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fill in skills, expertise, or experience that they don’t have in their own shop. They could also be looking to pursue investments in a different way than they have done on their own.
“You might invest in something that’s outside of your comfort zone with a partner, whereas internally, you might never step outside of your comfort zone,” Glorikian says.
As an example, Glorikian points to Warp Drive Bio, the Cambridge biotech launched in 2012 with a $125 million investment from Third Rock Ventures and French pharma company Sanofi (NYSE: SNY). The arrangement comes with a twist: As long as the biotech hits milestones, Sanofi is on the hook to buy it. Glorikian says that the structure of the deal made sense at the time. Back then, the markets were less receptive to biotech IPOs, so that deal secured an exit for investors. Partnerships are shaped by market conditions, Glorikian says.
In some partnerships, the pharma might hold an option to acquire a technology. That’s the way the 2011 partnership between Shire Human Genetic Therapies and Cambridge venture capital firm Atlas Venture was structured. At the time, Atlas said Shire scientists would help vet the scientific claims coming from startups, and the pharma would invest alongside Atlas in promising companies. Neither Shire nor Atlas disclosed financial details of the collaboration, which gives Shire the option to acquire these companies if they reach scientific milestones.
Meanwhile, GlaxoSmithKline (NYSE: GSK) takes multiple approaches to investing in life science companies. The company’s independent venture arm, SR One, invests alongside other venture capital funds in early-stage healthcare companies. SR One’s investments give GSK no rights or options to the companies or their compounds. The investments are made for financial returns, rather than as a way to feed GSK’s drug pipeline.
GSK also invests as a limited partner in funds managed by venture capitalists, specifically Durham VC firm Hatteras Venture Partners, says Neal Curran, head of business development for metabolic pathways and cardiovascular therapy at GlaxoSmithKline. Curran, speaking at the Coastal Connect Capital Conference in Wilmington, NC, last week, said that even if a fund’s portfolio company is bought by another pharma rather than feeding GSK’s drug pipeline, the investments are important because they help the industry develop new treatments for rare diseases.
Pappas says he is accustomed to working with pharma investors. The mix of limited partners in Pappas Ventures’ funds includes six pharma companies, two contract research organizations, and one medical device company. Those investors hold no rights or options on the companies the funds invest in, though they can help the firm evaluate potential deals. What’s more, Chiesi Ventures and Pappas Ventures won’t be competing for investments. Pappas says in some cases, the funds may invest alongside each other. Chiesi Ventures has not yet made any investments, though Pappas says he is evaluating several companies.