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It Takes a Village: The New Pharma-VC Model for Biotech Investing

October 17, 2012
High-profile funding collaborations between pharmaceutical companies and traditional venture capital funds have made headlines in recent months, pooling resources and expertise in an attempt to source and develop the most successful drugs.

BIO Executive Vice President Alan Eisenberg moderated It Takes a Village: The New Pharma-VC Model for Biotech Investing, a panel discussion about these new funding models, during the opening plenary session at the 2012 BIO Investor Forum.

In the past, venture capital could rely on public investors to step in after them. But now, with Wall Street acutely focused on the short-term, “there’s no one for the venture capital groups to hand off to,” panelist Jonathan McQuitty, PhD, a partner with Abingworth, LP, said. “We used to hand off to the public investor. Imagine a four by one-hundred relay, you get to the end of the first leg, and there’s nobody there!”

With decreased interest from public investment, pharma is beginning to recognize the value of filling the gap, according to panelist Francesco De Rubertis, a partner with Index Ventures. In March, GlaxoSmithKline (GSK) and Johnson & Johnson (JNJ) announced the formation of a $200 million fund with Index Ventures to invest in early-stage biotech companies.

GSK and J&J will each invest $50 million to the new fund while Index Ventures will contribute $100 million. The companies will control 2 seats on a nine-member scientific advisory board, but the ultimate decision to fund a program will be made independently by an Index Ventures panel.

The new model allows the pharmaceutical companies to become acquainted with an asset as it is being developed and the portfolio companies of the Index fund can get the wisdom of the pharmaceutical industry early on in the process.

Neither GSK nor JNJ will have any rights to assets selected for the fund and will compete with all other companies to secure a given asset for further development.

“Basically, we put a chunk of money in to the fund and invest in a number of assets,” panelist Brian McVeigh, vice president, WWBD Transactions & Investment Managagement at GSK, explained. “If we put our eggs in the basket of one startup company, 9 times out of 10, by definition, it will fail… The potential for the financial return, here on the portfolio, will negate some of that risk level.”