By Jonathan D. Grinstein, PhD
Alek Safarian, CEO at the British venture capital (VC) firm ALSA Ventures, thinks that while startup biotechs, and particularly in Europe, can be very strong in the science and formulating original ideas that lead to company formation, there often isn’t a real depth of management expertise.
“That’s not a universal rule, but most early-stage biotech companies will come out of a university,” Safarian told GEN Edge. “The academic founders will be absolutely integral to the whole idea and the company being formed. However, commercializing that is something that is a whole different challenge, and the tools of management are less deep in Europe than they are in the States.”
That was a major reason Safarian decided to found the firm in the U.K.—to focus on early-stage European biotech companies passionate about bringing novel therapies to patients.
According to Safarian, a key piece of the value that ALSA wants to bring to these early companies is the team’s operational experience in the pharma, biotech, and contract research organization (CRO) industries. This is exemplified in Safarian’s own experience as a founder of Novotech, a Sydney-based contract research organization working with hundreds of clinical-stage biotech companies over 21 years.
Syndicated investing or startups from scratch
ALSA is an independent VC firm—it didn’t spin out of another VC company or bank, nor is it the venture arm of a company. The company does two types of investing. First, there is the traditional syndicated deal, where ALSA takes a board seat and essentially provides financing through a syndicate. The other approach is creating companies, setting them up from scratch, and either launching them as a NewCo or taking a majority stake in the company, aiming to get behind the wheel in setting strategy and direction in close partnership with management.
The fund in which ALSA is currently investing is roughly 50/50: after two mergers of investing, there are six companies in the portfolio—three NewCos and three majority-owned, syndicated companies acquired by a white knight strategy—when a friendly investor acquires a corporation at a fair consideration with support from the corporation’s board of directors and management. Safarian said that this approach speaks to the strengths of the ALSA team in operational roles.
“We’ve been there, where the entrepreneurs are in the companies in which we invest, so we look to bring a lot more than just a high-level input or a financing line,” said Safarian. “We also like to think of ourselves as operators that can work to patrol the wheel with the management teams we are working with.”
Safarian mentions that ALSA is planning a fund with a similar playbook focused on the United States. However, that’s still 1–2 years away and is not the main priority, which is to get the companies supported by Fund One up and running.
ALSA’s approach to taking on investments is an active strategy: they target areas where they think science and medicine are headed, whether it’s a modality, therapeutic area, or specific indication. Safarian also said that ALSA keeps an eye on deals that might not have been available a few years ago but that suddenly become available because of some external factors, like market conditions.
For many, the biotech funding scene for the past 12–18 months has been challenging, but according to Safarian, the situation hasn’t been as challenging in Europe compared to the U.S. This funding climate has presented opportunities for ALSA to breathe new life into companies in the late preclinical state and help them grow through Phase II, which Safarian said is when clinical proof has been established and is when they look to pass on the patent or IP. There is an exception to the rule of relinquishing the company at the end of Phase II: if the therapeutic in hand pertains to a rare disease, ALSA is willing to try to get it to market.
“What we look for is first and foremost for areas where there is going to be high unmet need, and, within that, we look at the competitive landscape,” said Safarian. “We’re agnostic, modality-wise, and therapeutic-wise. There’s a heavier concentration around oncology indications, but that’s not deliberate; there’s just a lot happening in oncology with what we look for. We’ve invested in everything from small molecules to biological therapy, but mostly, we look for things that have the potential to make a major difference in what’s available. Cell and gene therapies present a lot of opportunities.”
Last month, ALSA Ventures announced the acquisition of Axovia Therapeutics Inc, a company working on gene therapies for ciliopathies, and the launch of a new portfolio company, Axovia Therapeutics Ltd. Axovia had already been formed a couple of years ago and was operating as a U.S.-headquartered company. Still, Safarian said that the company had become dormant because of the funding environment.
“We first looked at [Axovia] last year, and we really liked the science, but, at that time, the numbers just didn’t work economically to do the deal,” said Safarian. “Then the opportunity came about earlier this year, where we were able to form a U.K. company, merge that with Axovia in the [U.S.], and bring that company to the U.K.… The company was stalled because of the funding environment. No IPO window was open. The company might have been listable three years ago, but not today.”
ALSA will look to take Axovia all the way to market as their lead candidate, AXV101, targets retinal dystrophy in Bardet-Biedl Syndrome (BBS) patients, which affects between one in 70,000 and 100,000 in Europe and North America.
Safarian said that their approach of giving new life to a company by bringing it to the U.K. can be applied to NewCo, where there is no infrastructure or management team—just the idea for a drug. ALSA will build a NewCo around that and get behind the wheel for 6-12 months before bringing on additional external management teams or syndicating it.
“The idea would be to set it down a very firm path and a direction forward before relinquishing the level of control just to make sure that it’s going in the direction we had a vision for when we first invested in it,” said Safarian.
Off and running
ALSA is in its third year of Fund One, and Safarian said that the firm is still very much in the investing period. He would like to fund bringing 10-12 companies to ALSA’s portfolio, which Safarian thinks they can do by year five because they are about halfway to that goal.
“These companies are all still in their maturing and value-adding stages, but they’re not at an exit point,” said Safarian. “We anticipate being in any one of these companies anywhere from maybe three to seven years. So, we’re probably a year or two out from the first exit of any of these. During that time, we’ll also complete the actual portfolio build, but it’s a typical conventional 10-year fund where we’ve still got somewhere to go before looking to exit most of the companies.”
It is a crucial time not only for these fledgling companies but also for ALSA to establish itself as a VC firm that’s here to stay.