Venture Firms Feel The Pain With GlaxoSmithKline Spin-Off

Pharmaceutical companies are reevaluating their portfolios and dispensing with products that are no longer priorities. That is creating opportunity for venture firms to launch companies around compounds that have been studied extensively.

After GlaxoSmithKline PLC decided to exit neurological fields such as pain and depression in February, three venture capital firms jumped on the chance to carve out a business from GSK focused on the pain market. These firms - Apposite Capital, New Leaf Venture Partners and SV Life Sciences - injected $35.4 million in Series A financing for the new company, called Convergence Pharmaceuticals Ltd., to finance Phase II proof-of-concept studies for a treatment for chronic, neuropathic pain.

New Leaf especially appears to be making the most of these cast-offs. Last year, the firm teamed up with Domain Associates, Pappas Ventures and Third Rock Ventures to invest in $23 million in Afferent Pharmaceuticals Inc., which spun out of Roche Holding Ltd. late last year to attack chronic pain in a new way.

New York-based New Leaf also joined Domain, Aisling Capital, Canaan Partners and Sofinnova Ventures in December to acquire an antibiotic from Pfizer Inc. that has been tested in more than 1,000 subjects. The investors now plan to drive this drug, dalbavancin, through Phase III clinical trials. That opportunity came about after Pfizer acquired Wyeth in October.

Drug manufacturers once feared embarrassment if they let go of an asset that turned into a success. But through mergers and internal discoveries, most have now accumulated far more drugs than they can develop. Instead of letting them idle, many are looking to sell or license them out.

In Convergence’s case, GSK began research that led to the pain drugs in the late 1990s, according to Chief Executive Clive Dix, who headed U.K. research for the company at the time. Strong demand exists for pain medicines that work through new mechanisms of action. Convergence hopes its lead product, a sodium-channel blocker called CNV1014802, will be just that.

Though GSK still owns 18% of Convergence, it does not have any rights to the company’s products, Dix said. He previously led venture-backed PowderMed Ltd. to a merger with Pfizer Inc. in 2006.

Convergence’s team also includes Chief Scientific Officer Simon Tate, who previously was vice president in the pain and epilepsy discovery performance unit within GSK’s Neurosciences Center of Excellence for Drug Discovery.