Life Science Firms Froth as VC Firm Clarus Ventures Nabs Another $500 Million
Published: Jun 10, 2015
June 9, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Cambridge, Mass.-based venture capital shop Clarus Ventures is celebrating Tuesday, after announcing it had raked in $500 million for its latest fund, a massive oversubscription from the $375 million it had been seeking, and yet one more indicator that life science VCs are seeing a boom year.
Today’s announcement brought Clarus’s total assets under management to more than $1.7 billion.
"We are thrilled by the interest both from our existing investors as well as a select group of new investors," said Robert Liptak, managing director, in a statement. "It is a testament to the performance of our prior funds as well as our unique and differentiated strategy."
The VC said Clarus III will invest around $15 million to $50 million per in each project, focusing on therapeutics-focused companies at all stages, “with breakthrough science and/or best in class assets,” and R&D “risk-sharing partnerships” with the pharmaceutical and biotech industry.
"We've entered a promising new era of innovation in life sciences, both in terms of important scientific advances as well as new business and risk-sharing models," said Scott Requadt, Managing Director. "Given our team's deep expertise in drug development and deal structuring, Clarus is well-positioned to be a leader in both areas."
That addition means that four of the area’s hottest VC shops, including Atlas Venture, Flagship Ventures and MPM, now have around $1.7 billion to invest in early-stage biotech and medical device firms.
MPM had initially aimed to raise $380 million for its MPM BioVentures 2014 LP fund, but new investors including Novartis AG and Astellas Pharma Inc. have pushed that number higher. The company declined to comment on the news.
Clarus’s fattening coffers come almost immediately after Cambridge, Mass.-based Atlas Venture its 10th fund for a whopping $280 million on April 17, and not even two months after Flagship Ventures said it had finished up an oversubscribed $573 million fund.
The interest from investors is hardly surprising, particularly in early-stage companies. VCs are increasingly looking for novel places to put their biotech dollars, with three times more venture capital dollars spent on drug improvements than on new drugs in the last decade, found a study published in February by the Biotechnology Industry Organization (BIO).
It also found VCs are increasingly interested in rare diseases and shying away from Series A rounds.
The first-of-its-kind study was released in February and covers a 10-year-period from 2004 to 2013 and set out to “better understand investor trends in order to determine where scientific or policy issues may be impacting the ability to maintain a robust pipeline of innovative medicines.”
The report draws on data from four venture capital databases, including Thomson Reuters, BioCentury, Elsevier, Inc., Inc. and Evaluate Pharma. It evaluates 1,200 U.S. drug companies that received more than 2,000 rounds of funding over a 10-year period totaling over $38 billion.
It found that VCs have turned their focus in recent years to specialty and rare-disease medicines, often because they carry enormous price tags but are so crucial to patient health that insurers have no alternatives but the pay for them. That leaves investors in prime financial condition.
"VCs will pull back from areas that are seen as having unfavorable or unpredictable regulatory and reimbursement hurdles," the BIO report said. "This has had some impact on tilting investment over the last few years toward drug R&D for small populations and rare diseases."
Novel science is also raring back, with biologic now getting 50 percent of VC funding, though less money is being put into novel drug research. That is particularly true in areas with massive public health issues, such as diabetes and gastrointestinal, respiratory, and cardiovascular conditions. Instead, rare diseases remain a focus, because VCs have a track record of remaining patient in order to have a large payout when a company exits—something Big Pharma has long struggled to come to terms with.
"We see significant interest in rare diseases as gene therapy technologies mature and generate meaningful clinical data and returns for investors," Soffinova Ventures partner Jim Healy said in the BIO report.
The study, titled, “Venture Funding of Therapeutic Innovation: A Comprehensive Look at a Decade of Venture Funding of Drug R&D” is authored by David Thomas and Chad Wessel. Thomas is Director of Industry Research & Analysis for BIO and Wessel is Manager. The report provides detailed analysis of various aspects of funding and research, including breakdowns by diseases/organ type, such as diabetes, psychiatry, gastrointestinal and cardiovascular, as well as by funding type.
Additional findings are that in 10 years, 78 percent of U.S. venture funds for therapeutics were spent on novel drug research and development. Despite the funding, there was a 21 percent drop from the five-year period of 2004 to 2008 and the five-year period from 2009 to 2013, sharply marked into two distinct halves by the financial crisis of 2008 and 2009. As previously reported by BioSpace , there are fewer first-time Series A financing rounds recently, dropping by 30 percent from a high in 2006.
The report examines broad categories of venture capital investment, noting trends and digging into causes.
“The JOBS Act, signed in 2012, has been a key factor in opening capital markets to small innovative biotech companies,” said Jonathan Leff, a partner in Deerfield Management in the report. “The increased access to public markets has already started a favorable feedback effect of capital flowing back into private start-up companies.”
When Will Pfizer's Breakup Happen?
Speculation that the revamping of Pfizer Inc. ’s internal business structure could happen as soon as this year has biotech wondering just when this Big Pharma company could see changes.
Last week an analyst with J.P. Morgan said he thinks there will be a much faster timeline than most of Wall Street had predicted for Pfizer’s stated mission to refocus its efforts on new medicines.
Pfizer initially announced in 2012 that it would be shedding units that were non-essential to that goal. It then promptly sold its nutrition silo to Nestle for $11.85 billion, which was rapidly accompanied by a public spin-off of its animal health business for $2.2 billion.
“While a Pfizer break-up would likely be a 2017 event, we see potential catalysts in 2015-2016," said Chris Schott, an analyst at J.P. Morgan. "Three years of audited financial statements (2014-2016) are required before any part of Pfizer can be spun off, and we also see 2017 as an attractive time for action as investors see Pfizer’s innovative pipeline clearly contributing to growth and the established business having transitioned to a more stable profile."
BioSpace wants to know what you think: Will Pfizer be a changed company by the end of 2015?