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[LSE]
Interview
Special issue of the
[LSE] Newsletter
[LSE] Interview
with Bernd Wegener
> CEO
& Co-Founder of Deutsche Biotech Innovativ AG
> Board Member of BPI (The Association of the
German Pharmaceutical Industry)
> former CEO & Co-Founder of B.R.A.H.M.S AG
Heading
towards a »Cold IPO« in Germany
How the former BRAHMS leaders are on their way to build a "virtual
biotech" business model in Germany that is both heading closer to
reality as well as becoming more specifically German
Dr. Bernd Wegener
CEO of Deutsche Biotech Innovativ AG (DBI AG)
The interview can be found online at
http://www.life-sciences-europe.com/newsletter/lse-newsletter-511001s1.html
by Marcus Lippold
[iito] Business Intelligence
Editor-in-Chief
Life-Sciences-Europe.com
Founding,
Corporate Structure and Strategy of DBI AG
Marcus
Lippold (Q): Dear Dr. Bernd Wegener, thank you very much for taking the
time to do this interview! You are currently in the process of raising
a capital increase, targeting €20m, with your Germany-listed
holding company “Deutsche Biotech Innovativ AG (DBI
AG)”. Could you tell us about the beginnings of DBI AG?
Bernd Wegener (A): Sure, I have been the CEO and one of the founders of
B.R.A.H.M.S AG (BRAHMS). The major product of BRAHMS was a sepsis
marker, called procalcitonin, or in short: PCT. Today PCT is still the
gold standard for the diagnosis of sepsis and is licensed for all major
clinical diagnostics platforms on the market. BRAHMS was sold in 2009
to Thermo Fisher for €330 million and at that time Dr. Andreas
Bergmann, Dr. Metod Miklus and I decided to set up a new company. We
had already some ongoing projects back than, which were not part of
BRAHMS, and we wanted a single roof for all these projects.«
Q:
How did you establish your new company?
A: Instead of founding a new company, in 2009 we purchased a shell
company, called Venetus Beteiligungen AG. In 2010 we decided to
establish a structure with Venetus as a holding and had the intention
to put all projects under the roof of this holding, with each project
organised as a separate firm. Venetus Beteiligungen AG itself has been
listed in May 2010 at the Dusseldorf Stock Exchange.
In October 2014 Venetus Beteiligungen AG has been renamed Deutsche
Biotech Innovativ AG – which translates into German Biotech
Innovative stock company. This name change took place in advance of a
€400k capital increase in December 2014. One purpose of this
renaming was to clarify the purpose of the company. Another aim was in
preparation for a bigger capital increase of about €20m, which
is at present ongoing,with a planned closing in October.
Q:
Okay, we will turn to your recent capital increase later. Could you
describe before what has happened since the start of DBI AG? What does
the structure of your business group look like today?
A: We have now a total of four subsidiary companies – i.e.,
four projects – in our portfolio. The shareholdings of DBI AG
amount to 25% for two of these companies and to 50% and 100% for the
others, respectively. However, after the capital increase we intend to
reach a majority ownership position for the DBI AG in all of our four
subsidiaries. The projects comprise two antibodies, for the treatment
of sepsis and cancer, respectively, one small-molecule drug for the
prevention of breast cancer, and a diagnostic for urinary tract
infections.
Q:
What is the general business model of DBI AG?
A: Our business model – based on the already mentioned
structure of a holding company, with single projects incorporated as
separate companies – is to have some kind of an
“evergreen fund”. An evergreen fund that at all
times holds a portfolio of a nearly constant number of
»virtual« companies, i.e., projects.
We intend to add about one project each year and hope to sell the first
project in 2018. This would result in having about 5 to 6 subsidiaries
at any time. Each exit should fund future projects and should allow us
to pay out a good return on investment to our shareholders.
The Portfolio
Q:
Thanks a lot, Mr. Wegener, I think the structure of your group as well
as the general strategy are now quite clear. Let’s turn to
your active projects. What is your product portfolio as of today?
A: Today DBI AG has four subsidiaries working on three therapeutics and
one diagnostic in the areas of infection and cancer.
AdrenoMed AG is developing the antibody Adrecizumab against sepsis.
Adrecizumab is a partial adrenomedullin (ADM) inhibitor with the
interesting feature that ADM itself is the respective marker for the
use of the drug. So the drug target is at the same time the marker
triggering its use.
Oncoprevent GmbH is developing DB1RA for breast cancer prevention. This
is a small-molecule drug that is already on the market for another
indication.. It is actually a neurokinin-1 receptor antagonist (NK1
antagonist). As this is a molecule that is developed for cancer
prevention (sic!), it goes without saying that we also developed and
launched appropriate collateral biomarkers to identify women that have
a high risk of breast cancer.
AngioBiomed GmbH is developing an anti-ADM antibody called AB2302, but
not for sepsis. The compound will be developed as an angiogenesis
inhibitor to treat cancer.
My Life Diagnostics GmbH (MLDx GmbH) is developing a diagnostic test
for urinary tract infections, which is part of the Sepsis coverage.
Many infections causing sepsis enter the body via the lung or the
urinary tract.
Q:
Just one short comment: when I look at the founding dates of your
companies – 2010 for AdrenoMed, 2012 for MLDx, 2014 for
Oncoprevent and 2015 for AngioBiomed, you are sticking closely to your
strategy, taking into consideration that the start-up of the company
and the whole concept requires some additional time?
A: I think so. So far, we are in line with our plans. You always have
to make changes and adjustments, but the general strategy seems to work
and we stick to the timing of our business plans.
Q:
Okay, fine. Could you tell us a little about each project? Maybe we
could start with AdrenoMed and Adrecizumab, the antibody targeting
adrenomedullin (ADM) to treat sepsis?«
A: Yes, this is definitely an exciting marketing opportunity. Sepsis is
a leading cause of death and there is no treatment on the market.
Q:
Really none?
A: There has been one drug on the market for sepsis, so far, which has
been marketed by Eli Lilly. Its trade name was Xigris and the active
compound has been drotrecogin alfa, a recombinant human activated
protein C. But a large phase 4 study – conducted while the
product was already on the market for several years – showed
no advantage for the drug compared to placebo. As a result, Xigris was
withdrawn from all markets by Lilly in October 2011.
Q:
Why do you expect to be able to do the trick, when there has been no
success at all for several decades?
A: Well, you never can tell, but Adrecizumab has several features,
which look very promising. As mentioned above, in this case,
adrenomedullin (ADM), is the marker and the target and it is in the
blood. This means it can easily be measured and targeted by a compound
in the blood stream. And in addition, our antibody is a partial
inhibitor, which is perfect, as ADM is required, but too much ADM is
very dangerous. And finally, the preclinical results we just announced
look very promising indeed.
There are two additional advantages related to the indication.
1. Clinical development costs
As sepsis is an acute critical disease, the success can be very easily
measured in clinical trials within a short time frame. The question
boils down to “Is the patient still alive after two
weeks?” This means fast and low-cost clinical development.
2. Reimbursement
As Adrecizumab will be used in intensive care units, no reimbursement
by health insurance for the drug itself is necessary.
Q:
What about your small-molecule candidate DB1RA for breast cancer
prevention, which is in development by Oncoprevent GmbH? I have never
heard before about a drug for breast cancer prevention. Treatment? You
hear a lot about this. But when I think of breast cancer prevention, I
think of removing the breast!?
A: Of course, this is a new approach that ultimately is related to
biomarkers for the diagnosis of increased breast cancer risk. Andreas
Bergmann, one of the three major owners of DBI AG, has developed
respective breast cancer risk biomarkers at his company Sphingotec
GmbH, which will be used to define the relevant patient groups, i.e.
female patients with an extraordinary risk to develop breast cancer
within the next 5 years.
DB1RA, the active compound itself, is a small-molecule that is already
on the market in another indication. But we secured the IP for the new
indication. In the process of developing cancer a natural mechanism
fails that induces/allows “suicide” of those cells
that do not correspond to the general pattern. This failing of a
natural cell-death (apoptosis) is caused by a hormone (Substance P),
whose activity is blocked by our small molecule (DB1RA), competing to
bind at the NK-1-receptor. This mode of action could prevent the
development of breast cancer in high-risk women, to cut a long story
short. Here, the clinical development will be considerably more costly
than in sepsis. A trial proving prevention efficiency takes a lot more
time.
Q:
Okay, while the two projects mentioned so far represent real new
concepts, angiogenesis inhibition to starve the cancer cells is around
for some time and there are already products on the market. What
differentiates AngioBiomed’s ADM-antibody AB2302 from other
angiogenesis inhibitors?
A: AB2302 is not a member of the therapeutic class of VEGF inhibitors
that are already on the market now. It represents an additional class
with a different and novel mode of action. Our molecule has a long
patent life and in consideration of the expiration of major cancer drug
patents, e.g., of avastin (an anti-VEGF antibody), we applied for and
have been granted IP for our product as a combination partner with
already marketed products in this antibody-class. This may make AB2302
attractive to the stakeholders of existent products with blockbuster
status, and we are aware that we are closely followed.
Q:
So finally some words on your diagnostics project. My Life Diagnostics
GmbH is developing a test for urinary infections?
A: This test is in some way related to the sepsis indication as lung
and urinary tract infections are the two most important starting points
for developing a sepsis that then inflicts the whole body. In general,
our background from BRAHMS, in the field of sepsis and diagnostic
markers, is defining our network, our capabilities and the projects
that emerge from it.
Q:
That's a good starting point for my next question: where did the four
products originate and how did you acquire them?
A: »So far there is a simple answer to this question. All
four projects/companies originated from within our own network and we
established the companies. Within this network, in many ways Andreas
Bergmann, a co-founder and Chief Research Officer at BRAHMS and now a
co-founder and board member of DBI AG, is the central person, but there
are many other worldwide top-notch researchers and organisational
partners we are collaborating with. And we have all the necessary
contracts and IP for each project in place. This is no trivial thing,
if you are working with many universities and research organisations,
because all researchers need the okay from their employers, to work
with our company and to transfer the respective IP. But indeed we are
looking back to 20 years unique experience and networking in sepsis,
including the development of the gold standard diagnostic
test. «
Q:
So, this does not sound like the usual venture capital story. You don't
look at a lot of business plans that you receive from third
parties?«
A: No, for the moment this is not the case. However, should we feel
that an external proposal might fit our core competencies and strategic
aims, we may also consider external projects in the future.
The (very German)
»Virtual Biotech« Business Model of DBI AG
Q:
In the »Fact Sheet« I received from your PR agency
in advance of this interview, there is the wording that DBI AG has an
»efficient “virtual biotech” business
model«; what do you mean by this?
A: This basically describes what we talked about before - having a
holding company that owns majority shares in projects organised as
legal entities – or, if you want, »virtual
biotechs« – to allow a lot of flexibility with
regard to each project in the market, while at the same time keeping
the holding company as a going concern when one or the other project is
sold.
Q:
Is this decision a result of your experience with the sale of BRAHMS?
Is it correct, that you faced the decision to sell the whole company or
nothing in 2009, while the new organisational model of DBI AG would
allow you to sell any project at any time without any serious legal and
IP issues?
A: Let's put it this way: we hope to be more flexible –
including showing our experienced staff a joint future beyond the sale
of a project company.
Q:
I have to admit that I was very surprised when I read the sentence
about the »virtual biotech« business model.
A: Why?
Q:
Well, some years ago, I heard your talk at the Charité
Summit in Berlin, about your history with BRAHMS and its sale to Thermo
Fisher. And I remember thinking: this is a very German entrepreneur.
You were talking about paintings on the walls of the company floors,
about giving your employees a good working environment and the
opportunity to share the success of your company. Furthermore, you
tried to secure the best options for BRAHMS to continue as its own
entity in Hennigsdorf near Berlin, so that your former employees would
have a future within Thermo Fisher?
A: That’s right. These things were and still are important to
me and my partners.
Q:
In addition, you spoke about the need to sell BRAHMS and explicitly
mentioned that one external investor needed the money of the exit sale
for its own business purposes and that BRAHMS has been too successful
– and thus too valuable and costly – for the
management to acquire it in a management-buy-out. So you had a big sale
with €330m but it didn’t sound to me like your
dreams were coming totally true?!?
A: This is also right. To be sure: the sale of BRAHMS for
€330m was in many ways a dream come true and neither we, nor
our external investors had expected such a good return on our
investment in such a short time frame. Actually, we were too successful
to buy out the other investors in the company at that time and with
hindsight I would say, that it may be worth considering an earlier
management-buy-out, if your are on the path to success and the company
still has a price tag that you can manage with your partners in a
MBO.«
Q:
But let me return to the »virtual biotech« business
model. As everybody knows, fashions come, and fashions go. This is also
true with life science investors. Although, it’s also true
that different life science investors believe in different strategies.
However,
in the last few years I have often heard investors say, we
don’t believe that we as PE/VC investors can build a real
company and finance it through to an IPO exit. This is far beyond our
financial possibilities, at least, if you talk about therapeutic
molecules and consider that each investor has to manage a portfolio of
several companies.
What
we want is to bundle IP in a virtual company, set up a very small team
to co-ordinate the whole thing and then we outsource everything else
until we have a pre-clinical proof, a phase 1 or maybe an early phase
2, and then we sell it to the big players! Keep the fix costs down,
fast in, fast out, just be one short step in the whole value chain at
the right time and in the right place. That’s it.
Exit.«
A: We are aware that some investors do have such an approach, but this
is not exactly what we are trying to do.
Q:
I had definitely the feeling, when I heard you speak back then in
Berlin, that this really couldn’t and wouldn’t be
your style.
A: We want to be part of the story, the management and the network and
we want our employees to feel part of the company. Actually, since the
start of DBI AG we realised that we need to move more people with
“real” knowledge into the holding company. We want
to keep the people and their know-how and we want to keep our strategic
aims, which do not necessarily include – only and above
– all profit maximisation, but also some of the things that
you mentioned before.
Q:
So, this is interesting. You take the legal structure of an
Anglo-American “virtual company” investment
approach, but try to keep the team, the know-how and the culture as a
going concern, thus filling your “holding” with
people working on operational tasks.
How
many people are part of the DBI AG group as of today?
A: About 30 people. And you know, it would be a shame if we would lose
all this experience with the sale of each subsidiary. So, as I pointed
out before, we actually end up putting more and more people in the
holding company, while keeping the legal and IP structure of the
“virtual company” for each project.
Q:
So, in fact, the holding isn’t a holding company any more,
but it is an operating unit which produces and works on projects which
are each legally single subsidiaries?
A: You can put it that way. And there are two other points that we
consider to be positive results of this structure. First, it is far
easier to get research funding and grants for small companies than for
a larger holding company, especially in Germany and Europe. Second, for
us as founders and major shareholders as well as senior level managers
of the whole group, it is normally very difficult to take money out of
the company on a group level.
Q:
Could you elaborate on that last point?
A: When I am the CEO and a major shareholder of publicly listed stock
company, it will always be a signal to the market, when I start selling
shares of the company. However, in our strategy now, I am also a
direct, private investor in some of the subsidiaries of the DBI AG. So,
when a subsidiary is sold, I will automatically get a cash payment from
the sale of the subsidiary for my personal shareholding, while I could
hold on to my shares in the holding company.
Capital Increase
Autumn 2015 – The Investment Case
Q:
Okay, so let us return to your ownership structure and your major
capital increase, which has been approved by the Board of DBI AB
– which actually means by the three founders – in
July this year.
A: Until now the three founders own about 98% of DBI AG. After the
capital increase of up to €20m the founder’s
combined shareholding will drop to about 59%. We will place shares that
will represent about 40% of the resulting total share capital and have
comitted to participate with €1m ourselves in the capital
increase.
Q:
Why should I and how could I invest in DBI AG? There is no room for
strategic investors?!? The founders will still own about 60%, even if
the capital increase will be fully placed.
A: You are right that after the capital increase the three founders
will still hold a combined majority position. But going from 98%
shareholding to 60% is still a large step to open up the ownership
structure of the holding company. We are committed substantially with
own funds and intend to extend this further. Is there a better signal
for new partners?
Q:
DBI AG is listed in Germany and you call your capital increase a
“cold IPO” in your investor presentation. What kind
of investors are you looking for?
A: As you may be aware, there have been no biotech IPOs in Germany for
years. More and more companies have been looking for other places to go
public, especially, the Netherlands and lately even the United States.
We are crazy enough to test the market as to whether this
“cold IPO”, as we call it, can be placed in Germany
in these times. If we succeed, we hope that this will be a first step
to turn the tide and open up doors to have future biotech IPOs
– in which form ever – in Germany again.
What kind of investors are we looking for? Certainly not for the
typical Anglo-American VC investor. We are looking for like-minded
investors, who want a great financial return, but are also really
interested in the work we are doing. Finally, they should have some
overall long-term perspective; not just an exit horizon of three years.
This said, actually nobody should even dare to think that we are not
interested in the best financial return on investment, as the major
external BRAHMS investor received a multiple of 11.5 for its investment
within just four years, which is more than excellent!
Q:
What will you do with the additional €20m of the capital
increase?
A: We intend to use about €16m to raise our shareholding in
the existent four subsidiaries and ultimately to advance the products
into phase 1 and 2 (Adrecizumab and DB1RA), to finish the pre-clinical
development of AB2302 and to get market approval for urinary tract
infection diagnostic.
The remainder of the money, i.e., about €4m, will be used for
general corporate purposes as well as to advance the pipeline and
acquire new projects.
Q:
Mr. Wegener, one final question: you were born in 1947, so why not
retire?
A: For my age, thank God, I feel that I am still in quite a good shape,
so why not do something interesting, staying active in my network,
helping patients with serious diseases and maybe receive an excellent
return on my investment – in financial as well as in human
terms?!
Q:
So, to sum it up:
>
No size fits all.
>
Different strokes for different folks.
>
Be open, look at other models, but always adjust them to your targets
and local conditions.
Sounds
like a cliché and like standard common sense, very general
and precocious advice, doesn't it?! But often the world is a
cliché, that’s in the word.
One
last »reality joke« of the life science investment
discussion in Germany I love so much, and I laughed so much about in
the last few years.
Everybody
is always talking about the difficulty to find financings and investors
for life science firms in Germany. However, every investor at any
conference will tell you – at least after the third beer
– that the only thing that is definitely not missing in this
country is money. Money is all over the place and there is more than
enough. They say: give me a great investment opportunity and I will get
the money for certain.
This
said, DBI AG has already four projects in the pipeline and I am wishing
you the best for getting the money to advance your modified
»virtual biotech« business model with your team!
A: Thank you.
Q:
Mr. Wegener, thank you very much for sharing your views with us!
----------------------------------------------------
This interview took place via phone on Monday, 7 September 2015, in
German language.
A first complete English version has been produced on 10 September by
Marcus Lippold and has been checked and corrected by Bernd Wegener and
his team on 11 September.
The final version has been produced on 14 September with help from Neil
Hunter, Life Science and Corporate Communications Director, Image Box
Ltd. (Image Box PR).
This interview has originally been published as a Special Issue of the
[LSE] Newsletter on 15 September 2015 at
http://www.life-sciences-europe.com/newsletter/lse-newsletter-511001s1.html
© 2015 by [iito] Business Intelligence
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Thank you.
Marcus Lippold
Dipl.-Oek. (Economist)
[iito] Business Intelligence & Consulting
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Germany
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