Bruce Carlson Publisher Kalorama Information

Noticeable product improvements may be on the way thanks to the deep pockets of VC firms.

Top pharmaceuticals face a dilemma in that many blockbuster drugs are losing patent protection and existing pipelines may not compensate for lost revenues. The choice for many is layoffs, office closings, downsizing or to innovate with new products. Most companies will do the former if they must but prefer the latter. Rather than the megamergers that achieve big cost savings through layoffs and factory closings, most drug companies are aiming for transactions that grow their bottom line. In the last few years, this trend has resulted in a complex series of deals and transactions, ranging from complete buyouts to licensing transactions to a variety of collaborative arrangements.

It should not be surprising then, that in the last two years, there has been a noticeable uptick in the amount of funding venture capitalists are putting into biotechnology firms, and the number of deals and partnerships that larger pharmaceutical concerns are striking with smaller biotechs. Biotechnology was the second largest investment area for venture capitalists, according to the MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. Over $4 billion went into 470 deals, an increase of 8%. These numbers placed the biotechnology area as the second largest investment sector for the year in terms of deals and dollars invested. Indeed, over 112 such deals were completed in the first quarter of 2014.  

Some recent deals include:

  • January 2014: Agreement between the biotechnology unit, Genzyme, of Sanofi and Alnylam Pharmaceuticals. This partnership significantly expands Alnylam’s balance sheet to more than $1 billion in cash to increase its investment in new RNAi therapeutic programs, while securing a cash runway that management expects to allow the company to develop and launch multiple products as breakthrough medicines for patients in need.
  • Evotec and Roche’s exclusive worldwide agreement for the development and commercialization of Evotec’s MAO-B inhibitor in patients with Alzheimer’s disease. Roche is collaborating on the development of a monoamine oxidase type B inhibitor named EVT-302. EVT-302 is in Phase II of clinical trials. Phase IIb results are expected in 2015. Roche will fund the clinical development of EVT-302, as well as any manufacturing and commercialization costs. Roche pays Evotec an upfront fee of $10 million. Evotec could receive further development and commercial milestone payments of up to $820 million as well as tiered double-digit royalties on sales.
  • Melinta closed equity financing: $70 million, backed by Vatera Healthcare Partners and Warburg Pincus. The biotech is one of a few private developers of antibiotics, which is not an area of much interest from the larger drug companies because of low financial return. A key initiative at Melinta is to develop a new class of antibiotics designed to overcome the drug-resistant Eskape pathogens known to cause serious hospital infections.

Sometimes, the venture capitalist is a pharmaceutical company as several pharmaceutical companies have separate funding arms. Takeda Ventures Inc., the corporate venture arm of Takeda Pharmaceutical Company Ltd., was established in 2001 as Takeda Research Investment Inc., to extend Takeda’s reach into the global scientific community and forge strategic relationships that complement and expand internal research. The portfolio of Takeda Ventures includes such companies as Lectus Therapeutics, a U.K.-based biotech company that uses a proprietary process to discover and develop unique, small molecules that modulate ion channels. Takeda also has funded Xenon, a Canadian biopharmaceutical company that wants to treat a broad range of major human diseases by isolating the genes that underlie these disorders and by identifying drugs that target these genes.

Novartis’ Venture Funds has a primary focus on the development of novel therapeutics and platforms. Its approach involves larger focused investments, anticipating total investments up to $15 million to $20 million per company over its life. Novartis plans to increase its efforts to lead or co-lead deals further, and remains open to participate in larger syndicates.

Amgen Ventures was formed in 2004. With an initial investment of $100 million, the fund is designed to provide emerging biotechnology companies with resources to develop pioneering discoveries focused on human therapeutics. As an important component of Amgen’s overall outreach strategy, Amgen Ventures invests in early-stage biotechnology companies focused on discovering and developing human therapeutics.

For the pharmaceutical companies, the venture and corporate capital activity at these levels is welcome relief to hurting pipelines. Oncology is by far the leading area of therapeutic interest for both corporate and venture capitalists. This is followed by central nervous system diseases, anti-infectives, metabolic diseases, dermatology, and cardiovascular diseases. The investment from venture capital-backed biotechnology partnerships should result in noticeable product improvements in future years.

Venture Capital Dollar Trends

Bruce Carlson ([email protected]) is the publisher of Kalorama Information. 

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