Among all the talk about corporate venture funds and their growing role in providing an alternative for financing innovation, Biogen Idec has shut down its fund. Earlier this week Bruce Booth of Atlas Venture impressively documented on his blog Life Sci VC the growth of corporate VC over the past decade, but every rule has an exception, judging from Xconomy’s interview with Steven H. Holtzman of Biogen Idec.
He headed Biogen Idec’s New Ventures investment fund until January 2011, when he became evp, corporate development. Biogen Idec shut the fund down as well as a startup incubator in a shift of resources to internal R&D projects. According to Holtzman, the shutdown can be more than justified because four other truisms often used for justifying corporate VC activity aren’t really true. Following are the truisms, and where he said they fall flat:
- Corporate VC investing provides a window on novel technologies: Holtzman pointed out that the best window, he explained, “comes from your scientists, who are identifying new things all the time.”
- It’s a good way to network with VCs who have an inside look at what’s hot: Biogen Idec senior execs maintain contact with VCs at shows like the annual J.P. Morgan Healthcare Conference and follow-up conversations.
- As a corporate VC, you can get a preferred seat at the table when it’s time to buy the new technology: Startup CEOs owe their company and its shareholders the best possible deal, which should eliminate preferences for anybody.
- There’s a need to support the life science innovation ecosystem now that traditional VC is declining: Better means to that end, remarked Holtzman, include sponsoring “strategically important research at universities” and entering into alliances with young biotech companies.
If Holtzman and Biogen Idec feel comfortable walking away from corporate VC funding, this just might explain why: The company’s fund was hardly the largest player in the field when it shut down. Biogen Idec started its fund in 2004 and grew it to $200 million, taking part in financings such as the $28 million series B equity round closed in 2010 by iPierian and $25 million in various rounds stretching back to 2006 by CalciMedica.
As calculated by Booth, Biogen idec was lumped with a whole bunch of other biopharmas—Amgen, Astellas, Lundbeck, MerckSerono, and Takeda—in an “others in aggregate” category that totaled $500 million.
By contrast, Novartis and GSK tied at about $400 million, followed by AstraZeneca (about $300 million), followed by three funds of roughly $250 million each (Johnson & Johnson, Merck & Co., and Pfizer), then Eli Lilly & Co. (about $200 million), and Mitsubishi (about $100 million).
Over the past year Biogen Idec has pursued collaborations. The company in October joined with Portola Pharmaceuticals to develop and commercialize oral Syk inhibitors for the treatment of various autoimmune and inflammatory diseases. And with Isis Pharmaceuticals, Biogen Idec announced January 4 an option to license Isis’ antisense drug ISIS-SMNRx, a treatment for spinal muscular atrophy.
It’s a matter of following the money. Biogen Idec paid Isis $29 million up front and could dole out up to $45 million in milestone payments associated with clinical development prior to licensing plus up to another $225 million in a license and regulatory milestone fees and double-digit royalties. So what’s in it for Biogen Idec? The company has the option to license ISIS-SMNRx after completion of the first successful Phase II/III trial.
In the Portola deal, Biogen Idec agreed to provide Portola with $36 million cash up front and buy $9 million in Portola equity, with additional payments of up to $508.5 million based on achieving development and regulatory milestones. Biogen Idec will lead the global development and commercialization efforts for the Syk inhibitor program in major indications such as rheumatoid arthritis and lupus, while Portola will lead U.S. development and commercialization efforts for select smaller indications as well as discovery efforts for follow-on Syk inhibitors. While Portola retained an option to co-promote in major indications alongside Biogen Idec in the U.S., Biogen Idec won a 75–25% split of worldwide costs and profits.
Both deals seem to involve greater outlays than traditional corporate VC deals but hold promise for much greater returns long-term for Biogen Idec. And that appears to be as much a factor in the company’s move away from corporate venture funding as any truism about access to technology and playing nice with other VCs.