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Insight & Intelligence™ : Jun 24, 2013

10 Industry-Venture Fund Alliances

Pharma and biotech firms are teaming up with venture capital funds to beef up the industry. Find out which ones invested the most dough.

Following is a list of 10 alliances announced in recent years, mostly by pharma and biotech giants with venture capital funds, ranked by total size of fund in which the biopharma(s) invested. Alliances are listed by their partners; their purpose; the role of their partners; the financial contributions of their partners, where disclosed; rights and/or options on drugs resulting from alliance activity, again where disclosed; and the date the alliance was announced. An additional two alliances did not disclose size of total investment, and therefore are included in the list without a ranking.

Significantly, five of the 12 listed alliances were formed during 2013, and another five last year, reflecting the industry’s increasing view that the alliances will offer a more efficient way of developing new drugs by requiring much less than the billions long spent up-front by biopharmas on internal R&D. While the alliances require much less capital from industry, it remains to be seen whether R&D activity will increase, and more new drugs win approval and reach the market, to justify the reduced investment.

Also notable is the presence of two pharma giants in several alliances: GlaxoSmithKline, listed in four of the listed alliances, and Merck & Co., a partner in three funds, two of them listed in a single entry because the partners are similar and the funds, complementary. Both pharma giants have placed the largest bets on partnerships with venture funds as holding the greatest hope for bringing new drugs through trials and approvals faster. However, the top alliance was not led by a pharma giant but by Russia’s state-owned Rusnano, whose alliance was included because it provides business development as well as investment services for companies in “medicine and pharmacology” in addition to nanotechnology and other tech sectors.

The list does not include individual corporate venture funds, the topic of last week’s GEN list; or top venture capital firms, the subject of a GEN list published December 17, 2012.

#10. GlaxoSmithKline (GSK) + SR One + Canada Life Sciences Innovation Fund

Total investment size: $50 million

Purpose: Significantly advance the commercialization of scientific innovation in Canada by investing in early-stage breakthrough research.

Role of partners: GSK and its corporate venture capital arm SR One will manage the fund, which will identify strategic investment opportunities within Canada's life sciences industry—including academic and health institutions, translational research centers, and startup companies

Contributions of partners: GSK agreed to contribute all $50 million toward the fund, designed to strengthen GSK's position as a Canadian R&D leader and offers the company a unique opportunity to help close Canada's innovation gap.

Rights and/or options: Not disclosed

Announced: November 10, 2011

#9. Merck & Co. + Lumira Capital + Teralys Capital

Total investment size: $101 million Lumira Capital II LP and $50 million Merck Lumira Biosciences Fund

Purpose: Lumira Capital II is designed to invest in late-stage clinical stage development of medications, diagnostics, and medical devices in North America; Merck Lumira Biosciences Fund was established to invest solely in Québec biotechnology companies before their products have reached proof-of-concept in humans.

Role of partners: Merck agreed to “screen and select potential partners with which we could form alliances,” in order to “provide a vehicle where Merck scientific expertise could be made available to the general partners of” Lumira and Teralys, which make decisions on investments in early-stage biotechs, Reid J. Leonard, Ph.D., executive director, worldwide licensing for Merck & Co., said at the 2012 Boston Venture Forum

Contributions of partners: Merck has committed $5 million to $101 million Lumira Capital II, and $35 million toward $43 million first closing of Merck Lumira Biosciences Fund, which has set a closing target of $50 million. The Merck funds are part of a commitment announced in 2010 to invest $100 million through 2015 in biopharmaceutical research and development in Québec. The commitment was made when, as part of a global restructuring, Merck shut down its Merck Frosst Centre for Therapeutic Research in the Montreal suburb of Kirkland, laying off most of its staff of 180. Teralys Capital committed to a total $35 million in both funds.

Rights and/or options: Unless negotiated separately with the portfolio companies of the Fund, Merck will not have any rights to the fund’s portfolio companies or their products simply by virtue of its role as a limited partner.

Announced: March 26, 2012

#8. Eli Lilly + TVM Capital + Teralys Capital + BDC Venture Capital + Fondaction + Advantus Capital Management

Total investment size: $150 million

Purpose: Invest primarily in early-stage drug development and opportunities for life science companies.

Role of partners: TVM Capital manages the fund, with expertise provided by Chorus Canada, an offshoot of global-early-phase drug development network Chorus, focused on cost-effectively progressing potential medicines from candidate selection to clinical proof-of-concept. Chorus Canada works with development service providers across the province and elsewhere to offer development services to project-focused companies based primarily in Québec. Chorus is an autonomous unit of Eli Lilly.

Contributions of partners: $65 million from Teralys in $150 million fund, named TVM Life Science Ventures VII. Contributions of other partners not disclosed. BDC Venture Capital is the VC arm of Business Development Bank of Canada.

Rights and/or options: Not disclosed

Announced: May 28, 2012

#7. Daiichi Sankyo + Kearney Venture Partners

Total investment size: $180 million

Purpose: Enhance Daiichi Sankyo research and development activities.

Role of partners: Kearney Venture Partners, L.P., a limited partnership that invests primarily in U.S. life science companies, agreed to make equity investments in emerging life sciences and medical technology sectors including specialty pharmaceuticals, emerging biopharmaceutical, drug delivery technologies, diagnostics, biotechnology, and medical devices. Daiichi Sankyo may seek to establish research collaborations with companies in the fund.

Contributions of partners: Daiichi Sankyo agreed to invest $60 million in the $180 million fund.

Rights and/or options: Daiichi Sankyo retains the right of first refusal to make additional investments in the Fund's portfolio of companies.

Announced: September 8, 2006

#6. GlaxoSmithKline (GSK) + Johnson & Johnson + Index Ventures

Total investment size: €150 million ($200 million) fund, to be named Index Life VI1

Purpose: Stimulate promising, early-stage R&D innovation by investing in early-stage, single-asset, life sciences companies with assets that have first-in-class or best-in-class mechanisms of action and target areas of unmet medical need. Companies will be in Europe primarily, as well as the U.S. and Israel.

Role of partners: Index will maintain full decision-making rights to the portfolio companies. Fund rules and procedures will follow previous Index Ventures funds. All partners agreed to appoint executives to the nine-member Science Advisory Board: five seats for Index, two seats each for GSK and J&J.

Contributions of partners: Half the funding will come from Index, while one-quarter each will be contributed by GSK and J&J.

Rights and/or options: No exclusivity or commitment by GSK and J&J to therapeutics being developed by the startups. Drug companies will need to pursue licensing agreements with Index.

Announced: March 21, 2012

#5. GlaxoSmithKline (GSK) + Sanderling Ventures

Total investment size: $250 million

Purpose: Provide seed funding for West Coast biotech startups.

Role of partners: GSK will retain a seat on the fund’s advisory committee.

Contributions of partners: GSK will contribute $50 million toward the $250 million seventh fund that Sanderling Ventures agreed to assemble and manage, named Sanderling VII, plans for which were first reported in 2011.

Rights and/or options: Not disclosed

Announced: January 9

#4. Novartis + Amgen Ventures + Atlas Ventures

Total investment size: $265 million Atlas Venture Fund IX

Purpose: Provide Amgen and Novartis with strategic proximity to Atlas Venture’s startup formation activities around innovative, potentially high-impact medicines, and catalyze future collaborations around translational research across Atlas Venture’s early-stage portfolio.

Role of partners: Novartis and Amgen Ventures, the venture fund of Amgen, are limited partners in Fund IX. The partners including co-creation of life sciences startups, formation of asset-centric development projects, and helping translate discoveries from ongoing academic collaborations, among others.

Rights and/or options: No exclusivity or any commitment by Amgen or Novartis to pursue opportunities. Atlas Venture maintains full authority over funding strategy and investment decisions.

Announced: May 16

#3. Merck Research Laboratories (MRL) + Merck Research Ventures Fund + Flagship Ventures

Total investment size: $270 million

Purpose: Launch and back new ventures that apply scientific breakthroughs to the development of new drugs in areas of unmet medical need.

Roles of partners: MRL-created Merck Research Ventures Fund made an undisclosed investment in Flagship’s fourth VC fund becoming a limited partner in the $270 million Flagship Ventures Fund IV L.P., which closed last year. MRL will gain exposure to Flagship’ investment and venture creation model to successfully translate scientific innovation into medical breakthroughs. The partnership is also designed to provide Flagship direct access to a global pharmaceutical industry leader with deep insight into pharmaceutical development, commercialization, and regulation.

Rights and/or options: Merck will have an opportunity, but no formal option or special rights, to acquire any startups being created through the Flagship-led fund. As a limited partner, neither the Merck fund nor its pharma company Merck & Co. will be able to control Flagship’s investment decisions.

Announced: April 10, 2012

#2. GlaxoSmithKline (GSK) + Avalon Ventures

Total investment size: $495 million

Purpose: Launch up to 10 life sciences startups in San Diego over the next three years, based on technologies from anywhere.

Role of partners: Avalon will identify promising technologies focusing on early-stage discovery across various therapy areas. Avalon and GSK will jointly approve the formation of new companies based on the technologies, and finance the startups together.

Contributions of partners: Avalon will contribute $30 million from its $200 million Fund X, and provide executive leadership and operational management consistent with its current portfolio strategy. GSK will provide up to $465 million in company seed funding, R&D support, and payments tied to preclinical and clinical milestones toward the 10 startups, each focused on discovery of drugs against disease targets.

Rights and/or options: GSK will retain the option to acquire each company upon the generation of a clinical candidate. Should GSK elect not to exercise its option, company ownership will remain with Avalon, which will be free to enter into other strategic transactions.

Announced: April 22

#1. Rusnano + Domain Associates

Total investment size: $760 million

Purpose: Co-invest in about 20 U.S.-based life sciences companies, including pharmaceutical and biotechnology companies, developing innovative products “that have significant applications for patient populations in Russia, and that complement Rusnano’s focus on nanotechnology-based innovation.”2 The partners also agreed to foster technology transfer into Russia, and establish a pharmaceutical and medical device cGMP manufacturing facility in Russia.

Role of partners: The subsidiary of Russia’s $10 billion state-owned technology fund and the U.S.-based VC firm will jointly invest in emerging life sciences technology companies. The joint venture will manage advanced-stage clinical trials in Russia of new pharmaceuticals and other products that will support regulatory approval of these products in Russia, the U.S., and other markets.

Contributions of partners: Rusnano and Domain Associates each agreed to contribute $330 million toward the joint co-investments in companies. Partners have also engaged Team Drive, a management company led by former Sistema and MTS CEO Leonid Melamed, to develop the project.

Rights and/or options: Not disclosed

Announced: March 6, 2012

Honorable Mentions

The following two alliances we've left unranked simply because we weren't able to ascertain how much they invested. Still, we mustn't overlook....

Roche + California Institute for Quantitative Biosciences (QB3) + Mission Bay Capital

Total investment size: Not disclosed

Purpose: Identify, fund, and support early-stage life science startup companies in the San Francisco Bay Area through the partners’ “Collaborative Startups” program. Plan is to launch one to two companies annually.

Role of partners: QB3 will identify Collaborative Startups from sources that include the institute’s five-site incubator network in the Bay Area; QB3 Startup in a Box, a program to incorporate and structure new companies; the annual Bridging the Gap award program, which provides proof-of-concept support to academic scientists; or directly from university laboratories. After due diligence, Roche and QB3, through its venture arm Mission Bay Capital, will co-invest in candidate startups at the seed stage. Roche may also contribute support in the form of scientific expertise or resources. Roche and QB3 may also invest in a series A funding round for candidate startups.

Contributions of partners: Mission Bay Capital will award an undisclosed amount in seed-stage funding to qualified startups. No other financial details disclosed. QB3 consists of UC’s San Francisco (UCSF), Santa Cruz, and Berkeley campuses.

Rights and/or options: Expected to be decided case-by-case.

Announced: May 16

Bayer HealthCare + California Institute for Quantitative Biosciences (QB3) + Mission Bay Capital

Total investment size: Not disclosed

Purpose: Over three years, launch startup companies.

Role of partners: Jointly evaluate, fund, then work with startup companies in Bayer’s areas of interest, which include cardiology, hematology, oncology, ophthalmology, and women’s health, as well as in emerging technologies that include gene therapy and synthetic biology. Partnership will draw on Bayer’s U.S. Science Hub and CoLaborator incubator, located on Third Street across from UCSF’s Mission Bay campus in 2011.

Contributions of partners: Mission Bay Capital will award up to $500,000 in seed-stage funding to qualified startups. No other financial details disclosed. QB3 consists of UC’s San Francisco, Santa Cruz, and Berkeley campuses.

Rights and/or options: Expected to be decided case-by-case.

Announced: May 15