3B Future Health Fund II
3B Future Health Fund II SCA SICAV-RAIF (the “Fund”), a Luxembourg based fund managed by 3B Future Health GP S.a.r.l (the ‘GP’ or the General Partner of the Fund).
The Fund is classified as an Article 8 compliant Fund according to Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial sector.
The Fund promotes social impact by investing in healthcare, mainly in the areas of oncology and rare diseases. Good ESG practices are fostered among investee companies.
NO SUSTAINABLE INVESTMENT OBJECTIVE
The Fund promotes environmental or social characteristics according to Article 8 of Regulation (EU) 2019-2088 (the “SFDR”), but does not have as its objective
sustainable investment. The Fund does commit to making a minimum of 75% of sustainable investments as a percentage of its total invested assets. In order to ensure that such investments do no significant harm to any environmental or social objective, the Fund conducts several levels of screening and analysis which includes monitoring against principal adverse impact indicators and ensuring that investments are in undertakings which have implemented procedures to ensure alignment with the OECD Guidelines for Multinational Enterprises and the United Nations (UN) Guiding Principles of Business and Human Rights.
ENVIRONMENTAL OR SOCIAL CHARACTERISTICS OF THE FINANCIAL PRODUCT
The Fund invests in biotech companies in the EU and US with the overarching objective to bring novel treatments to patients suffering from conditions with few or no other treatment options. The Fund’s investment objectives have a clear social impact by definition — investing in the healthcare field, in the areas of oncology and rare diseases, with a view to improving the lives of people who are ill or finding cures for cancers or diseases that are not widespread. In making its investment decisions, the Fund also considers ESG (environmental, social and corporate governance) factors – both at the selection stage and by closely monitoring its investments thereby fostering good governance practices among investee companies.
The Fund’s investment strategy is to make value-added private equity investments in privately owned companies that are in development / early-stage technological and scientific research phases and active in the pharmaceutical and drug licensing industry with a particular geographic focus in the US, Europe and to a lesser extent, Israel (one investment to date). The Fund’s specific sectoral focus is on target entities that have a focus on oncology and rare disease therapeutics, two key areas of high-unmet patient need. We aim to identify technologies that have the potential to progress from the lab to the clinic with the goal of creating a meaningful impact on patients’ lives in the near to medium term.
A rigorous due diligence review process is conducted prior to an investment decision being made. Target entities must follow good governance practices including with respect to HR processes and management, financial and tax compliance and overall decision making. To the extent it is available, ESG data and information will be collected and compiled for analysis. Investee companies are selected based on predefined criteria, which include without limitation, a solid scientific/ technology rationale, assets that address a high-unmet need, an experienced management team with a strong ethical culture and a strong investor syndicate. When circumstances make it possible, 3BFHF participates on the investee company’s board, either as a full voting member or as an observer or a member of the advisory board.
PROPORTION OF INVESTMENTS
As the strategy of 3BFHF is very focused — early-stage health care opportunities in specific indications (oncology and rare diseases), we believe it is fair to say that 80% of the Fund’s investments are aligned with social characteristics and have the potential of having a meaningful worldwide social impact.
The remaining 20% represent cash and cash-equivalents which may be held for ancillary liquidity purposes. No environmental or social safeguards are applied to cash and cash equivalents.
MONITORING OF ENVIRONMENTAL OR SOCIAL CHARACTERISTICS
The Managers of the General Partner of the Fund meet on a regular basis to oversee the general management and conduct of all aspects of the Fund’s business. Investments are monitored on a regular basis – for progress in reaching qualitative and quantitative milestones and for overall good governance. In many cases, the Fund is represented on investee company boards, which allows close monitoring of internal governance.
The Fund follows the principles of the UN Global Compact based on international standards concerning human rights, labour rules that protect workers, require sound governance and have independent judicial systems. To the extent non-compliance with the UN Global Compact international standards is observed in investee companies, a further investigation and corrective measures will be mandated on a case-by-case basis.
As a responsible business, the Fund is guided by the core values of its founders: quality, integrity and respect, and a strong desire to bring new life-changing treatments to patients. These principles flow through to the Fund’s portfolio companies. In order to ensure their proper observance, the Fund incorporates Principles of the UN Global Compact into strategies, policies and procedures, and by establishing a culture of integrity, upholds its basic responsibilities from a social and environmental point of view, thereby setting the stage for long-term success.
In compliance with AML/CFT regulations and the Funds’ AML-CFT policies, the Fund has adopted a risk-based approach to investing, which enables it to determine and implement measures and controls to mitigate risks in an appropriate and a proportionate manner. The Funds conduct regular background checks on the entities it invests in, their management and on its investors. This risk-based approach applies to the monitoring of social and environmental characteristics of investing, in particular since the increased and growing importance of these factors in the past several years. The Fund’s ‘Risk Appetite Statement’ states adherence to applicable laws and regulations and industry best practices as one of its core principles – this means zero tolerance for regulatory breaches or attempts to circumvent policies and procedures in place, whether at the Fund or at any investee company’s level.
DATA SOURCES AND PROCESSING
Reporting on Adverse Sustainability Impact attributes, metrics and the instruments used involves a complex process better suited to more mature companies than those the Fund typically invests in. As a result, the Fund collects and processes its data on a continuous basis, often as board members and always as a shareholder.
The Fund processes data received from company presentations, in person meetings, interviews and qualitative assessments by its investment managers to determine the ESG quality and alignment of each asset.
Data collected with each asset under development includes number of jobs created, both in the scientific and non-scientific areas and number of patients treated in clinical trials and studies. The successful development of the assets in the Fund’s portfolio companies is measured by (i) how long they extend, and/or how significantly they improve, the lives of patients with poor prognosis or no other treatment options, (ii) how they reduce the treatment burden and healthcare spending, and (iii) the impact on their local communities in terms of job creation.
The important data cited above, is gathered by the Fund’s advisory team as a result of the monitoring of portfolio companies. In the field in which the Fund invests, success of a clinical trial or progress of a drug to a next phase trial are often ‘big news’ events that are publicly announced. In addition, as investor, the Fund has information rights and requires portfolio companies to provide periodic updates. When possible, the information is cross referenced using publicly available sources, e.g., clinical trial data in the US is available publicly on https://www.clinicaltrials.gov/ a government resource maintained by the National Library of Medicine at the National Institutes of Health, and in Europe at https://www.clinicaltrialsregister.eu/.
As the Fund’s portfolio companies mature and further integrate ESG principles in their governance, the Fund will be better able to combine the data it receives from its internal departments (the investment team, fund accounting, portfolio management, risk management) with data received from any external sources to arrive at coherent and reliable metrics. At the current point of development of the Fund, the Fund is confident in the reliability of its data sources as they are mostly all internal. External data measurement tools are currently not available. The proportion of data that are estimated is approximately 25 %.
LIMITATIONS TO METHODOLOGIES AND DATA
Compiling market data for very early stage to early-stage companies is more challenging than for well-established companies that report on a number of metrics and have personnel or market data vendors dedicated to such reporting. The Fund does not believe that the current lack of third-party data affects the Fund’s ability to meet the social characteristics the Fund promotes. The Fund expects that it will continuously improve its data reporting going forward as its portfolio companies mature and put in place the proper tools to monitor ESG principles.
Building relationships with reputable counterparties whose identity (including beneficial ownership) may be reliably determined and verified is a core element to the conduct of the business by the Fund. Appropriate Due Diligence measures are applied to portfolio companies, both at initiation and throughout the business relationship, by the verification of their identity, by establishment of the intended nature and purpose of the proposed business relationship and the application of ongoing due diligence measures, on a risk-based approach, which include good governance.
The Fund conducts extensive scientific and corporate/business due diligence on each of its investments. The investment advisory team evaluates the identified risks alongside other relevant factors set out in an investment proposal. Throughout the entire process, relevant sustainability risks are identified and assessed using the same process as is applied to other relevant risks factors.
The Fund seeks to engage with portfolio companies to ensure the integration of ESG-related considerations into the company’s activities.
The Fund holds meetings with management as necessary to discuss issues it feels are pertinent to analyzing the company or better understanding peers or relevant industry factors. Information uncovered during engagement is incorporated into the fundamental analysis. Depending on the issue, additional meetings with company management, in concert with other investors or board members may be organized. To encourage a real-time, active engagement dialogue, the Fund favors in-person or video-conference meetings with the company.
The Fund’s investment advisor staff has been sensitized to identifying ESG risks and opportunities and conducts engagement with portfolio companies.
DESIGNATED REFERENCE BENCHMARK (if applicable)
The Fund is actively managed but currently does not have a benchmark index.
REFERENCES TO INTERNATIONAL STANDARDS
Since April 2022, 3BFH is a signatory of the United Nations Principles for Responsible Investments (PRI) which help define, operationalize and prioritize our engagement efforts.
We demonstrate our commitment to responsible investment through our annual report on our activities.
The United Nations (UN) Sustainable Development Goals (SDGs) provide a global framework for addressing the most urgent social and environmental challenges. They set out a pathway to inclusive growth and represent a call to action for both private and public sectors. Investors are in a unique position to invest in and influence businesses in a manner that creates positive change.
While we support all SDGs, due to our business model we focus mainly on SDG 3, Good Health and Well Being, SDG5, Gender Equality, SDG8, Decent Work and Economic Growth and SDG9, industry, innovation and infrastructure.
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