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2016, january 20th — Biotechnologies

Investing in medical research requires extensive scientific and industrial expertise

Gilles Nobécourt
Gilles Nobécourt,
Edmond de Rothschild
Investment Partners
— Investing in medical research requires extensive expertise. You need to know how to select the right company among hundreds of potential candidates, and then provide it with development support and help it to manage scientific, growth, organisational, legal and financial risks, while regularly providing a return for investors. The Life Sciences team at Edmond de Rothschild Investment Partners puts its financial expertise to use to promote scientific knowledge and support medical advances. Interview with Gilles Nobécourt, partner at Edmond de Rothschild Investment Partners.

By definition, medical research involves unforeseeable results. How do you make this compatible with the need for a return on investment?

The key is our team's scientific and industrial knowledge coupled with its stability. This enables us to help companies draw up their plans for growth while at the same time giving them the human and financial resources they need. There is little or no market risk for therapeutic innovation since market opportunities emerge almost as soon as an innovative drug has been developed. Our business is therefore to assist companies in managing their other scientific, growth, organisational, legal and financial risks so that their products can be developed in keeping with a defined investment framework. For example, our teams must ensure that alternative strategies are available if the initial development proves unsuccessful.

BioDiscovery represents €450 million under management, 40 active companies, and 1,500 jobs created in Europe

Risk management is therefore a primary concern…

The aim is to get involved in companies at different stages of maturity in order to regularly provide returns for investors.

We help our investors to understand what lies behind the value creation process related to developing a drug. We explain how the inherent development risks can be countered by building a balanced portfolio. This generally takes an initial period of four years, followed by re-investments where necessary, with funds generally having a lifetime of 10 years. The aim is to get involved in companies at different stages of maturity in order to regularly provide returns for investors. Since 2004, we have been able to provide returns to investors every year.

How do you choose the right company?

The world is evolving, and genetic, molecular medicine is replacing medicine that focusses on individual organs. The drug industry is booming, with many companies on the lookout for funding. This provides a broad spectrum of investment opportunities but requires discernment in the selection process. Out of the 300 to 350 companies we look at each year, we only invest in four or five. Medical research doesn't allow for returns of scale, so selection is everything. Not all scientific projects necessarily lead to the creation of a company. We therefore determine the most promising areas in which the leading firms are then identified. However, the quality of management is often the deciding factor. Even with strong technological credentials, a company has little chance of success if it has a mediocre management team. Conversely, a company with average technology but with an excellent team can shine.

At what stage do you come in?

The company must have already identified a drug candidate, i.e., established a first proof-of-principle in vivo and a first toxicity profile. We then work to assist the company over several years until the first tests are carried out on the drug's effectiveness for humans. At this time the company enters into a new stage in its maturity, and its sale to an industrial player or an IPO can be considered. Thanks to our long-standing experience in building up our portfolios, we have a fairly precise idea of our exit arrangements as soon as we invest. This gives our investors added visibility.