Memorandum
The JDRF announced this morning that it has established a new $30 million-plus investment fund for type 1 diabetes. It is looking to fund the best “early-stage high impact” type 1 opportunities in partnership with other investors. The JDRF expects to raise over $80 million by 2018 through individual “venture philanthropy” donations. It will make a number of investments in the coming years that will be equity- and royalty-based, which could potentially yield large sums for this fund and the broader JDRF global organization if the investments go well.
Notably, the fund has already made its first investment, in Bigfoot Biomedical, which will be announced later this morning – while exact terms were not disclosed, we understand the investment was significant and strategic. Bigfoot still expects a pivotal study of its smartloop automated insulin delivery service in mid-2017. This new financing adds to Bigfoot’s impressive $35.5 million Series A round last fall, giving the company 12 months of runway, including some recently obtained non-dilutive funding sources. Discussions are already ongoing about a Series B (possible as soon as Q2), which would take the company through to commercial launch. As we understand it, a commercial agreement with Dexcom has still not been signed. According to Bigfoot, selecting a CGM partner for the commercial system is a top priority.
The highly regarded Dr. Aaron Kowalski, VP of R&D at JDRF and its beloved Chief Mission Officer, shared the rationale for this fund with us: “We’ve made amazing type 1 diabetes research progress over the past decade. JDRF defines success as people with diabetes achieving better outcomes and to achieve better outcomes research needs to be commercialized and delivered to people. The Fund is an innovative new way to drive commercialization of T1D therapies. We believe this initiative can and will create a new paradigm where private capital and philanthropic capital will significantly accelerate the delivery of transformative therapies to our community.”
Many other members of the diabetes community were equally enthusiastic. Said Doug Lowenstein, father of a child with type 1 diabetes and President and CEO at DSL Strategies: "I have never been more excited about an initiative in my 16 years as a JDRF supporter. I believe the Fund has the greatest potential of anything we've done to lead to therapies that will allow my daughter to live a long and healthy life freed from the burdens and risks of this disease."
The JDRF T1D Fund has its own board, led by Sean Doherty, who is a Managing Director and the General Counsel at Bain Capital, a very successful private investment firm in Boston. Others on the board include Mr. Tim Clark, President and CEO of TreeHouse, a faith-based mentoring organization focused on empowering at-risk youth; Dr. Stephen Newman of Tenet Healthcare; Grant Beard of Wynnchurch Industries, a holding company investing in engineered product businesses; and JDRF President Derek Rapp. Jerry Whistler and Avalon Ventures’ Brady Bohrmann are on the investment committee, along with Dr. Newman and Mr. Clark. Although he is technically not on the board, Dr. Kowalski’s influence is a major asset to the Fund as well as JDRF’s collective influence, and we believe his brainpower and judgment will help the fund enormously.
On the management front, Dr. Jonathan Behr has been running the fund since late last year; with a bioengineering degree from MIT, he should be a particularly good fit with the JDRF. We are especially happy that the fund aims to help commercialization of diabetes products, which has been an Achilles heel for a number of companies in the diabetes arena over the last decades – the JDRF clearly identified that as a problem and aims to address it very directly.
Although the fund is firmly focused on type 1, given the overlap, we imagine that type 2 could be helped significantly if the investments are successful. Many people with type 2 lose all beta cells and take insulin, effectively like type 1s, and they would be clear beneficiaries of companies like Bigfoot that have a big agenda in helping make one of the most dangerous drugs in the world easier to take. Overall, it sounds like the investments will be clearly aligned with JDRF’s priorities, meaning the artificial pancreas, metabolic control, encapsulation and replacement, prevention, and restoration therapies.
The JDRF has extraordinary networks among policy and regulatory experts, so we hope that it will be able to help small companies gain regulatory approval and authorization for reimbursement; and we hope that it will be able to show companies how to demonstrate value for patients as well as healthcare systems since this will be key for commercial success. We also hope it will use patient advocates inside and outside JDRF. While Dexcom has been a great example of investment success in the diabetes arena, it stands as closer to the exception than the rule on the technology or digital health front.
JDRF T1D Fund are five people with extensive investment experience, and we are sure they will see the best deals around – Mr. Behr shared with us that the fund expects to see hundreds of deals this year. We imagine a large “halo effect” from even small investments, which should help ensure positive terms for JDRF and an early look at start-ups of value. While historically, JDRF investments in companies like Smart Cells and in partnerships like Medtronic/BD and Animas have been term-based and have not resulted in great value for JDRF, we believe the new structure will be helpful in giving JDRF significant room for upside.
You may be thinking, doesn’t this JDRF fund sound familiar? Indeed, JDRF launched a fund with Pure Tech in 2013, investing $5 million in a fund that hoped to raise $25 million. We had a hard time following that fund and it ultimately didn’t produce returns; it sounds like JDRF’s T1D Fund will be different in that JDRF has all control now; this is a venture philanthropy model (see below); and JDRF won’t be partnering with a commercial fund that has requirements for success that aren’t aligned with JDRF’s.
What else is different? Well, the biggest deal is that the fund is philanthropic, so the concentration risk (solely focused on T1D) is not a big deal like it would be traditional VCs. That is different from the PureTech fund started in 2013. When we asked the management team about the inspiration for the new fund, it pointed to other disease-specific funds that have been successful, notably the Cystic Fibrosis Foundation’s Venture Philanthropy Fund. Through this model, the Cystic Fibrosis Foundation creates early stage funding to biotech and pharma manufacturers to develop “breakthrough” drugs for people with cystic fibrosis. The Foundation ultimately developed the Cystic Fibrosis Foundation Therapeutics Inc. (CFFT), a non-profit drug discovery and development affiliate, helping create a strong CF drug pipeline.
In terms of the funds that inspired the JDRF T1D Fund, back on the Cystic Fibrosis Foundation, we see that that fund has now invested $425 million as part of its venture philanthropy model to hasten drug development for cystic fibrosis and has had major successes including approval of Orkambi and Kalydeco. In learning more about the successes of this fund, we were moved by Faster Cures’ valuable case study on the CF Foundation here and Ms. Margaret Anderson’s incredible interview with former CEO of the CF Foundation leader Mr. Bob Beall. Said former FDA chief Dr. Margaret Hamburg about this innovative public/private partnership: “The unique and mutually beneficial partnership that led to the approval of Kalydeco serves as a great model for what companies and patient groups can achieve if they collaborate on drug development.” Mr. David Panzirer has spoken movingly of the CF Foundation, noting in a 2014 interview, “What the Cystic Fibrosis Foundation has done has really paved the way for what all of us are trying to achieve. They are the gold standard we all strive to duplicate.” Just two years ago, the Cystic Fibrosis Foundation sold its royalty rights for Vertex-created CF treatments for $3.3 billion, creating assets for the fight against CF never previously imagined. The CF drugs have generated nearly $2 billion in 2016 revenue, according to yesterday’s Vertex report; the foundation is using upside from the royalties generated by these funds to speed the development of further new therapies to support people with CF and to pursue new possibilities for a cure. Regarding the JDRF T1D Fund speciically, Mr. Panzirer stated, "This fund is an extension of what JDRF and HCT and others have done and has the ability to invest, react and be more nimble in an effort to move early stage drugs, therapies and devices towards commercialization. I applaud their efforts and look forward to seeing their investments have the impact we so desperately crave." Hear hear!
What’s next? We’ll look forward to hearing more announcements from the Fund regarding which investments the Board decides upon; the board is advised by the investment committee and we know at least one other investment in addition to Bigfoot Biomedical has been made. Additionally, there are three open board slots that we’ll be interested to see filled – we hope to see more diversity on the board and know this is a strong interest of chair Sean Doherty as well.
-- by Adam Brown and Kelly Close