Reid Leonard : Merck Research Ventures Fund, providing power to the Licensing team




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Video title: Reid Leonard : Merck Research Ventures Fund, providing power to the Licensing team
Released on: October 31, 2012. © PharmaTelevision Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks to Reid Leonard, Managing Director of Merck Research Ventures Fund
Merck's corporate venture fund
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here at BioPharm America, in Boston, in September 2012. On this show I have Reid Leonard, who is Managing Director at Merck Research Ventures Fund, welcome.
Reid Leonard:
Thank you. Thanks very much.
Fintan Walton:
Reid, the first question obviously is, is tell us a little bit about the purpose of the Merck Research Ventures Fund? How is it structured?
Reid Leonard:
Sure, so the Research Ventures Fundis intended to be a vehicle through which Merck can participate in the formation and the early growth of biotech companies who are aligned with Merck's overall therapeutic areas, but we are working in a space that's earlier typically then we would do a business development transaction, so it's essentially to provide access to Merck expertise in an investment setting so that we can help these companies became what they need to be, and we are hoping that some set of those companies would do future deals with Merck.
Fintan Walton:
Okay, so what is the size of that fund?
Reid Leonard:
So our original allocation was $250 million, we were able to increase that specifically to earmarked to do an investment in Canada so we ended up with about 285 million. The allocation of that capital is divided into two main areas.
Fintan Walton:
Okay.
Reid Leonard:
The part that we've started with and then now completed is the series of strategic limited partner investments of capital into private early stage venture funds. The second phase which we plan to start first quarter of 2013 is to deploy capital as direct minority equity investments into specific biotech companies.
Merck's investing partnership
Fintan Walton:
And in the later you are actually investing alongside other VC's?
Reid Leonard:
That's correct.
Fintan Walton:
And you would always, you would always participate alongside other VC's?
Reid Leonard:
That's right, it's not our intention to lead investments on the direct side so we'll definitely be looking for quality lead investors who would want to bring us in as a strategic.
Fintan Walton:
So Reid, this $285 million does that come from finance, or does it come from within the R&D budget?
Reid Leonard:
Yes, you know this money is out of the corporate treasury and it's specifically earmarked to be accounted for as investments and so in a sense it's money that Merck is able to put to work in the support of research, but its not our research and it's not research dollars.
Merck & Flagship foster biotech startup
Fintan Walton:
Now one of the press releases that's come out recently is the arrangements you've had with Flagship Ventures, could you tell us about that, because that's quite a unique type of arrangement?
Reid Leonard:
Sure, yes so the partnership with Flagship is really a model for this collection of our strategic LP investments that we've made around the world, now on a business relationship it's a straight LP investment so there is no controlling interest of Merck and we don't have a vote on the specific investments. What we have is a partnership where we marry Merck's subject matter expertise to Flagship's expertise in identifying talent and building companies so that we can stick to the things that we are good at which is thinking about how do you turn science into a new therapeutic, and they can concentrate on what they are good at which is building great companies. So it's really, it's a strategic alliance in the broadest sense of the word in that we have this aligned objective of helping to build companies that are going to deliver great products, but it's really a matter of providing communication and consulting in both directions rather than any control in direction.
Fintan Walton:
Yes, because Flagship itself is quite different in terms of the normal VC, because it actually get participates and creates companies itself rather than just invest in companies that have approached VCs?
Reid Leonard:
That's right. Yes the Flagship VentureLabs system was one of the key attributes that made us feel that they were a great partner. Now some of our other venture partners around the world may be more tilted towards the more conventional early stage investors who are, you know, having entrepreneurs come to them and funding business plans and by making a substantial part of our allocation into the strategic LP's that gives us a very broad portfolio of companies to interact with down the road.
Foundation to corporate success
Fintan Walton:
Sure, so we can visualize now you've got approximately $285 million venture fund, it's investing either directly or indirectly into these various biotech companies, so then you talk about the relationship between those various funds which have distributed and these direct investments, so what is your relationship back to Merck itself and how do you bring in the added value that Merck can bring to these investments?
Reid Leonard:
Sure, sure. So as you know corporate strategic investors in pharma run the gamed of from financial to strategic, and I would say we are pegged at the extreme end of strategic. So you know in order to maximize our ability to reach into the Merck Research Labs expertise we are actually operating as an embedded function out of Business Development and Licensing, so in effect we have really no firewalls between the venture, the venture staff, right and the rest of Merck, we will build those walls as appropriate as we move further into diligence or we became actual investors of course, but at the front end what we are trying to achieve is to get a lot of connection between our scientific decision makers and the scientific leaders of these portfolio companies so, so that's the short answer is we are really more of a function rather than a standalone business unit.
Fintan Walton:
Right, okay. And what's the expectation and obviously normal funds have an expectation of return, do you have an expectation for return over particular period of time?
Reid Leonard:
Well from our financial return perspective our target is to you know meet the industry standard which of course is the moving target. Clearly our perspective as a strategic investor is that both the strategic and financial return ideally should come from some future business development transaction, either an acquisition, or substantial deal, that leads to a major product franchise enhancement for Merck. So in a sense if we win on the strategic side the money will follow, it's not enough for us to wait 10-years and have a positive financial return without the strategic benefit that goes along with it, that would be consider a failed experiment.
Analyzing investment opportunities
Fintan Walton:
Sure. I mean, I suppose it's a different type of operating a relationship in the sense that you know the benefit may come not through the venture fund itself, but the benefit to Merck comes through all the collaborations that happen as a result to that activity?
Reid Leonard:
That's right. So right, so in that way it's not too dissimilar from my other job, right which is a licensing scout in that we are often asked how can you trace back a particular deal to a particular interaction with anyone person, and the answer is difficult. What you'd trace it back to is the quality of the relationship and the value added that happened ahead of the deal that helped to facilitate it. So with the venture investments the specific gap that we are trying to fill is to create a business relationship with companies ahead of our normal transaction space, but where we have sufficient skin in the game that we will really bring committed, involved senior scientists to help that company in anyway it's possible, and then of course what happens going in the other side is that our decision makers gain greater familiarity, and respect, and comfort with this earlier stage program and we hope that should translate into Merck making some preemptive bids on opportunities, or even if we're sitting at an auction we can, if you will, bid with a much higher confidence because we are just that much more familiar with the program.
Fintan Walton:
Sure, obviously the other option that you have is that you can spin out projects within Merck and feed them back into these various venture funds?
Reid Leonard:
That's right, now that's definitely something that we are always on the look out internally, and fortunately within Merck we have a great business partner in the out-licensing group, so if there is an asset at Merck that is in need of being externally matured by having our own venture fund now we are providing greater optionality to this, you know, out placement enterprise so that if an appropriate solution would be to spin that technology out into a company we have the ability to then invest directly in that company and then gain the future benefit of that maturation ideally when it comes back to Merck, but even if it, even if it goes to someone else.
Fintan Walton:
You've already stressed the importance from a strategic point of view, so obviously that fits within the overall Merck strategic vision, so how much influence is there in terms of choice of therapy fields that you want to invest in or external to that which would be things like diagnostics, biomarkers and so forth, so what's the landscape and where you want to fish, or to place your money and place your bets?
Reid Leonard:
Yes, so in this first, out of this first allocation the first incidence of the fund our intend is to stay very closely aligned in the broadest sense to Merck's therapeutic franchise interest. So you know that means sticking with diabetics and obesity, cardiovascular disease, you know vaccines, it's a pretty broad list, right if you look at what Merck's in, so we are not constrained so much in that regard. We do want to take the opportunity to use the venture fund as a way perhaps to explore either disease areas which, so specific diseases within a franchise that we are not pursuing inside or look at opportunities that are generally higher technical risk, but if you will imagine success would really be something that the franchise would be eager to have. So it's almost easier to explain what we are not trying to do, so we won't be doing medical devices, we won't be doing diagnostics. I mean there is always an exception, right the exception would be if those things would enhance the medical value of a Merck drug then they could fall into strategy and then the venture fund might be the ideal vehicle to explore that area. We are definitely not going to be using the fund to explore a whitespace, we really would like, especially the first few investments out of the gate, we want to make sure that even if it's an early stage platform company that we can sort of see the drug, meaning that there is a program already underway even if it's preclinical, but you can imagine success along that path will lead to a new biologic, or small molecule, or vaccine that would fit within an existing Merck business group.
Foundation for business success
Fintan Walton:
Right, so in a way you provide power to the licensing team?
Reid Leonard:
That's the idea, I mean in the extent of what's in it for us, the idea is that this is a tool that should drive future deal flow. In that what's in it for everybody else we decided that this is a good time to have a venture fund, because we feel that there is insufficient capital being deployed to start-up of this sort of therapeutics companies that we need to see in the future.
Fintan Walton:
Sure, okay. So going back then to we have established what you do and what you are doing currently, so what's your vision then? What, how would you measure your success in the future?
Reid Leonard:
Alright, it's a good question. So well there will be a few time apex, so between now immediately and the next lets say two-years reasonably speaking our success will be measured first of all by the quality of the interactions that we are having with our external venture fund partners, do we both feel that there is quality exchange going on. We should see somewhat of a relative enrichment in the number of serious discussions we have with portfolio companies out of those partner funds, and then we should also be deploying our direct investment dollars at some reasonable cadents. Then the second apex should be three to five-years we would like to see some really positive developments out of those companies that either where, either direct investors or from amongst our partners portfolios those companies where we've taken a special interest. And then you know in the five to eight-year range it would be great to see some of this capital coming back, because that's the fuel that we will use to run these experiments again.
Fintan Walton:
Reid Leonard, thank you very much indeed for coming on the show.
Reid Leonard:
Thank you.
Fintan Walton
Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Reid Leonard
Managing Director
At the time of this PTV interview Reid Leonard serves as Managing Director of Merck Research Ventures Fund. Dr. Reid Leonard is Executive Director, External Research and Licensing for the Merck Research Laboratories, Merck & Co., Inc. Reid's home base is Merck's research facility at 33 Avenue Louis Pasteur, in the Longwood Medical Area of Boston, MA. Reid's role is to identify partnering opportunities that fit with Merck's strategic research and development objectives in key franchise areas. Such opportunities may reside in universities, start-up companies, or established bio-pharma firms. He is one of several licensing "scouts" deployed by Merck to biomedical innovation clusters throughout the world. As part of Merck's global licensing team, the regional scouts build relationships, provide guidance on Merck's licensing interests, and serve as a local contact for companies and institutions with which Merck can collaborate to develop best-in-class therapeutics for serious unmet medical needs. Dr. Leonard's research career in neuroscience and cell physiology began while an undergraduate at Brandeis University. Reid subsequently earned a Ph.D. in biology from Purdue University and completed postdoctoral training in molecular pharmacology at Caltech. He joined Merck in 1989 to carry out basic and discovery research on ion channels and moved into the licensing organization in 1998. Since that time, Reidhas held a variety of positions contributing to the identification, scientific assessment, and execution of academic and biotech partnerships for Merck & Co., Inc.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialization.
Merck Research Ventures Fund
The Merck Research Ventures Fund is an investment vehicle through which Merck will help to shape the diversity and quality of external innovation, which may be captured through future partnerships and acquisitions. MRVF is jointly governed by an Investment Committee and a Scientific Management Approval Committee, each made up of senior Merck employees.