Thesan Pharmaceuticals, a US-based dermatology-focused drugs developer, has received a “golden hello” to the pharma world in the form of $16m series A round co-led by European-based peers Novo Group and Novartis’ corporate venturing units.
The investment will be used by Thesan (whose name is drawn from the eponymous goddess of the dawn and was associated with the generation of life) to get the wheels rolling on its drugs development and underlines an increasing trend in healthcare for more corporate venturing units to invest without independent venture capital firms’ involvement as the life sciences venture market shrinks in the US.
The US trade body National Venture Capital Association’s analysis for the third quarter using figures from data provider Thomson Reuters said: “Of particular concern is an ongoing decline in investment in the biotechnology and medical device sectors. When comparing total dollars invested and deals completed for the first nine months of 2012, there has been a 19% drop in dollars and a 12% drop in total deals from the same time period in 2011.
“However, even greater concern is the startlingly low number of first-time fundings in both biotech and medical device companies. At just 32 new companies funded this quarter, we are on track to have the lowest level of first-time fundings in biotechnology and medical device companies since 1995.
“The fact that first time investments in life sciences companies aren’t being made raises even greater concern for the future of the medical innovation pipeline.”
It is in this context of the future of the industry that corporate venturing groups are stepping into the breach of early-stage dealmaking and working with peers rather than trying to interest VCs in a sector that is roiled by regulatory and pricing changes and can cost billions of dollars to develop a drug and a high probability of failure. That said, some corporate venturing groups, such as Novartis Venture Capital, pride themselves on taking the same attitude to just looking for financial returns as any VC, but bringing additional benefits and insights.
The contrast with Gordon Foulkes’, Thesan’s executive chairman, previous company, Excaliard, is stark.
Excaliard was founded in 2007 as a spin out from Isis Pharmaceutical focused on skin scarring and raised its series A round only from financial VCs, Alta Partners, ProQuest Investments and RiverVest Venture Partners. However, Isis retained a stake in Excaliard and benefited when pharma corporation Pfizer bought the spin-out last year.
While the pay-outs for the VCs were never disclosed, Isis was paid $4.4m up front for its stake in the firm, and is eligible to receive an additional $9.6m in contingent payments, $1.25m of which it received on Friday this week.
For Foulkes’ new venture, the corporate venturing units are attracted by the promise of financial returns from Thesan’s dermatological disorder treatments with an eye on any strategic benefits. Peter Bisgaard, a managing partner at Novo Ventures, said Thesan “offers a unique opportunity for developing a completely new class of anti-inflammatory agents, which can be moved rapidly into clinical development”.
Similarly, Giovanni Ferrara, venture partner at Novartis Venture Fund, said Thesan had “a novel mechanism of action with dramatic efficacy, coupled with such solid chemistry is a great starting point for the formation of a new company”.
Neither mentioned the presence of Howard Welgus, executive director at Pfizer responsible for dermatology and inflammation therapeutic areas, sitting on the same board at Thesan. Pfizer’s corporate venturing unit did not invest in Thesan’s series A, yet Welgus’ presence would seem to indicate that they had an interest in the direction of the company’s future following its purchase of Excaliard.
While Thesan has not at any time said that Welgus is there to build the company into something Pfizer will want to buy into, given Foulkes’ recent history, there is a strong possibility that the door is there just waiting to be opened.
The start-up, therefore, looks to be an interesting reflection of the current state of pharma venturing: no VCs, corporations as investors to maximise financial returns, and with a board involving a strategic partner that is not a shareholder.
Whether VCs join at a later stage will be interesting to watch as the question that Thesan’s board will no doubt be asked is: “What do you bring that we do not already have?”