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Venture Capital & Big Pharma Team Up to Fund Startups

    
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It’s no secret that early stage life science companies have struggled mightily over the past few years to get sufficient funding. Those challenges still persist, but a panel discussion, Build-to-Buy-Biotechs: Filling Big Pharma Pipelines with Tailor Made Innovation, at Calbio last week hints at a trend that might give early stage companies the boost they desperately need.

Jay Lichter, Managing Director of Avalon Ventures, has partnered with GlaxoSmithKline (GSK) to fund ten new early stage companies around a single drug candidate with a joint $495 million alliance fund. GSK provides the vast majority of  financial muscle needed, while Avalon puts together top tier teams and academics to perform much of the discovery work. Avalon has a long history of working closely with academia to identify early therapeutic solutions worth early stage investment. What’s new is the inclusion of GSK to share the risk and to amplify the amount of companies and investments that can be made in early stage companies.  Although the current arrangement is for ten companies, expansion is certainly possible if the model of shared risk in early stage companies rewards all stakeholders: GSK, Avalon, and academia.

 

Representing Versant Ventures on a panel of experts, Jerel Davis said that despite the difficulty in calculating a reliable IRR (Internal Rate of Return) for investors, Versant Ventures invests 20-25% in early-stage companies that are often pre-clinical. Like Avalon, Versant often partners with a large single investor or makes use of syndicates funding to reduce and spread their risk across more early stage companies. Among the many challenges investing in early stage companies is simply sifting through the volume of opportunities, Jerel says.  

 Speaking for Roche, Shafique Virani, Global Head of Neuroscience, Ophthalmology, and Rare Disease, identified some of the key criteria he looks for when partnering with early stage companies and investors:

  1. Is the discovery work in another pocket of research than is already being done at Roche?  

  2. Does the research diversify the portfolio and diversify the potential for success?  

  3. Is the early stage company comprised of a top tier team that is likely to perform the higher quality research work and better cost than could be done internally at Roche?  

If the criteria is met, then Roche will look more closely at the opportunity to partner and support with early stage companies.

While the stories and discussion of new models supporting early stage companies may seem simply anecdotal, a number of factors in the life science ecosystem seem aligned to support these types of models that bring VCs and Big Pharma into early stage company investment more frequently. Chief among these factors is the continual shedding and layoffs of R&D functions at Big Pharma companies. While beneficial for short term shareholder returns, the large investment and partnership between GSK and Avalon Ventures in particular seems to reflect a recognition that the long term health of Big Pharma requires long term investment and partnerships with venture capitalists like Versant Ventures and Avalon Ventures with close ties to leading academics and teams.   

In a sense, what we may be seeing is a shifting of capital resources from internal R&D at Big Pharma to external investment and partnerships with venture capitalists that find and form promising early stage companies for break out drug discoveries. That’s good news for the long starved early stage companies with promising but high-risk drug therapies.

 
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