With Invesco’s Support, PureTech Boosts Power to Back Startups

Xconomy Boston — 

PureTech has always been tough to define. Though it was originally called PureTech Ventures, the Boston company isn’t a venture firm. Rather, it seeks out cost-efficient ways to create innovative life sciences startups in-house, instead of finding nascent companies and investing in them with others. It doesn’t raise the massive funds that a venture firm would raise. It’s been structured as an operating company with the budget to support itself and its subsidiaries, the startups it seeds—at least for awhile.

Indeed, PureTech has typically stepped back and steadily diluted its stakes with financing help when its fledgling startups begin to grow up and their costs rise. That’s about to change today, however, because it’s just gotten the backing of one of the largest investment managers in the UK.

PureTech is announcing that it’s closed a $55 million investment round led by Invesco Perpetual (and including participation from other undisclosed backers), a firm with $120 billion under management. Compared to new venture funds, that’s not a large sum—after all, Canaan Partners just raised $675 million for its tenth fund a few days ago. But PureTech founder, CEO, and managing director Daphne Zohar (pictured above) says that cash comes with an additional benefit for the company: these new investors have committed to putting significant amounts of additional cash into to its subsidiaries and new projects.

That means a few things for PureTech. For one, it’ll have the cash to launch more startups. Zohar, an Xconomist, says PureTech aims to crank out three to five new companies this coming year. Those startups are likely to be cross-disciplinary, tackling issues at the nexus of health and technology. And Zohar adds that the backing will now give PureTech the flexibility to look at things it might not have been able to in the past “because they might have had a bigger price tag and been a little bit further away to get to proof of concept.”

Additionally, from an investment standpoint, PureTech could now, in theory, look to its backers to supply new waves of cash (say, $20 million to $50 million each, Zohar says) for the companies already in its pipeline.

That means PureTech can now lead follow-on rounds for its startups more often, and keep a larger stake. That’s a change from how PureTech operated in the past. Though it contributed to a $12 million, fifth round of funding for obesity treatment developer Gelesis earlier this year, that was more of an outlier. Plus, PureTech had to bring in some other investors to complete it, diluting its stake. PureTech now owns roughly 25 percent of Gelesis, according to Zohar, while it tends to own a majority stake the companies in its pipeline.

“In the past when we were getting things off the ground, we were putting in a seed investment, and we weren’t planning on putting any follow-ons,” Zohar says. “In some cases we did some follow-ons, but as part of a bigger round. Now we have the ability to put more money in to seed the companies, but also to drive those companies forward.”

Separately, PureTech also added three new senior partners: MIT professor and Nobel laureate Robert Horvitz; MIT media labs director Joi Ito; and Harvard Medical School professor and Millennium Pharmaceuticals and Abgenix co-founder Raju Kucherlapati. Senior partners, who hail from a variety of institutions and disciplines, help get companies started, sit on PureTech’s board, and help advise on decisions about areas or technologies it wants to focus on.

PureTech mines the expertise of such partners and its in-house team of experts to build a portfolio of startups that Zohar likens to the operating units of a large healthcare company. In other words, the startups are designed to be long-term holdings, or revenue-generating commodities that appreciate in value, rather than independent companies pressured to drive towards a an IPO or buyout to cash out with in the near term.

So how, in that near term, does PureTech make money? According to Zohar, external partnership dollars for the subsidiaries are part of the puzzle, as are their revenues. Mersana Therapeutics, for instance—which PureTech helped launch in 2002 and still owns a small piece of—has signed a number of partnership deals. Some of that cash flows back to PureTech.

PureTech’s strategy has evolved over the years, partly due to lessons learned (“there are definitely a number of moments, learnings,” Zohar says) and partly to gravitate more towards the types of ideas that the company believes can make it stand out from others that are starting up science-based companies. PureTech’s first few projects, like Mersana and the now-defunct Alzheimer’s drug developer Satori Pharmaceuticals, were more traditional life sciences companies—developers of drugs, or drug delivery technologies. PureTech still forms a few of those types of companies (microbiome drug developer Vedanta Biosciences and Entrega, which focuses on oral drug-delivery techniques, for example). But its pipeline now consists more of companies that combine various elements of science and technology. Akili Interactive, for instance, develops video games for diagnosing and treating cognitive disorders. Tal Medical is trying to treat depression by rewiring the brain’s electrical circuitry with a device, not a pill. Gelesis has an obesity pill that’s really a medical device—made of tiny hydrogel particles that swell up in the stomach. Knode is a LinkedIn-like social networking tool for drug companies.

PureTech is also forming what Zohar calls “sourcing initiatives,” where it’ll work together with pharma companies or other organizations to fashion spinouts for a specific goal. T1D Innovations, a type 1 diabetes startup creator PureTech formed with Juvenile Diabetes Research Foundation (JDRF), is a recent example.

“This inter-disciplinary approach is one that we’ve evolved into,” Zohar says. “It’s not that we wouldn’t do anything that was traditional pharma or biotech, it’s just that we see a lot of ideas and the ones that stand out and the ones that are most exciting to us are the ones that have that cross-disciplinary element to it.”

That doesn’t mean that they’ll all be successful—after all, many of the companies in PureTech’s pipeline right now are either in preclinical or developmental stages, potentially years away from proving themselves. A number of them could wind up duds. And as Zohar says, while PureTech tries to back ideas that are “a couple years ahead” of others, they could easily be “a bit too far ahead—or even in the wrong direction.”

It helps that the company doesn’t have a group of limited partners breathing down its neck for cash.

“The pressure is that we’re creating value and that that value is appreciating,” Zohar says.

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2 responses to “With Invesco’s Support, PureTech Boosts Power to Back Startups”

  1. McJ says:

    Ben, any news about Follica? There’s always an interested few here on xconomy.

    • Shooter says:

      Seconded. It’s been 7 years since Follica was introduced to the public. It still doesn’t seem to have failed completely, but it certainly has not succeeded in bringing a product any closer to market.