Dr. Roman Fleck
Principal, Life Sciences Division, Index Ventures

Interviewed by: Ryan Collins, T-bird '12


Dr. Roman Fleck 

Dr. Roman Fleck is a principal in the Life Sciences Division at Index Ventures in Geneva, Switzerland.  Prior to Index Ventures, he worked for seven years at Boehringer Ingelheim Pharmaceuticals where he held roles of increasing responsibility in preclinical drug discovery in the areas of inflammation and cardiovascular therapies as well as later on in business development. Under his leadership several compounds were moved into clinical development.

Roman received his Ph.D. in organic chemistry from the Massachusetts Institute of Technology (MIT) where he performed research on catalytic antibodies. In addition, he obtained an MBA from New York University’s Stern School of Business where he continues to serve as a mentor for aspiring entrepreneurs.

Currently, he serves on the boards of GlycoVaxyn, Novocure and Versartis, while remaining closely involved with Funxional Therapeutics, Normoxys and OncoEthix.

Ryan Collins, Thunderbird Class of 2012, recently sat down with Dr. Fleck in the firm’s Geneva office to find out about his role within the firm and to learn the firm’s investment approach.

RYAN COLLINS:  Tell me about your role at Index Ventures?

ROMAN FLECK:  We have a fairly team-based approach at Index.  We try to divide responsibilities based upon the deal.  I work on deal sourcing, due diligence, negotiation, managing the portfolio companies, selling the companies, etc.   I do pretty much everything on the “front lines”.  I have nothing to do with the back office or fund raising.  We have a separate team that takes care of that as well as LP.

RYAN COLLINS:  Your firm appears to have an investment focus on the areas of Life Sciences and I.T.  Will that continue to be the case going forward?

ROMAN FLECK:  We invest in I.T., Life Sciences, and a little bit of environmental technology.  However, the environmental technology focus is more of an opportunistic exercise rather than a real focus of Index.  I also look at green opportunities that have a biological component, such as bio fuels and water purification, bio chemicals and so on.  As you said, the real focus at Index is on Life Sciences and I.T.  The firm actually started in I.T. so the group has a somewhat larger focus on that area and the I.T. team is about twice the size of the Life Sciences team.   Correspondingly there is larger percentage of funds invested in I.T. versus life sciences.

RYAN COLLINS:  Obviously, when evaluating opportunities, you look for companies with innovative science.  What are some of the other criteria you use to evaluate opportunities?

ROMAN FLECK:  Science is, of course, one thing.  However, the more difficult thing is finding the right people.  That is one of the key issues to overcome.  You often find good science at a university, for example.  However, the scientist may not understand the whole process of building a company.  Researchers may be strong in the area of science but weak in the understanding of the drug development process.  We try to find teams that understand the entire development process as well as how to build a company.  It is rare to find a team that understands what it means to build value in a company.  The way that we approach it at Index Ventures is by building a circle of entrepreneurs around Index who we can “recycle” from one deal to the next.  We don’t want to incentivize our teams to build their “fiefdoms”.  If a project doesn’t look like it’s going to work, we want to close the chapter and move on.  Since we look at over 500 deals per year, we have many other projects we can pick from that might be worthwhile.  So here the idea is to incentivize our teams to grow fast and grow early.  If things are going nowhere, we want to pull the plug and get out early, without having the large infrastructure of a big company already in place.  So we’ve moved away from “big company building” like we did in the beginning and more towards smaller teams, say 5 to 10 people, who can build value very quickly.  We can then sell those companies or their molecules to bigger pharmaceutical companies.  We’ve observed that the industry needs drugs not companies.  Companies, often in themselves, have the wrong incentives to make the drug development process very efficient.

RYAN COLLINS:  Having spent time in the U.S., you’re well aware of the regulatory environment for pharmaceutical companies.  First, what are your thoughts on impending health care reform in the United States? Second, how will political pressures affect the role of private equity firms in health care?

ROMAN FLECK:  As early stage investors I don’t see much impact for us.  However, I do believe there will be a much larger effect on pharmaceutical companies who really have to think hard what it will mean further down the road.  On one hand, they’ll have access to more customers.  On the other hand, more price pressures are inevitable and companies will really have to justify their prices.  I think, currently, 85% of prescriptions being written are generics.  So the remaining 15% are the prescriptions driving profits for the pharmaceutical companies.  With the emphasis on comparative medicine, companies have to understand that whatever they develop is different from what’s already out there.  They will have to show that their molecule shows a difference at the bedside.   We don’t need a sixth schizophrenia drug or another statin for that matter.  So the key takeaway for us is differentiation at the bedside.

RYAN COLLINS:  Do you see private equity firms serving as change agents in the health care industry?

ROMAN FLECK:  I’m sure you’ve read the reports that more and more large pharmaceutical companies are giving up their research.   They’re moving down the value chain and focusing more on later-stage clinical development and marketing rather than investing in early-stage research.  It seems that if a large company tries to do early-stage research, which is a more creative process, it just doesn’t fly in a big pharmaceutical company.  Look at Pfizer, for example.  Their clinical pipeline has been dismal when you consider the amount of money that they pour into R&D every year.  With the six to seven billion dollars per year that they spent on R&D they could have gotten some good science and some good molecules.  It’s not just Pfizer, look at Astra Zeneca.  They’ve done away with early stage research in their C.N.S. (central nervous system) group.  The important thing for the private equity industry to realize is that everybody must have a niche.  At Index we try get into early stage companies.  We don’t want to invest in companies that are already in phase 2 and phase 3 molecules, it’s not our cup of tea and it’s not our forte.  We want to invest in companies and deals where our firm can add value.  Our forte is in early-stage, pre-clinical up to proof-of-concept companies.  This is what we understand best and what we try to do.

RYAN COLLINS:  How is Index Ventures different from other private equity and venture capital firms?

ROMAN FLECK:  Everybody in PEVC is looking for the next big opportunity.  However, if you take the PEVC investing model and look at it as a whole, the model is broken when it comes to life science.  The returns that the industry collectively has created are dismal.  Now if you take the top 20 percent of VC firms, they still have good returns.  However, the bottom 80 percent has actually destroyed value.  Even the good firms are still struggling.  There are no Google-type or Skype-type deals in life science with 20x or 30x returns.  Even with the best deals, in life sciences if you get 10x returns then you are the celebrity in the industry.  This is a fact that we have to contend with.  We are all looking for new ways to approach the drug development process to make it more efficient, improve the odds of success, and so on.  Improving the odds by trying to be “smarter” is probably not the way forward.  There are just too many smart people out there.  Thinking that because you did your due diligence and you believe that this pre-clinical molecule has a better chance of survival than another is really risky.  So you really have to be more innovative on the business model side.  You need to streamline the process and the organization.  We’ve moved away from building big companies because big companies tend to be inherently inefficient.  In the old days a typical biotech company had one molecule, which was considered the value driver.    The company usually had a second molecule that served as the “backup” molecule and a third molecule that was simply there to make the company look “real”.  Even if 70 percent of the resources were being allocated to the first molecule, the remaining 2 molecules were a huge distraction for management and those molecules didn’t really add value anyway.  So all of the resource allocation for managing a pipeline for multiple molecules was, essentially, a waste.  Our approach at Index is to do away with molecules two and three and focus exclusively on molecule one.  This way, from a portfolio management perspective, I can focus on the molecules that I think will work rather than managing companies with infrastructures and teams that manage multiple molecules in their pipelines.  The reality is we don’t need to make it look like these are real companies to attract investors.  We are the investors and we have the contacts and the resources to get done what we need to.  Will this be the Holy Grail?  We don’t know yet.  We have 67 percent of our life sciences portfolio now in one-molecule type companies.  We call this the “asset centric” model for investing in biotech.  This is what we’ve pioneered at Index but a lot of other West Coast VC firms have now copied this model.  We’ll see if this new process yields more efficiency but, for now, this is our approach.  Of course, the network of people that a firm has access to is key, but every VC firm will tell you they have access to the right people.  In terms of our structure and our approach, the asset centric model is really what sets us apart.

Ryan Collins, Thunderbird, and the Private Equity Venture Club would like to give special thanks to Nesrin Everett, of Index Ventures, without whom the interview with Dr. Roman Fleck would not have been possible.  

About the Interviewee

Dr. Roman Fleck

DR. ROMAN FLECK
Principal, Life Sciences Division, Index Ventures

Roman joined the Life Science team at Index Ventures is 2006 and he is a Principal based in the Geneva office.

Prior to joining Index Ventures, he worked for seven years at Boehringer Ingelheim Pharmaceuticals where he held roles of increasing responsibility in preclinical drug discovery in the areas of inflammation and cardiovascular therapies as well as later on in business development. Under his leadership several compounds were moved into clinical development.

Roman received his Ph.D. in organic chemistry from the Massachusetts Institute of Technology (MIT) where he performed research on catalytic antibodies. In addition, he obtained an MBA from New York University’s Stern School of Business where he continues to serve as a mentor for aspiring entrepreneurs.

Currently, he serves on the boards of GlycoVaxyn, Novocure and Versartis, while remaining closely involved with Funxional Therapeutics, Normoxys and OncoEthix.