SV Health Investors has taken on a momentous task with its latest fund. The Dementia Discovery Fund, which smashed its initial $200 million target to close on $350 million this week, is dedicated entirely to discovering and developing novel therapies for dementia – an area not yet touched by success.
SV Health – which is also investing its sixth life sciences venture fund – has made a few investments in this field in the past. It’s a tough area to tackle in the context of a mainstream venture fund, said managing partner Kate Bingham.
For the DDF, which has a 15-year fund life and has already made 16 of a proposed 40 investments, SV Health has teamed up with leading pharmaceutical companies, the UK Department of Health and Social Care and the charity Alzheimer’s Research UK, which are contributing dollars and expertise.
Bingham explained the investment thesis and the fund’s appeal to LPs to Private Equity International.
What is the investment thesis of the Dementia Discovery Fund?
Our approach is to develop new drugs to halt dementia in its tracks and to generate financial returns by doing so. Dementia, much like cancer, is an umbrella term – not a single disease – it is made up of multiple different mechanisms that drive different forms of neurodegeneration. We’re going to be spreading the net wide in biological areas we think are highly ripe and ready for therapeutic discovery.
Historically, the vast bulk of dollars invested by industry and academia in Alzheimer’s drug discovery has been centered around a single biological hypothesis, the amyloid-beta hypothesis – and so far all the drugs targeting amyloid beta have failed to demonstrate clinical efficacy in patients. These drugs may ultimately work, but there is so much more to explore. We have investment teams in the US and the UK, sourcing the best science in the world.
How is the fund structured?
The DDF is a 15-year venture fund with a normal investment period of five years which can be extended with the consent of investors, and a longer harvesting period. The reason why that’s relevant here is if we do some early exploratory low-cost work to derisk a new pathway or therapeutic approach to dementia, that may take a few years before we get to a point where we say this is definitely something we want to invest in, and then you’ve got the drug discovery cycle before we get to test the drugs in patients.
What about fees?
We haven’t disclosed them but they are market standard with management fees and carried interest.
What does the DDF investor base look like?
We have seven pharmaceutical companies, the charity Alzheimer’s Research UK, the UK Department of Health and Social Care and various other strategic players like AARP, Bill Gates, UnitedHealth Group, NFL Players’ Association and Quest Diagnostics.
We have a Scientific Advisory Board (SAB) that brings together experts from the key strategics to help opine on investments we have made, are considering making and on new areas of breaking science where we think there may be space to invest and create new companies. These are brilliant and experienced people who are actively engaged in the DDF. Our scientific advisors have no consent rights or decision rights as this is purely an advisory relationship and we’re all pulling on the same side. If you listened to our SAB or Partners meetings, you would hear the strategics offering support, assets and capability, which we don’t have ourselves in order to support the DDF’s mission, which is amazing.
It’s very different from a traditional venture fund or even more so from a private equity fund where the investors just want a financial return. Here, the investors are for sure looking for a financial return, but they’re also looking for new disease modifying drugs for dementia.
Did all the capital come from strategic investors?
Not all. We’ve got money from Dutch insurance company Aegon who have been funding the Netherlands’ Alzheimer’s Centre – not exactly a pure strategic investor, but they’ve clearly got a very big interest in the space. And we have some pure financial investors and some family offices.
What was the reception from pure financial investors?
[This fund is] highly, highly unusual, I’ve certainly never seen it in the life sciences space. The pharma companies basically get it; from their perspective, we generate the early data on drug candidates targeting new pathways that may drive dementia, [and] they can either buy, partner or license these new drugs, or they can develop their own drugs in the same pathways.
The broader strategics, AARP and Gates and so on, are much more interested in a holistic approach to develop multiple new drugs to benefit dementia patients globally. They wanted to be confident we have a credible track record of investment, but they also want to know we have the right expertise to develop dementia drugs and triage potential deals in this space, which so far we’ve done.
The fundraising was difficult because of the 15-year fund term focused on an area that has always failed, so it was not an obvious sell to an investor. Most plain vanilla investors wouldn’t consider it on that basis. That’s why we had to find investors who took a longer-term broader strategic view.
As it was, we increased the fund cap by nearly 100 percent, ended up oversubscribed and we had to scale people down.
Are there plans for a successor fund?
Our plan is to raise DDF II in three to five years which again would be focused on dementia drug discovery. Separately we will have a broader discussion about a dementia development fund or clinical fund to start thinking about progressing some of these early products further in the clinic. That’s all to be agreed.
What are the return expectations for the fund?
The same as traditional biotech venture funds. Although I might say I think the potential for returns could be more significant here given the size of the market and demand for disease modifying drugs.
Did LPs see this as an impact fund?
The topics that we have discussed are: is this ESG compliant; does it support the UN’s sustainable development goals? And the answer is yes. So we definitely check all the boxes of delivering benefits to society with the goal and the mission of the fund.
I’ve found from a marketing perspective, when I was out raising money for the fund, that using the word ‘impact’ then put you into a philanthropic bucket, and this is definitely not a philanthropic fund. I found investors, if you use the word ‘impact’, don’t recognise it as a red-blooded venture fund and see it as something that means you get reduced returns, and we don’t propose to generate reduced returns. So we dropped the word ‘impact’ from any of our materials.
Kate Bingham is managing partner and a member of SV Health Investors’ investment committee. She is responsible for biotech investments and activities in the EU and serves or has served on the boards of companies in the UK, US, Ireland, Sweden and Germany. Prior to joining SV she worked in business development for Vertex Pharmaceuticals, a biotechnology company in Cambridge, Massachusetts, and Monitor Company, a strategy consulting firm.