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Expanding opportunities for biotechs spur new models between VCs and pharma venture

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For as long as it lasts, we are in a golden moment for biotech companies with markets and venture funds awash with cash, with fresh paths to either exit or to hold on to their molecules, and with new players in life sciences as potential partners.

According to the moderator of a session at BIO-Europe in Copenhagen dedicated to parsing out the complexity of today's partnering ecosystem, all the deal types available today allow entrepreneurs of emerging companies to think about what is appropriate for advancing their program.

[Did you enjoy BIO-Europe 2018? Join us for BIO-Europe Spring in Vienna to ignite powerful partnerships with life science leaders.]

"The takeaway is the diversity of deal types and nature of relationships," according to Neel Patel, the Managing Director of Syneos Health Consulting, who organized the panel discussion. "It means that deals are bespoke, customizing the finance. It means there are multiple paths for success. This is a net positive that helps to advance science."

This has led to a closer, even symbiotic relationship between pharma and VC, he said. "Pharma is no longer hammers looking for nails. The complexity of our industry today shows how far we have moved away from that model. Today there is great creativity in deal structures."

The other major theme that emerged in the discussion is "just how much cash is in the system. One of our panelists called the markets 'frothy.' This is on everyone's mind in the ecosystem. People find themselves putting their capital to work where assets are inflated in value and at the top of the market, making it harder to get those 10x returns," said Patel.

"For emerging companies it means holding on to their rights longer, and perhaps holding on to certain geographies with a hope of commercializing there themselves. And there are people still going out with IPOs, as recently as last week, though they face choppy waters. And they are being rewarded. All of which is a dramatic evolution from what we heard even five years ago."

"And there is a lot of discussion around whether people believe it is a bubble that will burst, or whether there will be a softer landing with a correction," he added.

Focusing on the changing nature of pharma and VC collaborations in this environment, the VP for Global Business Development Assessment and Strategic Corporate Development at Bristol-Myers Squibb, Matt Roden said, "We considered the landscape of corporate capital investment and BMS took the decision that rather than forming a corporate venture fund, we’d go out and engage some of the top venture funds in a very deliberate way, staggering our engagements by geographic footprint, by therapeutic focus, and frankly by relationships with trust. In addition to our direct investing as a limited partner, we also have brought a high level of engagement with our senior research and development executives by having a relatively deep set of interactions where both the venture partners and BMS are sharing information where they are seeing emerging opportunities at the cutting edge.

“The partners are also learning from our thinking on research and development phases, our observations on the operating environment in terms of access and the pricing. It is not just a matter of allocating capital, it becomes a matter of engaging with scientific advisory boards, to have board seats, to have a very significant level of access. This meets our intent to access global innovation rather than just generating a return on assets.”

On the flipside of this approach, Genghis Lloyd-Harris with Abingworth said his fund has "for the first time taken pharmaceutical venture money from Lilly. We were apprehensive because there are issues involved. But it has proved enormously helpful. When there is a manufacturing problem, we can pick up the phone and there is an expert. We have to be careful that we do not adopt the Lilly view of the world. The reason we are a venture fund and not a pharma fund is because we do things differently. I can imagine that in future funds we will seek a pharmaceutical relationship.”

Ruth McKernan from SV Health Managers said the Dementia Discovery Fund Team where she serves as Consultant took this approach to the next level with six pharmaceuticals in the syndicate along with other organizations that include the Alzheimer's Research UK, the UK government Department of Health and the American Association for Retired Persons.

"This makes for quite a rich community putting money into the fund with a diversity of views from nonprofits as well as pharma in an area that is so difficult," she said.

Created in 2015, Nuvelution Pharma represents a novel collaboration between VC and pharma, a creation of the global investment firm Clarus Ventures and Denmark's Novo, part of the $30 billion Novo Group. Chief Business Officer James Cornwall said, "Our remit is to address the problem of many big pharmas, which is the mismatch between the size of the portfolio and the development budget needed to exploit and optimize it.

"We invest in Phase III development programs, either single assets or multiple at $50 million upwards. We take our returns only on the success of a product. We are not passive investors, we typically build a highly expert team around the execution and delivery of the program. We do not have any generalists, building the team bespoke to the model as it comes through the door. We don't give any chance for failure operationally. If the drug fails, then perhaps we did our diligence wrong. We take our payments in various shapes of post-approval, let us say," he said.


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