When Chris Garabedian set out early last year to raise money for a second Perceptive Advisors fund focused on early-stage biotech startups, it took just a matter of months to draw interest from investors willing to commit more than $1 billion total. The fund could have closed with that much money, maybe more, said Garabedian, the portfolio manager. But it ended up with a little more than half of that, which he described as “the right size.”
Garabedian acknowledges the large sums raised by large venture capital firms, many of them pumping money into platform technologies with potential for a broad range of applications. Then he points out that that’s exactly where Perceptive Xontogeny Ventures (PXV) doesn’t want to be. Rather than looking at platforms, Garabedian said PXV is scouting products. He’s looking for biotech companies that have an asset showing a promising signal and a path to reach clinical testing.
“We’re very product focused,” he said. “We’re not trying to do next-generation CRISPR, which requires a couple of hundred million dollars before a candidate gets to the clinic.”
On Wednesday, Perceptive Advisors announced its second fund to invest in biotech startups with promising potential products. PXV II closed with $515 million in financial commitments. The new fund, which will invest in 10 to 12 startups, comes about 18 months after the firm unveiled PXV I, which totaled $210 million.
The new Perceptive fund starts with lessons learned from the first fund. Garabedian said that PXV I was targeting up to a dozen investments in drug companies raising Series A rounds ranging from $15 million to $25 million—enough to get them through late-preclinical research, perhaps through early clinical testing in healthy volunteers.
However, Garabedian said that founders wanted to go for bigger Series A financings to advance their technologies to proof-of-concept testing. The larger rounds meant that PXV I didn’t have much left over to deploy in Series B rounds. The larger fund size of PXV II is an acknowledgement that the Series A rounds may be larger, ranging from $25 million to $40 million. The fund size also affords the flexibility to participate in Series B financings.
PXV II is not starting from scratch. Based on the outreach and the diligence done for the first fund, Garabedian and his team already have connections and a pipeline of potential investments. Some of those startups could come from Xontogeny, a biotech accelerator that Garabedian also runs. Launched in 2017, Xontogeny provides seed financing and other support to these startups, some of which are led by first-time founders from academia. Garabedian, a former executive at Gilead Sciences, Celgene, and Sarepta Therapeutics, mentors those companies.
Though Xontogeny and PXV operate separately, there are connections between them. Xontogeny’s first investor was Perceptive Advisors. Fred Callori, Xontogeny’s senior vice president of corporate development, and Ben Askew, the accelerator’s head of R&D, are partners in PXV Fund II. Also, startups in the accelerator may be considered for Series A investment from the PXV fund. Two Xontogeny graduates secured PXV I Series A funding and went on to exit events earlier this year. Quellis Biosciences was acquired by Catabasis Pharmaceuticals in late January; days later, Landos Biopharma priced its IPO.
Most of PXV I’s investments were in drug developers, though the fund did invest in one medical device company and one contract development and manufacturing organization. PXV II will continue the first fund’s drug focus, but Garabedian said that the life sciences industry is changing and innovation can also be found in drug discovery tools. He added that companies developing artificial intelligence and machine learning technologies offer additional investment opportunities, along with startups working to digitize health care and bring treatment into the home.
Separate from the close of the second PXV fund, Xontogeny announced five new portfolio companies that have joined the accelerator. They are:
• Nephraegis Therapeutics is developing potential first-in-class drug for renal disease. The company’s lead program, NPH-022, is for the prevention of acute kidney injury following surgical procedures, such as heart valve replacement, abdominal surgery, and liver transplant. The drug, a next-generation epoxyeicosatraenoic acid (EET) analog, is being developed in both intravenous and oral formulations.
• NephroDI Therapeutics is also focusing on kidney disorders. The company’s lead compound, NDI-5033, is an experimental treatment for Nephrogenic Diabetes Insipidus, a rare, congenital disease in which the kidneys do not respond to the anti-diuretic hormone vasopressin, leading patients to produce extremely large amounts of dilute urine. The small molecule is an oral AMPK activator.
• Peroxitech is developing a treatment for acute lung injury. The company’s lead program is a peptide that works through a novel pathway to eliminate molecules that build up in the lung leading to respiratory failure. The startup is a University of Pennsylvania spinout.
• Shifa Biomedical aims to treat dyslipidemia, which is a high level of lipids in the blood. The company is developing an oral small molecule intended to block PCSK9, an enzyme that plays a role in cholesterol metabolism. The biotech’s drug, P-21, has data showing it could provide an alternative to currently available PCSK9 inhibitors, antibodies that are injectable drugs. The technology was developed by the Malvern, Pennsylvania-based biotech with National Institute of Health grant funding.
• Tellus Therapeutics, based on research from Duke University, is developing a treatment for babies born at risk of brain injury. The company’s lead program, TT-20, is made from compounds found in breast milk that have been shown to repair brain damage in animal models. The treatment will be delivered on top of parenteral nutrition given to infants in neonatal intensive care units.