The evolution of the asset-centric approach in biotech venture capital – transcript

Mike Ward: Hello everyone, I’m Mike Ward and welcome to Conversations in Healthcare. A broadcast series brought to you by Clarivate. In this broadcast, we reach out to key opinion leaders across the healthcare ecosystem and talk about the challenges they face and the solutions that they have been developing to those particular challenges.

The pivotal role of the biotech sector in the discovery and development of new medicines is well recognized. Indeed, nine of the 10 best selling drugs today that are being sold by multinational pharmaceutical companies actually originated, or were originally created and developed in the lab in biotech companies. An activity that has relied heavily on the financial support from the venture capital community.

In light of this, I’m delighted to be joined by Francesco De Rubertis, a co-founder and managing partner at Medicxi, one of the most prominent financial supporters of innovative biotech activity. He’s going to provide some insights in how the biotech VC model has evolved in the past decade or so, from creating fully integrated pharma businesses through the support of platform technologies and the hybrid of the two, towards the emergence and evolution of the asset centric approach.

So Francesco, thanks so much for joining me.

Francesco De Rubertis: Hi, Mike, thank you very much for inviting me.

Mike Ward: Francesco, you have been an active venture capitalist in the biotech sector since the late 1990s. Can you describe, what were the challenges biotech focused venture capitalists were facing that prompted the creation of what is now called the asset centric model?

Francesco De Rubertis: Yes, thank you, Mike, for the question. Absolutely. So when we started many, many years back in the late nineties, there was not a lot of venture capital in Europe. There were some pioneer firms like Sofinnova Partners, like Abingworth, like Atlas Ventures. The list was really pretty much that. So these are among the oldest venture capital institutions on European soil. And when entrepreneurs really needed to create or wanted to create companies, there were really those three shops, plus a few others, that really were relevant sources of capital and advice.

And that is why my partners and I decided in the late nineties to create Index Ventures, as an additional shop that would provide venture capital financing, not only actually for biotech companies, but most importantly, for technology companies. Index’s expansion was focused two thirds/70% on technology and then one-third, or the minority in biotechnology. Then as we put Index Ventures up and we started to play the game, it was very exciting because actually, I happened to be lucky enough to have as one of my very few first investments, the seed round of Genmab.

Now Genmab was available to a venture capital firm like Index, which back then in the late nineties hardly had any cash available because the landscape was very, very immature. Now, I want to say that that was a blessing for Index, but at the same time represents a weakness of the venture capital market. Because of course, a company like Genmab could only go to so many shops. So that has been true for many, many years. Being on the board of Genmab and witnessing the growth of Genmab, I was lucky enough that we established ourselves as a venture capital firm among others.

And of course I started feeling what was the key challenge for entrepreneurs in Europe. And basically the fact that venture capitalists were very few and that for the long runs of a drug development and discovery company, the available venture capital resources were absolutely not sufficient. That was really going to cause downstream domino effects and consequences, which were misalignment of incentives between venture capitalists and management teams. Because of course, when you know that you have just a few dollars available, but you know that the goal line is beyond the reach power of those dollars, you need to really find other ways of being able to finance. And those other ways start to collide with the interests of venture capitalists.

So all these in maturity and scarcity that I was seeing in the early stage biotech scene in Europe is really what pushed me. I was still very young. So I was encumbered from any kind of business model that had been followed for many years already. So I was back then, after a few years of Genmab, I was still in my very early thirties, so I was still unencumbered. And I was thinking to myself, there must be a better way of helping company creation in Europe. There must be a more tailored way of doing venture capital to Europe.

The answer to that question was of course, as you know very well, Mike, because you have been a very insightful observer of the evolution of the business models in this industry for many, many years, asset centricity is the answer that we found to that set of weaknesses. And we started developing this idea and that was not a fully shaped idea from one day to another, but of course it was an initial direction of travel that I started to take in 2003/2004. The first real investment that really followed asset centricity was closed in 2005. And that is when you and I discussed at length about what I meant with us asset centricity. Since then, there has been an evolution, an adaptation and lessons learned.

But before I go too far that is really what the key core weakness of the biotech industry in Europe was in the late nineties.

Mike Ward: So, it’d be useful because I mean, you were one of the pioneers of that asset centric model, if you could sort of explain how it was designed to solve the challenges of company building models that you just outlined. The idea that there was a sort of a disconnect between the availability of venture capital and the timelines that actually required to develop new drugs.

Francesco De Rubertis: Absolutely. So this is key. This is key, and this is behind the insight of asset centricity. Quoting one of my business partners, David Granger, Every biotech company from the startup phase, all the way up, every biotech company has been always developed, originated and started as a pipeline of compounds. By definition, a pipeline of compounds is composed of different compounds, some of which are really earning high conviction levels, and some of which are less convincing because maybe they’re more speculative or they are less advanced or they’re more unclear, but still very justified and very possible, very fair as assets. What David Granger, my business partner calls them, every pipeline is a mix of gold medals and silver medals. Not because people decide to focus on silver medals, but because three quarters of the assets are lower conviction before they become high conviction.

So the big problem that I saw was that a silver medal and a gold medal cost the same amount of money to be developed. They cost the same amount of money, but the reward side of the equation is really driven up by the gold medals, more than the silver medals. And when I was investing in Genmab, there was of course, a collection of great assets, some of which turned out to be gold medals, some of which failed or turned out to be disappointing assets. But because Genmab was so beautiful and big and cash rich, we could still succeed at Genmab even though the first assets failed.

So my reasoning was the following. Is there a way, and this is the novelty of the business model again, and this is the core of asset centricity. Is there a way of only investing in gold medals rather than silver medals? It sounds very easy, rational. Who would want to invest in silver medals when you know which ones are the gold medals? The problem is just that one. That when you create a company with a pipeline, you don’t really know which ones are gold medals and silver medals, because it’s not so clear to say these are high conviction assets, 70% conviction, this is a 63% conviction. It is not that clear. So it’s very difficult to know which ones are the gold and the silver medal assets.

So I decided that I was going to use one way to sort of enrich the probability that I would only invest in gold medals and leave by the sideways silver medals. That model or that proxy, that filter was I would not invest in Genmabs again, by the way, I love Genmab. My career has been built on Genmab. So I’m not talking bad about Genmab. I’m just talking about if you’re not the best company in Europe, like Genmab has been, you need to find another way of financing your innovation.

The other way that I found was, I’m going to invest in startups that only commit to develop one molecule. You could say, how the hell can you decide that investing in one molecule is less risky than investing in a pipeline of molecules? And the point goes to the level, to the quality and value of people. If you can create a single asset company around a single asset with top people that commit their professional career to a single asset, that single asset in my book, represents a high conviction asset. Where people are happy to commit their outcomes to that asset. It can still fail, that asset, but in their best belief, in their souls, in their brains, in their heart, that asset is worth their career. That is a high conviction asset.

A silver medal or an asset that probably is not as convincing as a gold medal asset, probably would not be good enough to catalyze the formation of a single asset company. Could be good enough to be as a number four or five in a pipeline company, but you will find less often, a single asset company formed around a silver medal asset. That was the insight. That basically in 2005 led me to say, let’s do single asset investments. Let’s see. If you fast forward the movie and you fast forward 15 years when I’ve done the formal analysis and you say, okay, was that insight a good one or not? We counted, we simply measured the outcome of success in our portfolio that we had when we checked the R & D maturation. So the success in phase II, to speak in our jargon, of a portfolio composed of single asset companies.

And if we compare the success rate to the phase two success rate of a portfolio composed of the classically pipeline shaped kind of companies, it was very clear that the hit rate has gone really much, much higher. Above 60% of the assets that we had invested in companies that were single asset containing companies, more than 60% of them turned out to be successful companies. Either acquired or phase two readouts.

The reason for that was not that we had become smarter or that we had a better deal flow, I’m sure that that is also related. But the fact is that by pushing the opportunity costs of the decision that the founders of these companies were facing, because they couldn’t say, okay, we don’t know about the asset, but we have three assets, one of them will end up working and you pay for three assets, but only one asset is really the value driving asset. So because we were telling them, no, it’s just that asset. Do you believe in it, or you don’t believe in it? Because the opportunity cost of decision-making, and that is the economic proxy that really describes asset centricity. Because the opportunity cost of their decision was so high and because they were brilliant people in their field, we pushed to 60, 65% the probability they were right and the probability that we would be successful.

Once we’ve proved the concept that actually that filter, that artificial decision single asset company, this is an artificial filter if you want, but that, that correlated to the kind of increase the success rate. We said, okay, bingo. We have found a way in which there may be some silver assets that maybe are worth being developed, but it’s so expensive, the early stage biotech company capital that probably they are better financed in different ways, in different models. That is the core principle that has been at the basis of assets centricity for the last 15, 16 years. That is a concept that we have trademarked many, many years back.

Mike Ward: Where the plan was that once you’d got to that phase two proof of concept, the idea is then you’d move the asset onto organizations that had more financial firepower to continue with this sort of the development of those programs.

Francesco De Rubertis: Exactly. The insight is that the difficult part that big pharmaceutical companies are less naturally suited for, is the very early stage serendipitous and randomness discovery part. When you are a large structured organization and you have labs and you have diabetes researchers that are on payroll, they’re going to look for the next diabetes drug. If it turns out that that molecule is better for another kind of indication, too bad, it’s lost in translation, that kind of evidence. So I really believe that where the flexibility of a deconstructed R & D environment best creates value for the pharmaceutical industry is in the early stage of R & D.

I think we have demonstrated that because many of our molecules are now inside the late stage pipelines of pharma. But then of course, as you say correctly, at phase two, phase three, once with the little car we found our track and we are now on the highway, when you’re on the highway, it’s about, okay, maximize your speed now. You know that you can go straight. It’s easy to find your way now. It’s just about resources and knowing how to drive. Pharmaceutical companies are incredible. They’ve got resources, they know the game, they’re very competent organizations. They are not well matching the serendipity level of our early stage R & D in my opinion. But so yes, the natural outcome for asset centric companies was to go in phase two or phase three to go into large established commercial organizations.

Mike Ward: I mean, the funds that you established at Index and then what became Medicxi, those funds were cornerstoned by multinational pharmaceutical companies. What contribution, apart from the financial one, did they provide in selection and development of the assets that you decided to pick?

Francesco De Rubertis: Absolutely. It was a really, really strategic contribution. Put the movie back to sorry, to 2010, 2011, which is when we decided that they were going to be part of our story. So in 2004, we started playing asset centricity. Asset centricity is a very different ball game than classical start-up buildup, which is what other VCs do, and they have to capture another part of value creation. We can discuss that. But once I decided asset centricity will be our game, part of the game is that in phase two, you need to ensure that what you have been developing for the previous three, four, five years, it’s relevant to who is part of your match, of your game now. Which is the pharmaceutical company.

We did not have any potential of wanting to go to the market commercial, say, no, we needed to go to our intermediaries, which were the pharma companies. So it became very, very important that as part of the protocol and the recipe that I was designing for the success of our investment model, to be sure that I would be very well connected with the mindsets, with the understanding, with the knowledge base, that was inside pharma. So that is when I decided to reach out proactively to pharma . Of course I was connected because some of our molecules and companies had been acquired by pharma.

But then as I reached out to pharma to say, hey, we’re doing something a little bit different. We’re not building companies. We are developing drugs. The unmet medical need in the industry, why venture capital exists is not to create more companies. That is not the unmet need. The unmet need is, there are diseases that are not addressed. That is why venture capital money has got value, because we can help find those drugs. Creating companies doesn’t help in that endeavor, ironically.

So I had this conversation with pharma, they loved the positioning and angle of the story. And, in 2010/11, I was six years into asset centricity and I was starting to have the first proof of concept that indeed the R & D numbers were becoming really impressive in terms of asset centricity, and in the outputs.

That is when I was able to convince the first organizations GSK, J & J 2011 to co-invest in the funds, for what purpose? Not for the purpose of the funds. Of course, it was good to have their cash, but for the purpose of, I accepted their cash in exchange of their commitment for putting their top R & D people on my scientific advisory board and being obliged to be every three months spending a couple of days.

So that was a step for me to lock in a bridge on these pharma companies, but not on their checkbooks, on their mind behind, right? On the mindsets. That is really what helped me understand better. The contribution that they were doing was commercial relevance. Oh, Francesco, yeah, this mode of action that you want to develop in this company, it makes total scientific sense. We were working on this, in the end, we did not find a commercial application that was worth it.

There are several companies that have lost steam in our practices exactly. Because the commercial feedback that we were getting from those pharmas that were around the same table as us. So they were invested in those companies. So they were really interested in optimizing the return on investment. They were saying, Francesco, you do what you want because we own the decision-making. But they were helping us in understanding relevance from people that are interested in making sure that you are right. Not from people that can be politely telling you on a phone call, Yeah, no, it makes sense. You’re right. Absolutely. It’s a good insight. Thank you very much. And then, are not really invested in giving you a more full feedback. So that is really what has helped us.

What it turned out to be really a key component of asset centricity, proximity with pharma. It’s a key part of the equation.

Mike Ward: So what were the challenges associated with that approach that prompted you earlier this year to create an evolved version of the asset centric model?

Francesco De Rubertis: It’s very important, Mike, this question, and I really would like to make sure that I am as clear as I possibly can. Asset centricity in the way which we have just described until now, it’s something that I’m totally committed to. Not because I’ve got a faith in something, it’s just because the data are so easy to read. It’s clear. It works. The cost of the experiment costs less, the probability of a successful outcome is much higher and the write-offs cost much less. When you put those three equations together, that is productive R & D. So from a fund perspective, it’s better ROI. That is the equation, all, every new investment and every new fund that Medicxi is managing is going to go through asset centricity with always the exceptions that are linked to incredible platforms that are going to move the industry to the next level, we are going to do those. But asset centricity, single asset companies is the business model that I think is best in early stage R & D investing.

So where does Centessa which is what you’re referring to come into play? Over the years, as I was collecting the data point of success of asset centricity from my portfolio companies and given the proximity of the pharmaceutical companies that I had on my scientific advisory board, and of course, as I created momentum with the companies that were investors in my funds, I was also able to get more pharmaceutical companies much closer to me Medicxi. We have a yearly event that we organize in Italy, the Medicxi Forum, where the top 20 pharma or top 30 pharma are represented by a very top leader in their organizations. Most often their head of R & D. If not, a senior business leader or a therapeutic area head. So it’s a very, very senior network that we have been able, thanks to the success of asset centricity that we’ve been able to develop.

I kept on hearing one comment from the heads of R&Ds which was the following. Francesco asset centricity, it’s a no-brainer. It’s fantastic. To be able to deconstruct R & D departments around single company, single product, single purpose endeavors with scientists, which are single purpose, so that all of their sharp competence and product vision and drive and motivation is single purpose, that is the way to do R & D.

Hence, too bad news because our organizations, we can push that kind of model so much, but in the end, we’ve got tens of thousands of very competent scientists that are the resources that we have to work with. We can adjust at the edges, but we certainly cannot reorganize in a classically structured pharmaceutical company into an asset centric pharmaceutical company. And I was thinking to myself, I totally understand that. The image of restructuring a house is much more difficult than designing and building a Denovo house. I was thinking to myself over these years, one day when I’ve got enough of a portfolio, enough credibility, enough access to resources, I will create the first ever asset centric pharmaceutical company, which means a pharmaceutical company, which means pharmaceutical company, not a venture fund publicly listed. But a pharmaceutical company based on an R & D logic, which would be a totally deconstructed R&D logic, single purpose, single team, single purpose, but multi structured.

A pharmaceutical company that would be organized on individual cells, individual units, which come and go with the outcome of their products. A very de-stable, if you want kind of structure. A very deconstructed R & D environment. Late last year, I felt that this was the time to do what I just said, not because I’m moving away from asset centricity, but because I wanted to create also a pharmaceutical company based on asset centricity. The only way that I knew how to do this was to utilize an asset base that I had available to myself, that I could use as the foundational asset to create this pharmaceutical company.

Then I chose 10 of the assets which were majority owned by Medicxi, I chose 10 of them, and I chose the one that were more compatible with public markets because of course, one key component of the equation was that after founding this company, this company, which is going to be a long term standalone pharmaceutical company, bottom-up operated, single asset structured. I can come to more details in a second. But that this company will be a built to last kind of company and so it needs to have a lot of cash, ongoing capital, structure management team that will be there for the long term. So it’s a company that belongs to the public markets. So I needed to have assets that would be easily understandable for the public markets. So I’ve put in this company, the assets, which were precedented with the biology, more understandable and more precedented.

By the way, Mike, this is really very important for me to say. It’s not that by owning 70% of each of these companies, I run to the phone and I said, Okay, guess what dear CEO of the portfolio company, you’re getting aggregated to found Centessa. I told them, I promise that I would not drag you, but at least you owe me to listen to the whole vision of Centessa, and then you decide if you want to join or not. I really hope you join, but if you don’t want to join, as long as you’ve given me attention, if you don’t want to join, I cannot force you. We don’t live in a world where, thank God we’re not in the power of obliging people to work against their will, as it should not be. So all of the 10 companies joined because they believed in the vision that we were trying to articulate for themselves.

Mike Ward: So in the first iteration of the asset centric approach, which you described, the idea was to take the assets to a point where there could be then sort of on to a partner, most often a pharmaceutical company for further development. Now that you’ve opted to create this asset centric pharma company, how do your pharma partners, particularly some of the ones that cornerstoned the original activity, how did they feel about you creating what’s effectively a potential rival to their efforts?

Francesco De Rubertis: Fantastic question, Mike. Absolutely fair. So two points first. One, the vision of Centessa it’s indeed after phase two or phase three or phase one B depending on the mode of actions that a therapeutic area has been achieved, the classical part of asset centricity of 1.0 would have said, okay, let’s now go and call the pharmaceutical companies. Which is something that Centessa may decide to do as well, to partner out. But Centessa will also have the option, and it will be an evolving decision-making because at the very beginning Centessa would be smaller than hopefully in five or 10 years.

So the appetite or desire, or the capability of Centessa to bring to the market alone certain assets will be a function of time. But Centessa will have the option to bring things to the market itself. That is not denying asset centricity, because as I was saying before, asset centricity really has got its best value and application in the early stage of R & D, because that is the best way of finding assets that can become medicines.

Once they become medicines, of course, if you have no infrastructure, you need to sell them to pharma. But now, Centessa has got also the inbuilt infrastructure. So Centessa is a pharmaceutical company that will have a go-to market strategy that we are developing. It will have a go to market strategy that hopefully will be innovative and will be Vertex like maybe, hopefully we’ll learn a lot of license from Vertex. But the most important thing is that the R&D logic of Centessa will be an asset centric R&D logic, so that front end will be completely different from any other pharma. And hopefully, for every dollar that we invest in R&D, we will have two molecules coming out as opposed to one molecule coming out.

But then the implementation of phase three, I cannot imagine that it would be much different than what classically can be done in the world, right? A regulatory phase three trial or a commercial deployment of resources will have to be similar. But one thing that I do not want for Centessa is to create top-down constraints that then becomes players against R&D productivity. What I mean is, if your first molecule happens to be in a therapeutic area A, and you build a salesforce in therapeutic area A, it’s obvious that then you will start putting pressure on your discovery engines. Oh, let’s find an asset centric company that works in therapeutic area A. And that it’s a top-down constraint. It’s not a bottom up listen to the data kind of philosophy. So I hope that we will find a better go to market model than a salesforce based go to market model. Because that would represent a creation of the constraints.

Then I have the pharmaceutical companies that are our partners, or even the ones that are not our partners, but that we have discussed with for many, many years for potential partnerships, Centessa is a potential competitor, but as is any little biotech company that grows and can be sold to their competitor, right? Every company that comes out of asset centricity, even though there are three pharmaceutical companies in our funds, we have completely the right to sell that company at phase two stage to their top competitor number four. And there are no rights in which they can block any of my decisions. It’s really a thought partnership, not a legal struggle on us.

So in the same way, if you want, the value for them was not to pre lock-in any options. The value for them was that is their stated interest was to understand how asset centricity was working and to have a natural proximity to us because in their belief, God bless them, there was a probability that in our portfolio, something nice would come out. And so they’d better be close to me and to Medicxi and to the portfolio companies, rather than not. Knowing that they had no guarantee whatsoever of being able to get a preferential right. The only right that they have is an economic interest in our funds. So if you want it is an embedded discount, if they win the auction and they are able to buy a portfolio company of ours, they will have that 10, 20% discount, which relates to their ownership in our funds. Right? But otherwise, we could sell the molecules to their competitor number one, really.

Mike Ward: You mentioned that Centessa was created by taking on a number of existing or now I guess, former Medicxi assets. You sort of said that nobody was forced to participate in that process, but I’m intrigued to understand how you incentivize the teams that were previously associated with those programs to actually get on board with the new model.

Francesco De Rubertis: Very fair question. I can tell you Mike, that when I gave those 10 phone calls to the 10 CEOs, you can imagine, these are 10 single asset companies created by founding CEOs, entrepreneurs, CMOs. CXOs, the title in our company is so irrelevant because they’re the visionary guys. They partnered up with Medicxi exactly because our business model is, we back your vision, as long as it is that, nothing more than that. We’ll back you until we see that the data is not compelling. These were 10 companies which were thriving. Some of them had even pharmaceutical offers on the table. Some of them had crossed over a round of financing available to them. So these were thriving companies. With entrepreneurs, super excited about their own product vision, and Medicxi portfolio company so clear that we’re not going to bother them with, let’s acquire other assets.

So you can imagine October is when I started these conversations. When I started doing the 10 phone calls to the 10 founders, and I told them, hey guys, we’re going to go in an aggregation way, it’s called Centessa and this is what it is. The first five minutes was, Francesco over our dead body. Why? We’re doing well, what’s wrong with you? We are asset centric, we are really going well, why do you want to change? That is where I told them, don’t worry, listen up and then you’ll tell me, okay? Of course, put yourself in the shoes of a founder. The founder of that joins an asset centric company of Medicxi is driven by what? They have a very clear product idea that they want to pursue. So they want to have operational control of what they’re doing. They are entrepreneurs, and they understand that if they are right, it’s very fair and only due that they make a lot of money on the backend of this. And they want to work with people that they decide to work with. So if they choose us, they’re not going to have another 10 bosses above them. These are the hallmarks that the founders are really driven by.

When I told them, Centessa is going to be a big pharmaceutical company with a management team, and you are going to be acquired subsidiaries of these management teams. They would tell me, we’re not going to do it. Listen up. The model is that you are going to be acquired, but you’re going to be kept operationally independent and operationally empowered. So you are going to be driving your own car as you were before, point number one. Point number two, you are going to be incentivized on the product outcome itself. In other words, you founder of subsidiary company number one, as the subsidiary company that was acquired, became a sub co. You founder of sub co number one, you are going to have X percent and there was the negotiation, but you are going to have a direct dividend, a direct takeout, direct profit share, or whatever outcome happens on your own molecule.

So if you are so right, that your asset is going to become a multi-billion dollar outcome in the industry, you’re going to have a direct outcome in that take. By the way, differently from your equity ownership in the company that you have today, that direct profit sharing the asset is undilutable. It’s almost like a royalty, okay? You win. You will not need to complain about money. Third, in addition to this, because this is a pharmaceutical company, so I want everybody to be working in one direction. You, in the acquisition that Centessa does of asset centric company number one, becoming a fully owned subsidiary company of Centessa, you are going to get your equity amount of your asset centric company in Centessa shares, at the valuation that was agreed and negotiated with every company.

So in case your asset dies there in the water, you got Centessa shares. You are an entrepreneur, so you don’t care about being carried by others. But just hear the facts. And also if you’re right that your molecule works well, you need to decide how much Centessa is going to be working. So the earning opportunity is doubled now or tripled. If you believe that your molecule is great, unless you believe that the other nine molecules that we’re putting in this collection are all really bad molecules, but the Centessa value, you can understand what it’s going to be. But the pitch and the description to the entrepreneur was, operational independence, direct incentivization on your product and that is more glory related than cash related. But then also, you are part of the constellation.

So I can tell you that other companies in my portfolio called me and I said, hey, why not us? And I had to tell them, because you are still a venture capital play. You are not a pharmaceutical acquisition candidate yet. Right? So all of the 10 founders joined.

Mike Ward: So that brings us to the question. So you selected 10 programs to be the inaugural pipeline or portfolio of Centessa. What plans do you have for your expanding those programs?

Francesco De Rubertis: Yeah, absolutely. So Centessa is a long term standalone pharmaceutical company and I do hope that it will become a big company. On that basis, we are going to scale up and acquire assets and take company number 11, assets and take company number 12, when and if we find the opportunities that basically are going to match the belief of Centessa. Centessa is an independently operated company. There is a new management team, there is a board. I’m still the largest single shareholder, but I do not own the majority. This is not a Medicxi controlled company. So Centessa will acquire, that is part of the business model. It’s not that it may happen, it will acquire. There is no rush. There is no need to acquire a molecule a year, two molecules a year. What I really want Centessa to be free of any top-down determinations. It’s only bottom up.

This is what made the strength of venture capital, because if I see data in whatever indication area that I think is going to work, I can do that investment. I don’t need to think about therapeutic area constraints or any of that sort. So Centessa will have the right and the expectation, and is going to be empowered to acquire a company number 11, 12, 13, as long as these are existing single asset companies with the leaders, content experts in driving them and if, of course they are working on unmet medical needs, of course.

Mike Ward: They don’t have to have been initially created by Medicxi?

Francesco De Rubertis: Absolutely not. Absolutely not. This is not a vehicle for Medicxi exits. This is a new pharmaceutical company that I could create only because I owned 10 high quality assets and the round of financing that we have announced as demonstrated. That I could sort of corral in the same place. So I’ve used my muscles in order to create Centessa, but now Centessa is a standalone, free to run kind of company and I think it would be unlikely that I would put another asset centric company on Medicxi and Centessa because it’s unlikely that I’ve got all of the best companies in the world. I really hope that there are better companies than mine elsewhere. Otherwise, it’s really scary.

With the network that we have at Centessa, with the investors that we have at Centessa, with the infrastructure that we’re creating at Centessa, we are well positioned to be able… You see the pitch that I’ve given that I’ve described to you for the CEOs and the founders of my asset centric companies, that pitch must be very, very powerful for single asset entrepreneurs. Unless of course a top pharmaceutical company comes to them and says, we’re paying you $10 million up front, take it or leave it, my pitch will not be very exciting. But if it’s companies that still have to go through crossover rounds or late stage private rounds, the Centessa pitch is going to be pretty attractive.

Mike Ward: You raised a substantial amount in the series A rounds, what you have $250 million. And with the money that was sitting already in those assets, I understand that you’ve got something like $310 million to put to work. How long do you envisage that $310 million lasting the company before you need to go out and secure additional funding?

Francesco De Rubertis: So it’s a very fair question. So there is a $310 million in the company, and that is enough for a couple of years at full speed, with all successful products. But that is not the way which I want to think. The way which I want to think is really, I want unlimited cash power inside Centessa for all of the opportunities that can be available out there. I want to be in a position where, because this is a data driven bottom-up company, I do not want budgets top-down, to have to drive us to make choices.

This is the pledge that I’ve given the 10 asset centric companies. Guys, as long as you produce good data that you think are great, and that the management team of Centessa does not disagree with, cash is going to be available. There is not going to be top down strategic prioritization, budget constraints, portfolio restructuring, there is nothing top down, but in order to be able to say, all of you are going to be super powered as long as data are fantastic, I need to make sure that a billion, a billion and a half, $2 billion of cash are in the bank at every single point in time.

So to answer your question. A couple of years, at least of cash is in the company with this cash, but it’s not enough. We’re going to make sure that we lock in important additional sources of capital in the short term, through any source of financing possible. Private financing, public financings, structured alliances. It’s important that cash should not be a top-down constraint.

Mike Ward: So this has been an absolutely fascinating conversation. In the original asset centric model, the objective was to get the asset ready for late stage clinical development with a pharma partner. In the new model, with Centessa, what does a good outcome look like?

Francesco De Rubertis: So Centessa is going to be at some point in the future, a publicly listed pharmaceutical company. I hope that that is going to become a bigger and larger, more successful productive, R&D productive pharmaceutical company. That is going to be a success. So we are going to have to produce positive proof of concepts, great pharmaceutical valuable assets. And then for certain assets, an external partner may be the best partner to really maximize the commercial potential. So Centessa may enter into billion dollar kind of transactions for certain assets. Especially in the beginning, because in the beginning we will not be a big pharmaceutical company, we are a budding new pharmaceutical company.

So I do believe that in the first horizon, we will be more transaction friendly or oriented. Then in the second horizon, the second horizon is once we will have the airplane at cruising altitude, then we will have maybe the multibillion dollars of cash available in the banks, where we can say, we can do the five phase three clinical trials that we need to do. In the beginning, probably, even though we are hoping to become a big pharmaceutical company, we will still  be an airplane going up to cruising altitude.

So a successful outcome in that point would be, as long as we produce materially valuable pharmaceutical products, whether we transact them to pharma or we bring them to market internally, hopefully the result of that is going to be a valuable pharmaceutical company. My ambition Mike, is that in 10 years, 15 years, if things go well, we will have established a pharmaceutical company that would be on par with the best pharmaceutical companies in the world, but with an intrinsic R&D productivity benchmark, that would be superior to the average.

If we will do that in 10, 15, 20 years, God knows. When and if we arrive at that benchmark, then I really hope that the next pharmaceutical companies or existing pharmaceutical companies may decide to restructure because in the end, we need drugs to patients and we need to understand that we have a finite amount of resources available to the industry. It’s not unlimited capital. So it’s not just nice to say R&D productivity will do better than anybody else. It is a strategic long-term sustainability issue. It’s very difficult to be clear and clean and focused on long-term sustainability issues, but that is what is in the game.

If we create a pharmaceutical company that can create a lot of value for the shareholders because, and that will be a lagging parameter to adding creative great drugs at a lower cost of development than the classical pharma, everything will have two major objectives. Make a lot of money for the shareholders in Centessa, and show in a way in which operational reorganization of pharmaceutical companies could be a beneficial aspect for the industry. An industry that has got a finite amount of capital available.

Mike Ward: Francesco, I’d like to thank you so much for talking to us today. The insights that you’ve shared I’m sure are going to be of interest to many members in the audience. So thank you, Francesco for joining us. And also I’d like to thank all our listeners for tuning in. If you’d like to hear other Conversations in Healthcare, follow our LinkedIn page, where we’ll be posting alerts to future episode releases. Until next time, stay safe and healthy. I’m Mike Ward, and I’ll see you in the next episode.

Francesco De Rubertis: Thank you.