and you would not get much of an income. If we see the opportunity to build these assets into something new we take them on, because often they get shelved not because they are not good assets but because they do not fit the strategy. We have done that for six new companies we have built. Those companies are purely financial investments. We manage those in exactly the same way and we have generated quite a good return on those companies. One of our companies from that portfolio listed on Nasdaq last year and is trading really well. Last month we sold a company called Prexton Therapeutics to Lundbeck, for a total deal value of up to $1bn. For Merck it was an asset that was written down, and we created something valuable.
Once we showed that making those investments in therapeutics was leading to strategically relevant returns, but also to financial returns that justified the long-term sustainability of the fund, we went back to the board. Merck has three businesses – pharma, life sciences technology, and materials. We went back to the board and showed them that what we have done in healthcare we can do for other divisions. For the past three years we have been building new funds in life sciences tech and new performance materials. We have also started a fourth fund, which we call our new businesses fund, and that has a blue-skies mandate. It allows us to cross over between Merck’s traditional businesses, but also go beyond that. If you think about where healthcare in general is going, what we see is much more of a combination of traditional therapeutics development with need for more complex life sciences technologies, synthetic biology technologies, but also new materials, sensor technologies, digital technologies.
You typically go for early-stage bets. How do you handle the risk, not just with it being a small company but a technology that may not end up delivering?
The first thing is that we assume that when we invest at that stage there is a high risk. We try to limit the execution risk by doing our diligence on everything available. We generally position our investment decisions so that we are convinced at that early stage that the science or technology can translate into something commercially relevant. That may sound like a very trivial point but we see lots of venture funding going into companies that are driven purely by scientific or technical differentiation. We do a lot of early work with the founding team – can we help them translate what they do into something that would benefit a patient, that would convince a physician to prescribe a drug, that could convince a payer to finance that? It very often leads you to a different critical path, to a different development plan than when you try to prove a scientific hypothesis. We cannot be opportunistic as an investor.
What are your thoughts on specific areas such as immuno-oncology? What trends and challenges are emerging?
We believe it is a relevant development, but it is not the panacea, it is not the solution to all cancer care. It is an additive tool, but I think the industry as a whole understands that helping the immune system to clean up cancer tissues requires a combination of tools that allow us to trigger that immune response, and very often that comes back to traditional targeted therapeutics. We see oncology and immuno-oncology as two integrated businesses. In immuno-oncology, there is a lot of clinical development right now around checkpoint inhibition. The amounts being invested by Merck Sharp and Dome, by Pfizer, by our parent Merck, in these clinical programs run into the billions because you have to run separate clinical programs for all types of combination studies in different syndications. As an investor, we are concerned about how sustainable it is to focus so much on the combination therapy.
We have invested in a number of companies that look at new technologies. One of our companies, Iomix, a German-based company that we funded together with MPM Capital and with Sofinnova, is looking at new targets in immune-oncology. In the UK, F-Star is a company that develops strategies with bispecific antibodies that could have an effect on immune system function, and also on the recruitment of the immune system to target cancer cells. And we have just established a company called iOnctura to develop effective combination partners for checkpoint protein strategies. We are really balancing and building a portfolio that looks at what strategies we find relevant in immuno-oncology, but at the same time building up a portfolio in targeted therapeutics to trigger cell-death directly.
What are your thoughts on gene therapeutics? Is it in its infancy with great potential, or does it promise too much?
That field is emerging very fast. The way that we have traditionally seen gene therapy is through the actual definition of gene therapy – inserting or replacing genetic information in a patient. It is really to use that in a therapeutic setting. The only way where we have seen that work is if I am deficient in a specific enzyme, whether I can build in that genetic information to be able to produce that enzyme again. That limits it. In a broader definition, using gene-editing technologies, using synthetic biology, we are able to use gene therapy or gene editing in such a way to influence our immune system or develop therapeutics based on modified human cells. The current state of cell therapy is that I have to produce a product on a patient-specific basis. If I can get to a situation where I can use gene-editing technologies to do that with an off-the-shelf product that obviously gets me to a different stage. We actively look at technologies that enable the development and manufacturing of gene therapy, cell therapy and other insertion or editing-based therapeutic strategies.
In terms of e-health solutions and digital health more broadly, what are the trends and what are the potential limitations?
Let me start with the limitations because that is the most challenging part. About 90% to 95% of the business plans we see in digital health are relatively low investment and consumer-targeted. The 5%, however, left over has the potential radically to change the way we look at therapeutics, drug development, patient care, and therefore very interesting and relevant for us as a corporate investor.
Our first investment in this space was in a Boston-based company called Akili Therapeutics. And Akili developed something that we call digital medicine. That interface has gone through a full set of regulated clinical trials, where we validated that we can use a video game to treat patients with attention deficit hyperactivity disorder. In neurology, we do not understand as much about that disease pathology as we do about oncology or immunology, so we feel that these kinds of approaches have a place and could have an impact on the way we treat patients. We went on and made an investment in a medication adherence platform, Medisafe. We have also just funded a company that makes sensor technology that allows you to measure some key metabolites on a continuous basis. Our overall thesis there is that we believe these technologies will allow you as a patient to continuously monitor your health, and that will put you in a position to have earlier and different conversations with your physician.
How does M Ventures stand out from its competitors and leverage Merck?
The fact that we have capital to invest does not differentiate us from anyone. Our differentiation needs to come from the way we support our founders and our entrepreneur teams, and in our case that is very much based on the strategy to be involved with our companies from the early stage. We do a lot of seed-stage investing and company creation, where we feel we can take a responsibility with our team to support our entrepreneurs, who are often scientists, in translating their science into a business. We are quite hands-on with that.
The other thing that we focus lots on is developing our executive teams. That may sound trivial, but I see a tendency in the venture community that is, when we do our A round or B round and we raise a lot of capital, we need a new CEO because “blah blah we are becoming a bigger company”. We have always said that when we build a company the culture of its leadership towards its teams and building that up to be successful together is critical. We can sometimes see the need to replace people, but generally we are committed to developing our CEOs and the rest of our founder teams into entrepreneurs and then into executives.
How does the next year look like for you?
I will have to put this in two parts. The first part is with our new funds – life sciences, performance materials, new businesses. It is really a year to establish our position in the market. We have made our first four or five investments in the last year and a half for these funds, and now it is really time to firm up their positions and get into the right syndicates and deals. We have added leadership roles for the life sciences and for the performance materials fund with two experienced individuals.
In healthcare, our biggest and oldest fund, there are two ways. There is a huge interest on the pharma side to add technologies and to add products relatively early in the lifecycle through M&A. I mentioned Prexton, which we sold to Lundbeck earlier this year, and quite a few of our portfolio companies have had significant interest from pharma. In healthcare we are focusing on capitalising on some of the portfolio assets, and there are some great discussions going on there.
We are making a lot of new investments, so we are probably looking at five or six new healthcare investments this year, in oncology and immunology primarily – overall the fund aims to make up to 16 new investments this year. Even if there are a lot of opportunities in this market to invest at a later stage, to get to shorter investment cycles, and lower risk, we are going to be committed to the principle that we invest at seed and early stage. We think that is where we add the most value, that is where we can be capital efficient, and frankly we think that is the most exciting part of investing, where we really can get our hands dirty and work with people to build new companies.