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12:00 AM
May 21, 2007
 |  BioCentury  |  Finance

Ebb & Flow

Novartishas launched a new venture fund, the $200 million Novartis Option Fund, which will give the pharmaceutical company a first option to license a very early stage program at portfolio companies.

"As I started doing collaborations, I noticed that there had been a sea change in the way that venture investors were willing to participate in risk," Jeremy Levin, global head of strategic alliances for the Novartis Institutes for BioMedical Research, told Ebb & Flow. "An increasing number of VCs were focused on late-stage compounds or late-stage assets because the public markets were valuing them far more. New novel compounds were not being discovered."

Even among venture firms associated with pharma companies, "very few of them start up companies," noted Levin. With the options fund, he's hoping new companies and novel compounds will result.

Reinhard Ambros, head of Novartis Venture Funds, said three investments are slated to be executed in the next six weeks.

The syndicates for these deals include four independent VCs. Ambros said he expects this fund will work with 5-10 VCs on a constant basis. He expects to do two or three new investments per year.

Potential portfolio companies must have "three or four programs simultaneously - that's a really important consideration for us. We don't want to limit the company in its upside potential - if we license one program, all the others need to be free for development," he said.

Ambros expects some initial investments will be as little as $100,000 and range up to $3-$6 million. He anticipates that companies will move from the seed to the lead optimization stage within 18 months to two years and hit the clinic after four years.

During that time, Novartis (NVS; SWX:NOVN) will have three chances to option a single program from any given portfolio company: at lead optimization, pre-IND, and when a compound first goes into humans. The company must then honor pre-negotiated terms to exercise the option associated with that point in development. NVS will pay an additional fee, beyond its investment, to exercise the option.

Whether or not the option is exercised, the Novartis Option Fund will continue to be invested in the company as long as it is "operationally sound," said Ambros.

"The option fund is more strategic than the current fund," noted Ambros, who also oversees the Novartis Venture Fund, a $300 million evergreen fund that invests in early stage companies.

"Many times a pharmaceutical company only works on validated targets, I want to discover new targets," he said. "We will have a much bigger reach and impact."

ESA kidney punch

Roche (SWX:ROG) and Affymax (AFFY), which are developing erythropoiesis-stimulating agents for renal patients, were off on the week after the Centers for Medicare & Medicaid Services proposed to limit coverage of ESAs in cancer (see Cover Story).

Both companies began losing ground the prior Friday, May 11, after FDA's Oncologic Drugs Advisory Committee (ODAC) recommended limits on use of ESAs in cancer settings. ROG was down CHF 0.40 to CHF 228.20 on the day while AFFY was off $3.78 to $31.85. Both continued to decline last week, with ROG off CHF0.60 to CHF227.60, while AFFY fell...

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