Genextra Holds on After $1.2 Billion Intercept Windfall

Italian venture capitalist Lorenzo Tallarigo says competitors find his firm’s investment approach a bit strange.

After his Genextra SpA saw its $429 million stake in U.S. biotechnology company Intercept Pharmaceuticals Inc. surge in value by $1.2 billion in one day this month, and then pare the gain in subsequent days, Tallarigo is standing pat for now, at a time when others might be selling.

“When I talk to some of my colleagues in the VC world, they look at us like we’re a bit strange,” Tallarigo said in a phone interview. “We tend to invest earlier than they do, we tend to take more risk than they do and we tend to stand with our companies longer than they do. We try not to be emotional on the action or reaction of the marketplace.”

Shareholders’ rollercoaster ride shows the risks and rewards of biotechnology. Companies depend on investors such as Genextra to ride out the volatility long enough to get a product ready for regulatory approval.

Genextra Chairman Francesco Micheli, a former banker, founded the Milan-based firm in 2004 to profit from research developed by Italian scientists. Tallarigo, a former Eli Lilly & Co. executive, joined as CEO in 2009. The firm’s head of business development is Federica Draghi, daughter of European Central Bank President Mario Draghi.

Shares Soar

Intercept rose almost fourfold on Jan. 9 after the New York-based company said its lead drug to cure a rare form of liver disease worked so well in a mid-stage trial that the study was halted early. Intercept’s obeticholic acid treats nonalcoholic steatohepatitis, an illness known as NASH in which people who don’t drink alcohol or drink very little suffer liver damage that resembles that of heavy drinkers.

The value of Genextra’s 31 percent stake soared to $1.64 billion with the 281 percent gain. The next day, the stock jumped 62 percent. Intercept has since fallen by about a quarter from the record close of $445.83 a share on Jan. 10. Intercept fell 1.7 percent today to $326.03 in New York, giving the company a market value of $6.3 billion.

While investors rejoiced, the drug still faces scientific and regulatory hurdles, and Intercept Chief Executive Officer Mark Pruzanski said it’s too early to predict when the product may reach the market.

Genextra was born from a discussion between Micheli, who helped start Italian telecommunications firm e.Biscom-FastWeb, and Umberto Veronesi, chief scientific officer of the European Institute of Oncology in Milan.

‘Good Scientists’

“Umberto was complaining about the fact that in Italy there are a lot of good scientists who produce a lot of good science and there is not enough finance backing it up,” said Tallarigo, Lilly’s former president of international operations. “Obviously this was a challenge that Micheli didn’t pass on.”

Genextra says it invests in companies between the seed investment stage and before venture capital is typically interested. The fund, which has raised 115 million euros ($156 million), aims to be the lead investor with a controlling stake and typically seeks an exit when the company’s product reaches proof of concept or efficacy.

While the investments don’t have to be Italian, they often are. Intercept’s science originated at the University of Perugia, Italy. Genextra invested in Intercept for the first time in 2006, with additional investments in 2008, 2010 and 2012. Intercept sold shares in an initial public offering in 2012 at $15 each.

Genextra’s Portfolio

Genextra sold 1.26 million Intercept shares in October, according to company filings, leaving the firm with 5.94 million shares.

“We believe in the company,” said Tallarigo, who sits on Intercept’s board. “We think it’s a great company and a great opportunity and we will judge along the way what makes more sense to do, but we are not in a rush to make a call.” Tallarigo served as chairman until October, when he was replaced by Jonathan Silverstein of OrbiMed Advisors LLC, another shareholder.

Genextra is reaping the reward from sticking with Intercept, said Francesco De Rubertis, a partner at a rival investing firm, Index Ventures in Geneva. “They deserve it,” he said. “They’ve taken on a lot of risk. Intercept has always been a one-molecule company and at any step it could have failed. It really shows venture capital at work.”

Intercept is one of five companies in Genextra’s portfolio. One of the companies, Congenia, has a treatment called GNX-5086 in early-stage testing that activates or inhibits the mitochondrial target involved in cellular aging and cell death.

‘Continuous Talks’

Congenia has been in “continuous talks” with big pharmaceutical companies about the drug, which would be the first targeting this protein, said Draghi. Draghi, who has a doctorate in biochemistry from La Sapienza, University of Rome, and a master’s in business from Columbia University, is Congenia’s chief operating officer.

Not all of its investments are successful. The team is debating whether to end its support for DAC, a cancer-drug company in Milan, because the field is so crowded and the company isn’t able to stand out.

“Obviously we are business people and we are driven by finance so we would like to do meaningful things from a financial perspective, but we’re not emotional about things that may change from one day to another,” said Tallarigo.

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