Interview with:
Dr Sara Nunez-Garcia
Senior Associate
Sofinnova Partners


Phacilitate:   Please summarise Sofinnova Partners for us – the group’s philosophy, strategy and specific areas of interest and activity

Dr Nunez-Garcia:  Sofinnova Partners has been in existence for over four decades. The group’s philosophy has actually not changed in the last 40 years – we remain an early-stage life sciences investor.

By ‘early-stage’, we do not mean the early, early science, but being the first institutional investor to go into the company. The company may have existed for a few years on non-dilutive financing – by friends and family, angels, and the like – but we are typically the first VC to invest.

We lead or co-lead almost 100% of our investments. This is how we like to be involved with the company and its management. We take a very strong role in shaping the companies and giving them direction – that’s why we like to call it ‘early’.

We closed our seventh fund in 2012, the first 100% life sciences fund. We are now solely a life sciences VC; we used to have IT as well, but we have divested that part – so we remain purely a life sciences investor. We are at the end stages of our investment period with this fund.

We do both biotech and medtech investments, and remain therapeutic area agnostic. We have invested in indications such as ophthalmology, women’s health, oncology, rare disease and gene therapy… We’ve invested broadly with our latest fund, both the US and the EU. We are looking forward to finding the last two or three investments for this fund, and we will then go on to the next fund – Sofinnova Capital VIII.

We typically go alone into companies at the seed stage, but then help build the syndicate at the Series A round; over the last four decades we have pretty much worked with all the life science teams, and we look forward to finding new investments and to working with them as well.

Phacilitate:    Much has been made of the return of VC finance to biotech in general over the past couple of years – and to the cell and gene therapy space in particular. As a member of a team that has always backed the sector, what for you were the key catalysts for this and how do you expect the trend to develop further in the foreseeable future?

Dr Nunez-Garcia:  Well, we remain optimistic: I wouldn’t say that we have actually seen a lot of returns in the cell and gene therapy space yet, but we have seen a resurgence over the last three or four years.

We’ve seen that in a number of areas, of course – we’ve seen that with gene therapy, in RNAi…. So that’s not new. These things do come and go – it takes time for the dust to settle.

Gene therapy, for example, was in fashion 10 years ago. Genzyme were the first ones to go for cystic fibrosis and many people entered the space at that time – gene therapy, RNA therapy, cell therapy.

We were actually one of the first ones to invest in the field: we actually made money out of the company in question, but it was a very rocky experience for us.

It basically involved a dendritic cell vaccine for melanoma. This was almost 10 years ago and it wasn’t easy because the ecosystem for that type of approach and product was not in place. We managed to get out of the investment and make a return, but I would say that was the end of the road at that time for that particular type of cell therapy.

Fast-forward 10 years and we’ve seen this sort of approach come back. This time, the ecosystem is a little bit more prepared – although I wouldn’t say it’s 100% ready.

By the ‘ecosystem’, I mean that the science has advanced whereas before, you had problems with reproducibility and the manufacturing was a nightmare – basically, the science wasn’t there. We had problems with immunogenicity and delivery, for example.

But it has now advanced, which means there’s a lot more willingness from the VC community to invest. We can point to something that we didn’t see before from either the VC community at the private level, or from the public markets: we actually see gene therapy companies going public now. For example, uniQure went public recently. We’ve also seen the creation of a lot of cell therapy and gene therapy companies backed by pharma, which is another thing that you didn’t see before.

This has all happened because the field is a lot more mature. Today, we can say that we’ve seen better returns in the space. But the fact that gene therapy companies in tricky spaces – CNS, for example – are now able to go public… that is something that we have never seen before. LPs have not yet realised those investments, but they are close to achieving that.

This is coupled with positive change in the regulatory environment – the fact that there’s less push-back now than what we saw with Glybera, for example. The road to approval for that product was pretty rocky. Now, because the safety of various vectors is much better, there’s more willingness to approve at the FDA and at the EMA level.

So there are various factors that are very, very important to making it a success for everybody – for the patient, for the VC, for pharma and for the community at large. You can now see gene therapy products getting approved, you can see the likes of GSK backing gene therapy, you can see companies like Bluebird Bio entering the cell therapy space.  This is actually a very, very exciting moment for cell & gene therapy – it’s been 10 years since the last time we had anything like the same degree of hype.

At the moment, it’s pretty much clinical excitement. Hopefully, we will have a lot more successful stories at the clinical level and then also at the commercial level, which is yet to be realised. At the clinical level, you can see a lot of Phase I, Phase II results coming through – very successful stories, promising stories. But commercially… we don’t know if autologous methods are going to fly commercially, for example – hopefully they will. Or how to price gene therapy products, for that matter.

So we are not there yet, but 10 years after the last boom in cell and gene therapy, I think we have arrived at a very good moment for people to enter the space.

We are constantly monitoring the space – we are in touch with the KOLs. At Sofinnova, we currently assess about 20 potential deals per week and out of those, usually 4-5 will be cell therapy or gene therapy.

We have invested in the gene therapy space. There is a company called Lysogene. It’s a French company, developing a product for Sanfilippo Type 3A. We’re very excited about that. You know, CNS is not the easiest area to go for, but we are very confident that this could be a good story.

We have also looked at the cell therapy space for spinal cord injury and for the heart. Of course, we’ve looked at the CAR-T area, we’re looking at CRISPR. We are pretty active in this space because, as I say, this actually a very, very good time to invest.

Phacilitate:   European biotech companies with which we research our programmes tend to cast envious glances across the pond to the US, with the recent large, headline-grabbing VC investments that have been made over there in recent times. As a representative of a company that spans both North American and European continents, what’s your take on this? How different are the two finance environments in reality and if a significant gap does exist, is it closing?

Dr Nunez-Garcia:  This question always seems to come up in panels: “What’s happened to the gap? Why is there a gap? Is the gap narrowing?” However, I personally think we should not actually talk about a gap.

What I mean by that is the gap exists at all levels – at the scientific level, at the VC level and at the acquisition level – but I don’t think we have to worry too much about how big the gap is, or whether it’s widening, or narrowing. I think what we need to worry about is globalising the mentality of companies.

I don’t think we should ask, “This is an EU company going public in the US – is this a problem or not?” I’ll give you an example of one of our companies which I think is doing it in the right way. It has proven to be a success story and there are many, many other companies that I’ve seen in the EU following the same path – to success, I believe.

The company is called ProQR Therapeutics. It’s a company that we seeded about two and a half years ago, based in the Netherlands, but with IP from Massachusetts General Hospital. We were agnostic as to where the IP was coming from then and are still agnostic today. The CEO, Daniel de Boer, is sourcing Asia, South America… he doesn’t care where the IP is coming from – it just has to be the best IP, the most competitive IP.

Though the company is headquartered in The Netherlands, the CEO made sure that he attracted the best of the best people for the company operations, the scientific advisory and the supervisory Board. For example, the CFO and the CMO are coming from Gilead Sciences and they’re both based in the US. The supervisory board is half EU and half US and the board meetings rotate in location (Boston, London, Paris, Netherlands) to facilitate attendance. Obviously, the CEO spends quite a lot of time on a plane, but he doesn’t mind that.

Following the initial financing round (where we were the lead investor) he decided to go for a crossover round. It was one of the first companies in Europe to actually do a crossover (mezzanine) round with a NASDAQ listing in mind – the CEO was totally agnostic as to where the financing was coming from and the same could be said about the crossover investors, and also the investors that invested at the IPO.

Crossover investors – mostly US investors – looked at it and thought, “Yes, okay, it’s a company in the EU, but it is a company with a very, very strong platform, strong IP, a very strong board, lead investors in place and a great management team.” So they came on board, we closed a €45M round, and three months later, the company went public on NASDAQ and today is worth a $500m valuation.

So stories like this illustrate that you don’t have to think about EU companies, licensing EU IP, growing in the EU and going public… You just have to build the best company, source the best talent.

I think that those companies are built globally, with a global mind-set. It’s not enough to think, “I’m going to do everything locally,” because you may not find the best resources locally. I’m not saying that the US is better or the EU is better – no, I think there are things that are good on both sides of the Atlantic.

Maybe, if the ProQR story had happened in the US… Maybe the scale of the competition would have been too much and then nobody would have noticed the company. Maybe the drive of the management was more noticeable in the EU… But I think that if you ask the CEO, “Is there a gap?” he would say he doesn’t even see the EU, the US, South America, Asia… He’s thinking, “I want to source the best of the best, wherever I can find it.”

He’s often in Asia – he’s often in China, to see if there’s something there that he could source for his company that might improve the management or the IP position.

So that’s the mindset that we have to bring about to our companies. Of course, it would be great to find everything 20 kilometres from your company and be able to go public in the local public market. But that’s not the case today and I don’t think we have to try to ‘bend the arm’ in that way.

We have to appreciate that there’s a market in the US now that is very much open to EU companies. I think it’s open to the quality and to the drive of companies – it doesn’t matter if it’s a US company or European company, and it’s the same thing with the crossover investors.

Several portfolio companies have floated this year, both in the EU and the US. For the last three that we brought public in the US, we had a crossover round with the best of the best crossover investors – the likes of Fidelity, BlackRock, RA… They literally don’t care where the company is located. They care about the management – that it’s driven, that it can communicate a good story to the public markets. They care about the global mind, that you’re able to focus on quality and not worry about whether there’s a gap or there’s no gap.

Phacilitate:    Following on from Glybera, the recent approval of Holoclar represented another important first for Europe’s cell and gene therapy community, and another step forward for the field, in general. How much confidence does this instil in the investment community in reality? What, to your mind, are the remaining critical barriers that must be overcome to enable large-scale commercialisation of ATMPs?

Dr Nunez-Garcia:    Well,  we have been at this stage before and while I think that it’s great that we have a second commercial story, I think we need more of it. That said, when we used to have setbacks in the field – if a product revealed safety concerns, for example – it would basically freeze the market, both at the financing level and at the regulatory level. Now, at least there’s more willingness to accept failure, less volatility at all levels.

Take Glybera again – I think it’s not all rosy, even though it has been approved. Voyager’s ophthalmic clinical data is another recent example. But I think what’s great about now, today, is that there is not as much volatility. People are not running for the hills every time there is a small setback in gene, cell or RNA therapy. At least we have a better understanding of the science and it doesn’t need to freeze the space and set us back years, as would have been the case a decade ago.

And I think that’s correct: we need a lot more stability at all levels – at the research level, at the clinical level and at the regulatory level.

Now, I wouldn’t say that we’re there yet. A few products have been approved only for rare indications, and we still need to see whether these products are going to fly commercially. We certainly don’t have a blockbuster on our hands yet.

There’s a lot yet to accomplish, but I think there’s a maturation of this space. However, it does all come down to needing to see a lot more clinical success stories, and definitely, a real commercial success story or two. For a VC to invest, we need to see that somebody will buy our companies. Big pharma need to be confident that there is going to be a commercial story at the end of it. Without these successes, the field won’t thrive in the long term.

I think we still have a lot of challenges on the manufacturing level. The Bluebird Bio, Juno and Novartis stories are great but we don’t know whether these autologous therapies are going to fly. Dendreon had it tough, and then the small molecules came along and they were not able to charge their price… So we still need to be cautious.

But I do feel the community is ready now to advance. In spite of the challenges in manufacturing and the uncertainty about the commercial success of these therapies, we are hearing about a lot more clinical success than we have ever seen previously. And the prelude to a commercial success story is having very good results in the clinic.

Phacilitate:      What words of advice do you have for fledgling ATMP start-ups and biotechs seeking VC funding in the current environment?

Dr Nunez-Garcia:   Today there’s a lot competition. I wouldn’t say to have to reinvent yourself, but I think you need to find a little bit of a niche, and I don’t think that’s specific to gene or cell therapy.

Differentiation from the competition – there’s good science differentiation and a good management team is key. And always be realistic about the capital requirements for your company.

For example, one company that we saw last week is active in Duchenne muscular dystrophy. They’re trying to differentiate the muscle cells and it’s a great story, but we went through the financials and the manufacturing of those cells is a €200m or €300m investment. As a VC, we would love to invest in all of these great companies, but we also have to be very realistic. We reserve about €25m per company and we usually have an additional 3-4 investors around the table. Typically, at the time we exit, we have invested about €100m to €130m altogether. So we simply can’t support some of these companies.

Manufacturing in some of these cases is going to involve a capital requirement that you won’t see with a small molecule drug. And then when you consider the complexity of actually delivering the cells to patients in some cases… It’s going to make the investment pretty expensive and it may require finding a pharma partner for the development. Some of the time, we don’t see that we can take the company to the next inflection point and then exit because if pharma doesn’t come in and we cannot support the companies, then we then need to rely on the public market – and we don’t really have a lot of successful stories going public. With NASDAQ, the window is open today, but we don’t know about the next month or next year.

So being very realistic about capital needs of the company is a must, identifying the investors that will be able to take the company to the next inflection point, great financial management, great science, and I wouldn’t say niche indications, but I’d say therapeutic areas that are perhaps more amenable to the technology – the eye and brain, for instance, where delivery remains a major barrier to entry.

I think there’s still a lot of opportunity to impress investors, to really reel them in to the table. I think there’s a lot of potential at the scientific level, there’s a lot of great people to heavylift companies. So I advise to come strong: do your homework, recruit the best of the best people, and the best SAB that is going to guide you through the ups and downs.

Just talk to the people that have actually failed in the space because you’ll learn a lot more from failures than successes. Go back and revisit the history of this space because there’s always something to learn. Then draft your business model for how you want to build the company.

Now is the time – if a company is in the gene and cell therapy space, now is a good time. If a company presented to me a gene therapy five years ago – whether for the eye or any other indication – I would have probably said “no”, my partnership would have said “no, we’ll pass on it for the time being”

Today, we look at it as much as another opportunity – for example, a small molecule or antibody. In cell therapy, we don’t really have a lot of successes yet, but at least there’s a willingness to invest because there’s a belief that there’s a lot of money to be made.

The best thing for companies wanting to build a case in this field is to realise it’s no different to any modality – to small molecule, ADCs, antibodies or whatever. Be sensible, have a strong business plan and team around you, and then it should work over time.

Phacilitate:    Our Barcelona agenda includes a strong focus on European regulatory evolution. What’s the investor’s view on Europe’s regulatory environment? Does the comparative stringency or uncertainty in a number of ATMP-related areas cause investors to have second thoughts about particular technologies or modalities?

Dr Nunez-Garcia:   I think the stringency has reduced, in general, in both the US and the EU. In the past, our understanding was that EU was perhaps a little bit more open than the US at the regulatory level, and I think they are less stringent today.

I think with the regulatory agencies, the word is still ‘safety’. But I think there’s a willingness to push products forward in all the modalities, including the cell and gene therapy space.

I think things are becoming better. I don’t think I’m in a position to really compare US versus EU, but for sure, as an investor, our companies have a seen a willingness from the regulatory agencies to discuss their issues and find a pathway to approval. They’ve been very open and very constructive.

I suppose in the past, we just didn’t know: there was a recurring concern about this space. But now, gene therapy, RNA therapy, cell therapy, stem cell therapy – they’ve been around for a while and they have good clinical stories behind them, so there is a lot more willingness to innovate in regulatory terms. We have reviewed the minutes from a number our companies’ meetings with the regulators and they seem to be forward-thinking and provide very constructive input.