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Deal of the month: Ingenium Pharmaceuticals

Europe’s largest ever private placement in the biotech sector completed this September when Ingenium Pharmaceuticals raised E50 million from a consortium of European and US investors. For Ingenium, which is based in Martinsreid, Germany, the placement was only its second venture funding round and is intended to carry the two-year-old company through to an IPO within the next 18 months.

TVM Techno Venture Management, one of Germany’s foremost and longest established venture groups, led a first round of funding for Ingenium in February last year, investing DM10 million itself and bringing in Alpinvest and Sued Venture, both of them frequent co-investors with TVM. Both TVM and Alpinvest committed substantial further sums to Ingenium in the private placement, which was led by Schroder Ventures and Sofinnova Partners, two very experienced investors in the biotech arena. Polaris Ventures of the US, a spinout from Burr, Egan & Deleage and a frequent collaborator with Schroder Ventures, was also a major participant in the placement. The other new investors were Lehman Brothers, Index Ventures, Deutsche Bank, Sal Oppenheim, IKB, New Medical Technologies, tbg and Bayern Kapital. The investment in Ingenium breaks new ground for both the firm’s US backers, being Polaris’s first such deal in Germany and the first of its kind for Lehman Brothers in Europe. TVM remains the largest single shareholder in Ingenium.

Although the e50 million raised by Ingenium represents the largest single round for a European biotech company, the firm could easily have raised twice as much, according to Bernd Seibel, CFO of TVM, thanks to enormous interest’ from other parties, largely German, but also international, institutional investors and banks. In the face of such appetite, Ingenium and its original backers were, says Seibel, in the fortunate position of being able to choose an investor consortium that would add strategic, as well as financial, strength to Ingenium in the run-up to its IPO.

Ingenium’s attractions for investors rest on its leadership position in the field of functional genomics and the potential its technologies offer for the identification and validation of new drug targets.

The draft sequencing of the human genome, completed within the last few months, has been generally hailed as one of the most important scientific breakthroughs in history. While it is indeed a colossal achievement, the immense research gap between sequencing the human genome and the identification of individual gene functions and therefore the development of relevant therapeutic agents is less widely appreciated outside the scientific community.

Ingenium addresses the problem from, as it were, the other side, adopting a function-focused approach that they coined: “deductive genomics”. Within the next 12 to 18 months, Ingenium expects to have completed the functional screening of an entire mammalian model genome using mice, whose genome differs from the human genome by as little as five per cent and shares, as a mammal, most of the important human physiological functions.

The combination of technologies in Ingenium’s deductive genomics platform enables a gene to be identified within a matter of months. The company uses a chemical mutagen, ethylnitrousurea (ENU), which affects the replication mechanism within spermatogonial stem cells, to increase the incidence of point mutation within the offspring. Unlike the homologous recombinant technology used to produce knockout’ mice, the process of ENU-induced mutagenesis is completely random and allows large numbers of mice to be produced easily and quickly through breeding from the initial mutated specimens. Ingenium then uses broad clinical screening to test its mice for phenotypes of potential clinical relevance, e.g. obesity or accelerated heart rate. Once a mouse with an apparently clinically relevant phenotype is identified, Ingenium uses its proprietary system of high-throughput positional cloning, SPECIESlink, to identify the variant gene within that mouse (and by extension, its equivalent within the human genome) and carries out pathway dissection using its unique selection of tissues with altered target gene activities. Because its methodology allows many mutations to be observed in parallel, as well as scanning the whole mammalian genome for important funtional aspects of genes, Ingenium has reduced the time frame required for gene identification and drug target validation to a few months.

Ingenium is currently the only company performing this kind of deductive genomic analysis. Ingenium has also developed a proprietary mouse clinical database, GENcyclopedia, and, according to CEO and chief science officer Dr Michael Nehls, is currently producing several gigabytes of information per week. Ultimately, GENcyclopedia, as a comprehensive functional database of medically important target genes and pathways, will enable pharmaceutical companies to select specific genes falling within their area of clinical interest as drug targets or diagnostics.

Notwithstanding the great complexity of Ingenium’s technologies, Dr Nehls summarises the practical advantages of the deductive genomics approach in drug target discovery and validations very simply: “The genome contains between 80,000 and 100,000 genes and they all look superficially alike. With bioinformatic tools, it is possible to carry out a great deal of characterisation without gaining any real clue as to what physiological function the gene is performing in a living organism which makes it very difficult to develop drug candidates. When thousands of genes look superficially interesting, it poses problems for pharmaceutical companies, who might select a number of genes as attractive candidates on the basis of circumstantial evidence and later discover that they are not encode targets within the clinical area where that company wishes to play a major role”. By starting with function and working back to the gene, Ingenium’s deductive genomics technologies, eliminate that problem.

It is hard to overstate the scale and importance of the work Ingenium is undertaking. All the drugs so far discovered in the world act on the proteins expressed by some 480 genes, while expert opinion suggests that as many as 10,000 of the 100,000 or so genes in the human body have potential clinical relevance as drug targets.

Ingenium’s next step will be to form a series of drug discovery partnerships with major pharmaceutical and biotech companies; in the longer term, once the functional screening of its entire mammalian model genome is complete, Ingenium will contemplate becoming active in the drug discovery arena itself. Meanwhile, Dr Nehls reports that Ingenium is currently pursuing several partnership options.

Schroder Ventures Life Sciences partner Kate Bingham, who has joined Ingenium’s board, says that Ingenium could form pharma partnerships on a variety of different models: obviously, if a partnership were formed around an entire clinical area, it would be a much larger deal than one involving a single interesting mouse. “I think Ingenium will need at least two material relationships in the tens of millions of dollars bracket with pharma partners pre-IPO”, says Bingham, “but the exact type of partnership deal will emerge over time as pharmaceutical groups appreciate the full significance of what Ingenium can offer”. Bingham adds that one of Ingenium’s major attractions is that it is covering the entire mouse genome without clinical bias.

The capital raised in the recent second funding round will finance the scaling up of Ingenium’s screening activities to a sufficient level to enable the company to elucidate the entire functionality of the mouse genome within a year.

Ingenium has progressed a long way very quickly since its foundation in the autumn of 1998. The company was formed as a spin-off from Germany’s National Research Centre for Environment and Health (GSF) in Munich. From the very start, it has had a close involvement with TVM, which got to know the company through the head of GSF, Professor Ernst-Gunter Afting, and one of Ingenium’s scientific founders, Dr Rudi Balling, who together with Professor Afting, was taking part in the German branch of the Human Genome Project. Co-founder Dr Martin Hrabe de Angelis heads the Institute of Mammalian Genetics at the GSF. Ingenium’s initial seed funding was provided by the biotech group Qiagen, which itself had received early-stage backing from TVM as long ago as 1985. TVM partner Dr Helmut Schuhsler, responsible for the firm’s investment in Ingenium, has served alongside Dr Balling as co-chair of the Ingenium supervisory board since February 1999. Dr Michael Nehls joined Ingenium last year as chief science officer after three years with Lexicon Genetics of the US, which conducts gene analysis using knockout’ mice. “The reason I joined the company [Ingenium] is that I was convinced that by using a combination of technologies, large-scale creation of mice and computer-based management systems, it could identify genes much faster than anyone else”, says Dr Nehls, who was subsequently appointed as CEO.

As noted earlier, Ingenium looks set to go to IPO following only two venture funding rounds, fewer than average in the European biotech arena, although it did benefit from a small bridge financing in the interim. The reason for this, says TVM’s Bernd Seibel, is that a great deal of the preliminary research and development on Ingenium’s technology platform had taken place under the aegis of GSF before the company was formed, and Ingenium was therefore able to develop very fast. Seibel notes, however, that while Ingenium might have undergone fewer funding rounds than normal, its funding requirements in absolute terms have been par for the course in the sector.

Ingenium’s management and TVM worked together to raise its E50 million second round, with a clear idea of the type of investor they wished to attract. Both Schroder Ventures and Sofinnova are veteran players in the European biosciences arena; given Ingenium’s pharma partnership ambitions, it was also important for the firm to bring a strong US-based venture house such as Polaris on board in the second round. The presence of leading investment banks in the shareholder group, meanwhile, makes for a strong IPO book as and when Ingenium makes its move to the public markets. The exact timing of this step is dependent both on the achievement of internal and partnership milestones and obviously on market conditions, but it is scheduled to take place within the next 18 months. Successful transition to the public markets will confirm Ingenium’s position as one of the brightest success stories yet to emerge from within the European biosciences arena and underline once again the key role in value creation that is played by venture investors in early-stage technology companies.