LP Profile: Novo Ventures ready for steady deployment amid IPO lull

The VC sponsor, which invests from evergreen funds of pharmaceutical company Novo Nordisk as part of the wider Novo Holdings investment group, sees an opportunity in the slumbering IPO market, both to anchor these larger rounds and build positions in publicly listed companies that are executing programmes well but trading underwater.

Last year, Novo Ventures deployed USD 500m for buying stakes in 30 public companies and participating in 19 venture financings, which it expects to maintain this year, albeit across fewer investments.

“This year we expect similar levels of activity,” Siddiqi said. “I don’t think we’re going to see a step-change. We want to keep the quality bar. Fewer investments but larger investments.”

As well as making direct investments, Novo Ventures has also been taking LP positions in specialist funds as a way to get closer to targets at an earlier stage.

The benefit of the two-pronged investment approach to direct investments and LP positions has already started to pay dividends, Siddiqi said. Investing, for example, in an early-stage digital fund in the US helped it build the expertise that led to an investment in America’s second-largest telehealth company, MDLive, that later sold to health insurer Cigna.

Novo Ventures’ LP investments include the oversubscribed fourth fund of Netherlands-based Biogeneration Ventures, which closed in January 2021 at EUR 140m, as well as funds managed by US investors Vivo Capital, Red Tree Venture Capital, and Health Velocity.

“The reason is that we can follow these companies as they grow, build a close relationship with the GP, and at the appropriate time we can co-invest,” Siddiqi said.

Direct investments
As a direct investor, Novo Ventures deploys tickets of USD 15m-30m in public and private biotech companies in the early-to-late stages of commercial development. It is steadily increasing activity, seeing USD 400m-600m in annual deployment over the past few years.

With 130 employees, Novo Ventures sits separately from a Seed team, a Growth Equity team, and buyout arm Principal Investments within Novo Holdings. 

The sponsor is, in the long term, content to rely on Novo’s capital. “We have no appetite to go out and raise,” said Siddiqi. “We have a lot of capital to deploy and we’re fortunate that we have ways to deploy it in the right place.”

It typically invests in early to late-stage biotech, commercial-stage medtech and a bit of digital health. More specifically, the investor is interested in the “next wave of innovation in life sciences”, be it cell therapy, gene editing, gene therapy, and other therapies for rare diseases.

Some key investments in Europe include antiviral therapies producer ReViral, which was recently sold to Pfizer; NodThera, which makes small molecules to treat chronic diseases driven by inflammation; Numab, which develops antibody-based immunotherapies for cancer and inflammation; and F2G, which focuses on therapies for rare fungal diseases.

Big Pharma windfall
Last year, Novo Ventures returned USD 800m to Novo Holdings, Siddiqi said, via seven listings on the Nasdaq, four sales to private companies, and two to public ones. 

The funds had a return of 7.6% in 2021 and has a 10-year rolling average return of 29.7%, according to its annual report.

The closure of the IPO window since the end of last year has posed exit challenges for growth investors. This is driving bigger financing rounds for private companies as well as more trade sales, Siddiqi said, particularly as big pharma has a lot of cash on its balance sheet from COVID vaccine sales.

The sale of ReViral to Pfizer for USD 525m last month is a case in point.

“Pfizer and Moderna’s windfall puts a spotlight on the rewards for innovation. A lot of money has come into the sector while record funding is available to life sciences companies. The sector is in a healthy shape on the private side and I see a lot of opportunities on M&A going forward,” Siddiqi said.

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