Art Pappas has overseen his own firm’s venture capital investments for 20 years. Now the veteran life sciences investor is adding on a new role, scoping out investment opportunities for a pharmaceutical company’s new venture fund.
Italian pharma Chiesi Group’s recently-launched Chiesi Ventures will focus on investing in companies developing treatments for rare and orphan diseases. The bulk of the money for investments will come from Chiesi, but the fund will be managed by Durham, NC-based A.M. Pappas & Associates, whose own investing unit, Pappas Ventures, has backed numerous companies that have found exits via acquisition or initial public offering.
Some of them, such as Lumena Pharmaceuticals, a San Diego company acquired earlier this year by Shire (NADSAQ: [[ticker:SHPG]]) for $260 million, focused on rare diseases. Pappas Ventures also invested in Plexxikon, developer of a personalized medicine treatment for melanoma. Japanese pharma Daiichi Sankyo acquired Plexxikon in a 2011 deal valued at up to $935 million.
Pappas, the CEO of A.M. Pappas and managing partner of Pappas Ventures, says rare and orphan diseases represent a good investment opportunity because they require smaller clinical trials that should lead to a faster path through clinical testing and regulatory review, compared to other diseases. The FDA has taken steps to smooth the path for such drugs. For example, the “fast track” designation speeds up the development and the regulatory review of drugs that treat serious conditions that have few, if any, available treatment options. Investors have noticed the changes.
“You can make these targeted types of investment and take things through the clinic with more capital efficiency in leading a product through approval,” Pappas says.
Working with Pappas at Chiesi Ventures is Giacomo Chiesi, the business development and licensing manager for Chiesi Group. The collaboration with a pharma on a venture fund is a first for Pappas, who has managed his firm’s own funds but never the fund of a pharma company, he says. Chiesi Ventures will have offices in Parma, Italy, as well as Boston, MA, where Giacomo Chiesi is based. The fund’s North Carolina presence will be through Pappas & Associates.
Chiesi Ventures will operate independently from Chiesi Group. Along with the pharmaceutical company’s backing as the sole major investor, the new fund will have an investment from A.M. Pappas, Pappas says. He declined to provide financial details on the size of the fund. Pappas says the fund’s investments will not give Chiesi Group rights or options to acquire technologies developed by portfolio companies. But Chiesi had already found success investing in U.S. companies—an experience that paved the way for the collaboration with Pappas.
In 2009, Chiesi Group acquired a majority stake in Cary, NC, company Cornerstone Therapeutics. In exchange, Cornerstone received U.S. rights to a Chiesi drug and the first rights on products that Chiesi planned to market in the United States. But rather than market its products through Cornerstone, Chiesi decided to buy it outright last year. The pharma company acquired the remaining Cornerstone shares it did not own in a bid that valued Cornerstone at $251.8 million. When the deal closed in February, Cornerstone was renamed Chiesi Pharmaceuticals.
Chiesi Pharmaceuticals was planned as Chiesi Group’s launching pad for commercializing Chiesi products in the United States. But Pappas says Chiesi also had designs on expanding its reach by investing in early-stage companies. As Chiesi worked on closing the Cornerstone acquisition, company officials also met with Pappas in January. That initial meeting led to further discussions about partnering on an investment venture. By the start of summer, plans were set to launch the Chiesi venture fund in collaboration with A.M. Pappas.
Partnerships between pharmas and venture capitalists come in different forms, says Cambridge, MA-based healthcare consultant Harry Glorikian. But VCs and pharmas that look to partner could be looking to
