The Boston biotech scene was abuzz about a year ago when news broke about three of the most influential figures in the sector—Rich Aldrich, Michelle Dipp, and Christoph Westphal—joining forces to form a new venture capital firm called Longwood Founders Fund. Yet this power trio has been mostly mum about what they are doing with the new fund, until I gathered more insight this week from Aldrich.
Last week Boston-based Longwood revealed that the London-based drug giant GlaxoSmithKline (NYSE:GSK) and Cambridge, MA-based Genzyme (NASDAQ:GENZ) helped the firm raise its first fund, which ultimately was worth $86.9 million, according to an SEC filing. This was the firm’s first announcement about its own fund-raising activities, even though its partners had been pretty vocal about its investments in Cambridge, MA-based biotech startups Alnara Pharmaceuticals and Verastem at different points last year.
Aldrich, who became a biotech industry star earlier in his career as the head dealmaker for Cambridge, MA-based Vertex Pharmaceuticals, has more recently allied himself with Dipp and Westphal on several biotech ventures. The biggie was Sirtris Pharmaceuticals, the Cambridge, MA-based developer of drugs for diseases of aging, which they sold to Glaxo for a sizable $720 million in 2008. Expectations are likely high among investors in Longwood that Aldrich and his partners can deliver more big wins. Impressively, the venture firm has already received returns from its investment in Alnara, which Eli Lilly (NYSE:LLY) agreed to buy the startup for $180 million in cash upfront and up to $200 million in earn-outs in July 2010.
Still, I had some questions for Longwood and its partners. For one, $87 million doesn’t sound like much money for a venture fund, and I wondered whether that total was below expectations. Aldrich provided some insights on that as well as what the fund means for Dipp and Westphal, both of whom appear to still have active executive roles at Glaxo—Dipp as senior vice president of Glaxo’s Center for Excellence in External Drug Discovery and Westphal as president of SR One, a venture arm of the drugmaker.
Xconomy: What is your strategy going to be for investing in biotech?
Rich Aldrich: Our strategy will essentially be a continuation of what we have been doing for the last few years. We started Sirtris and Verastem by working with top academic scientists out of Harvard and MIT, respectively, to create a company built on new, potentially breakthrough science. In the case of Alnara and Concert Pharmaceuticals, we joined with proven scientific entrepreneurs to start companies based on an innovative scientific platform.
X: What are the big ideas in biotech research that are ripe for VC investments?
RA: With the great advances being made in biomedical science on many fronts, there are huge opportunities. At the same time, there has also been a bit of a retrenchment on the investment front, which means there is less money chasing these opportunities. We think it is a very target rich environment. Verastem, which we just formed a couple of months ago with Bob Weinberg, Eric Lander, and Piyush Gupta, is an example of the incredible opportunity that is out there. The science has enormous potential, and we now have backed it with a strong entrepreneurial team and great investors.
X: Do the investments by GSK and Genzyme have any strategic significance for your fund?
RA: Neither GSK nor Genzyme have strategic rights.
X: Was $85 million the amount that Longwood’s partners set out to raise for this first fund? Why is this an appropriate sum for what you’re trying to accomplish at Longwood?
RA: Our goal was to raise an amount of capital that we feel we can profitably invest in one to two new companies per year. This rate of investment is consistent with our taking an active role in startup, financing and building these companies.
X: What is going to differentiate Longwood from other new and established VCs focused on life sciences?
RA: A focus on breakthrough science, top-tier management and scientific teams, a strong track record of creating value for investors, and a strong network of successful entrepreneurs, consistent investors, and decision makers at major healthcare companies.
X: Do Michelle and Christoph plan to keep their jobs at Glaxo now that Longwood has closed its first fund?
RA: Michelle Dipp and Christoph Westphal are pleased with the opportunity they currently have to add value for GSK, both as employees and through Longwood.
X: How much time do each of the partners think they will be able to devote to Longwood, given their other commitments?
RA: We have a consistent track record of active involvement in creating and developing important companies, which have resulted in important medicines for patients and value for investors. Longwood is the No. 1 commitment for all of us.
X: How did the idea for Longwood arise? What was the timeline for the firm’s evolution from concept to reality?
RA: We started the fund as an extension of what we were already doing pretty successfully. For example, prior to forming Longwood, we started Sirtris in 2004, built it, and sold it to GSK in 2008. GSK is currently developing a potentially important Sirtris NCE [new chemical entity] to treat diseases of aging. In 2008, we started Alnara, which in January 2009 filed an NDA [new drug application] for the approval of liprotamase, a drug to treat children with cystic fibrosis. We sold Alnara to Lilly in July 2009, and liprotamase is currently under FDA review. We feel with our own fund, we can continue to be successful investors and developers of important new healthcare technology, but on a broader scale.
X: How much will the location of companies factor into your decisions about whether to invest in them? Will most of your portfolio companies be in the Boston area?
RA: We think Boston is the best place in the world to access really innovative biomedical science and experienced biotech entrepreneurs. So our bias will be to start companies here. We are very “hands on” and it is easier to help management build a company and solve problems when you can meet with them face-to-face weekly or even daily. That said, if a great opportunity emerges on the West Coast, Europe, or even Asia, we will certainly consider it.
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