Future Returns: MCM Capital’s Second Oncology Impact Fund Goes Beyond Cancer
MPM Capital announced the close of its second oncology impact fund earlier this month, raising US$850 million to invest in companies—mostly early-stage—that are developing treatments and cures for cancer.
The first fund, which closed in 2016 and raised US$471 million, focused solely on oncology, while the second fund also will invest in companies developing innovative technologies to address other unmet medical needs.
That includes innovations in cell, gene, and ribonucleic acids (RNA) therapies, says Ansbert Gadicke, managing director of MPM Capital.
“These are some of the most exciting opportunities outside of oncology,” Gadicke says.
UBS, which also worked closely with the Boston-based MPM Capital on the first fund, raised US$650 million from investors globally for the second, with the remaining US$200 million raised by MPM and BioImpact Capital, an MPM affiliate that was formed to broaden the investment firm’s offerings beyond venture capital into impact and public-equities funds, according to a news release.
Market returns for the private markets’ portion of the first oncology impact vehicle have put it in the “first quartile” of funds, Gadicke says. Given the vehicle’s 2016 vintage year, that means the private portion of the portfolio had an internal rate of return of at least 39.99%, according to Cambridge Associates quartile categories.
Both of MPM’s oncology funds deliver impact in two ways: by investing in riskier, early-stage therapies and through a mechanism that delivers more dollars to philanthropic causes the better the underlying investments do.
The fact MPM’s second oncology fund was able to do so well in raising capital validates the fund as “being a very aligned incentive structure, with the potential to add a lot of philanthropic contribution from the manager should they be successful,” says Andrew Lee, head of sustainable and impact investing at UBS Global Wealth Management.
Penta recently spoke with Gadicke and Christiana Bardon, co-managing partner of the Cambridge, Mass.-based BioImpact Capital, and Lee about its impact fund approach.
The MPM Capital Strategy
MPM’s approach is to find companies with innovations that address serious unmet medical needs and that have developed their technology to the point that they can make major progress in their fields.
“Oncology continues to be a huge unmet medical need with lots of major developments happening,” Bardon says. “But we wanted to incorporate other areas of science that were maturing and coming to the forefront as well.”
One of these is likely to be virology, where several companies are utilizing new technologies—such as cell therapy or antibody technologies—to fight viruses.
Becoming the ‘Dominant Investor’
While the firm’s focus for these specialty funds is early-stage companies—representing about 80% of its investments—it also invests in public companies. It’s a strategy it employs with its funds whenever it focuses on a specific area, such as oncology.
The goal is “to be the dominant investor in that space,” Bardon says. “You need to consider all the different competitive technologies and companies working in that same disease area, in that same scientific mechanism, because there’s so much interplay between different technologies and processes.”
Taking this approach has allowed MPM to “become the world’s largest dedicated oncology investor,” she says. That means, “we literally see every drug that’s being developed in the field of oncology, whether that’s coming out of the academic sector, private or public companies, and we pick and invest behind the best ones.”
An example is Orna Therapeutics, also based inCambridge, Mass., which has developed a “circular” RNA technology that addresses issues with mRNA technology—the kind used in the Pfizer and BioNTech Covid-19 vaccines. “I think [Orna] will be able to open many more applications other than vaccines,” Gadicke says.
Another is Elevate Bio, also from Cambridge, Mass., which is a cell therapy company that now has a US$2 billion valuation after a recent US$500 million fundraising, he says.
The first fund also invested in companies that have gone public, such as Cambridge, Mass.-based iTeos Therapeutics , specializing in immuno-oncology. In June, U.K. pharmaceutical giant GlaxoSmithKline paid iTeos US$625 million for the rights to a phase one immuno-oncology drug in “one of the biggest strategic alliances I’ve seen,” Gadicke says.
Immuno-oncology—which harnesses the body’s immune system to fight cancer— “can actually generate cures,” Bardon says. It’s become a US$10 billion-plus class of drugs that has “utterly transformed the way we treat cancer” because it’s so effective for many types of cancers, she says. But there is more work to be done to address when it doesn’t work for patients, and to find therapies for other cancers.
“We’ve been looking for second-generation immuno-oncology drugs for a while,” she says, and “iTeos may have one of these second-generation drugs.”
How the Philanthropic Funding Works
Both MPM oncology funds donate a percentage of the management performance fee, and 1% of royalties from drugs that come to market from the underlying companies, to the American Association of Cancer Research and to the UBS Optimus Foundation. AACR supports the next generation of cancer research, while the Optimus Foundation directs fund proceeds to provide patients in developing countries with access to cancer care.
This mechanism for generating philanthropic dollars ensures the fund is generating impact without compromising its “financial integrity,” Bardon says.
“What investors want is good performance at the end of the day, and they want to achieve their other objectives—sustainability or impact—but they don’t want to compromise performance,” she says.
So far, MPM has donated US$7 million from the management fee from the first fund, Gadicke says.
“We expect to do a multiple of that,” he adds. The dollars “mostly get generated when we exit private companies—we haven’t really done that.”
The royalties, which will come once drugs now in development reach the market, are likely to amount to even far more dollars, Gadicke says. If a company produces a US$1 billion drug, for instance, that will generate US$10 million for AACR and UBS Optimus.
For a sense of what’s possible Bardon points to the blockbuster hepatitis C drug Sovaldi, created from Pharmasset, a company it owned in a previous fund. Solvadi generated US$12 billion in revenue in its first year.
“If we can achieve anything along that line it would have an incredible impact toward our philanthropic goals,” she says.
But moreover, Lee says, by investing in “early preclinical proof-of-concept companies,” MPM is bringing capital “to a part of the risk spectrum that maybe didn’t have as much investment before.”
The potential therapeutics that are developed could “have a significant amount of impact” in patient outcomes, he adds.