EXCLUSIVE: Novartis AG, Amgen and Pfizer’s Push Into Early Stages Exciting, But “Secret Sauce” Is Crucial, Says VC
January 28, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The rush of Big Pharma into earlier stage funding has been exciting but does come with risks, well-known biotech venture capitalist Jay Lichter told BioSpace Wednesday.
Lichter, who is a partner at VC firm Avalon Ventures, has over 25 years of expertise in management, scientific research and business development. He is also the inventor on over 260 patent and patent applications for six Avalon portfolio companies, including 78 issued patents, and has been involved in licensing or merger and acquisition deals valued in excess of $1 billion.
All that expertise in the area has Lichter watching larger firms coming into biotech at earlier stages with excitement, but he is also issuing some cautionary advice.
“Big investment firms are starting to get in earlier because they can’t get in at the IPO pricing, so they do the mezzanine round or series A or B,” said Lichter.
Analysts at Silicon Valley Bank issued a report last summer that found Novartis AG , Astellas Pharma Inc. , Pfizer Inc. , S.R. One, Amgen and J&J Development Corp. were the biggest companies pushing their venture cash into early stage funding.
With almost 90 percent of top corporate investment deals invested in Series A or B rounds, the analysts found that half of those investments were in preclinical or Phase I companies. That can lead to a culture clash between what it means to be a VC and how large investment firms usually do business, Lichter told BioSpace.
“VCs understand you can be locked up for three or four years for some of these investments, but big investment firms don’t necessarily understand that and there’s going to be some tears on both sides,” he said.
Patience is the key to seeing an investment all the way through its life cycle, said Lichter, particularly in biotech, where it can take years for proof-of-concept to make its way from the lab to the market.
“Venture guys understand that on the science side you have to be patient and have the dry powder to fix the problem, but the generalists come in and they are used to quarterly reports and that’s not what they get,” he said. “It’s going to take patience to come in earlier for some of these bigger guys.”
Large companies like Johnson & Johnson that are looking to emulate a “think small to act big” model will face unique pitfalls, said Lichter, something Avalon has been able to do with its partnership with GlaxoSmithKline . GlaxoSmithKline and San Diego-based Avalon announced in September that they have partnered on three companies as part of their $495 million drug-discovery collaboration. Each of those three startups will receive $10 million each from Glaxo and Avalon over the next three years as they go through the research and development process.
“There’s a lot of secret sauce in the mechanics of large scale organizations thinking like a smaller company. There’s really nothing like a view of death, like you have in a small company, to focus the mind,” said Lichter. “For us, we want people to take risk, want them to go through the process. People get canned in my organization because of technical failure--if something fails because of the science, we can find other opportunities for them within the organization. But sometimes you have to cull the herd.”
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