Johnson & Johnson (NYSE:JNJ) is already trying to tap into early-stage pharma and biotech with its global innovation centers and North America-based JLABS incubators. But its new incubation strategy in Europe, called JLINX, takes a different approach.
JLINX, based in Belgium and run by life sciences investment firm Bioqube Ventures, will provide the infrastructure and expertise that other incubators offer, but also another ingredient that is often lacking in Europe: capital. “This is different from any other incubator you’ve heard of,” says Nico Vandervelpen, co-founder of Bioqube. “Incubators are usually only infrastructure.”
For J&J’s North American JLABS centers, this is enough. “In most of the regions where JLABS are based, there’s plenty of venture capital,” says Debora Dumont, Bioqube’s other co-founder. “The entrepreneurial spirit is lively in the US but is really lacking in Europe.”
Bioqube, through JLINX, is hoping to bridge the so-called valley of death that faces young companies. “There’s a funding gap between where research stops within the university and further development in the clinic,” says Mr. Vandervelpen. “And the majority of venture capitalists and investors stay out because it’s high risk.”
This gap seems especially pronounced in Europe, where there has been a trend towards fewer, bigger rounds that is even more marked than that seen in the US (As venture capital flows freely, Europe's haves and have nots emerge, January 19, 2016).
But Bioqube is embracing this very early-stage risk, with the JLINX initiative typically targeting companies from the preclinical stage to up to early phase I. These groups find it tough to raise cash, and the investor believes it can fill a niche by targeting them.
“It’s the most difficult place to be because the de-risking hasn’t taken place,” says Mr. Vandervelpen. “But on the other hand, we’re seeing pharma move gradually upstream. [Bigger companies] want to make sure they’re very close to the early stuff and have access to it.”
This could make the exit point for early projects closer than it has been in the past. “We carefully select our cases based on that assumption, and that’s why we’ll go for novel modes of action and exciting indications where the chance of pharma picking it up early is highest,” says Ms. Dumont.
Are there any areas in particular that Bioqube is interested in? “All kinds of indications: oncology, CNS, inflammation, infection, and with special attention on the microbiome,” she replies.
All killer, no filler
The group aims to initially invest a few hundred thousand euros per company so they can carry out a “killer experiment” and make an early no/no-go decision. For those projects that succeed, “we’ll then gradually build equity in the company over time”, says Mr. Vandervelpen.
Bioqube is responsible for sourcing the projects that will become part of JLINX. “We have a team of six people who do the triage, look at what is interesting,” he continues. The group then uses external experts, including J&J, to build the investment case – and the most promising will go to an investment committee for formal approval.
J&J’s venture capital arm, JJDC, will invest in the companies that make it that far. Bioqube is currently looking at nearly 100 projects, and from this it should “end up with two to four deals signed and sealed”, says Mr. Vandervelpen.
The group should announce one or two portfolio companies over the summer. Overall, Bioqube aims to house 10-15 groups within JLINX in the next couple of years. This could rise to 20-25 in five years’ time.
The companies do not have to be based at the JLINX facility on the Janssen campus in Beerse, Belgium. “Our business model is not relocating companies – it’s making sure we get access to innovative stuff and making the connection,” says Mr. Vandervelpen.
If the companies do opt to work on the site they will share the space and equipment with other entrepreneurs, which could help them pool expertise and ideas. “In the US, we know all about [this model], but this is unique in the Benelux region,” says Ms. Dumont.
Most of the applicants are from Europe, but there are also examples from Brazil and the US. “The really exciting ones are the ones that are not known in the VC community but that we know through our network,” she adds.
More pharma partners?
J&J is currently the sole pharma partner, but Bioqube is looking for others to join the initiative. “We’d like to add another one or two pharma partners to the party,” says Mr. Vandervelpen. At this point, Bioqube might be able to operate as a stand-alone fund – or it might continue with the model of managing direct investments from pharma companies.
Having more than one pharma player on board will not cause friction, the co-founders believe, because J&J – and future partners – will not get any rights to the portfolio companies. “There are absolutely no strings attached to the model,” Mr. Vandervelpen explains.
“All of them will be treated equally, like when venture funds have pharma partners,” adds Ms. Dumont.
But J&J, and possibly others later, will get a first insight into the portfolio companies – and could eventually make a deal with them or even acquire them. “We would love to sell something to J&J but perhaps it’s even better to sell it to somebody else. You never know,” says Mr. Vandervelpen.