Merck Serono: Launching a New Corporate Venture Fund

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Video title: Merck Serono: Launching a New Corporate Venture Fund
Released on: January 04, 2010. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Paul Larsmon talks with Roel Bulthuis, Head at Merck Serono Ventures.

Filmed at BIO-Europe 2009, they discuss:

• Merck Serono's new corporate venture fund
• the motives behind the new venture fund
• how investees can still develop other partnerships
• a typical deal for Merck Serono under the new fund model
• how early Merck Serono invests in 'early stage' biotechs
Merck Serono Ventures's new corporate venture fund.
Paul Larsmon:
Hello and welcome to BIO-Europe 2009 here in the Austrian capital of Vienna. With me is Roel Bulthuis of Merck Serono Ventures, welcome. You've just launched a corporate venture fund for emerging biotech's, tell me a little bit about it?
Roel Bulthuis:
It's a strategic corporate venture fund that we launched it's a relatively small 40 million Euros corporate venture fund that we put in place earlier this year. We launched it as you just said in March of this year to invest in early stage biotech companies with the focus obviously on the areas, the therapeutic areas that Merck Serono Ventures is most active in, so the focus for us is to invest in drug discovery, drug development and technology that can lead to discovery in the fields of Neurodegenerative Diseases, Oncology, Autoimmune & Inflammatory Diseases, Endocrinology and Fertility. We are looking to do these deals quite early as you can see from the size of the fund and the commitments that we can therefore take in companies it's important for us to get involved with companies at the seed stage, series A stage type of investment where I think we can have an important contribution both in terms of funding these companies, but also in terms of using our R&D assets, our R&D organization support the development of technologies and our products.
Paul Larsmon:
What's different about this fund to other ways of funding small biotech's?
Roel Bulthuis:
I think, I think in a broad sense it works along the same structures as any traditional VC or any other corporate venture fund. We do invest in the same types of equities, we don't take rights or options to technology, it's really based on building relationship with entrepreneurs that could lead to strategic collaborations on a later point in time, where it is different I think is in the investment model where we aim to build a venture relationship at the early stages fund technologies for three, four-years until we see them mature to the level where the data would justify file a licensing deal, strategic collaboration potentially an M&A transaction at that point we are certainly looking to expand our exposure to this, to the asset to the company, but we will do that through different ways so we can do a licensing deal at that point, we could even take equity as part of the licensing deal part of the philosophy at most probably at that, if we have a broader interest in the a technology we also want to own part of the company that, that develops the technology, so that's certainly possible and for those equity components we are certainly not restricted to the, to the venture funding.
The motives behind the new venture fund.
Paul Larsmon:
So Merck's done, launch this fund in order to find new products for its pipeline really?
Roel Bulthuis:
Yeah. And that's very important for us to be transparent about the fact that this is a very much strategic venture fund, we do deals anticipating that the product or the technology that our investee companies are developing, we will be of interest for our licensing group at a later point in time, that " with that and so it's very important to mention that because some people will translate this as anything that's too early for the licensing group at Merck Serono Venturesit's going to qualify for an investment by Merck Serono Venturesand we are obviously very selective with these things, we have limited opportunities to do investments with $40 million Euros, we aim to invest in about 10 companies and the other thing that's very important for us is that if we see these technologies as part of a licensing deal going forward we will need to have the capacity to do a deal, so if I do 10 deals with the venture fund this year there is no way that we would effectively do licensing deals with these companies in three, four years from now, so we are trying to make this selective and trying to put this in a frame work where we actually believe we'll have the capacity to use the technology with the license of product at a later point of time.
Paul Larsmon:
If a technology is exciting enough for you to invest in as an early stage, why not go the whole (indiscernable) and why not go straight for a licensing deal?
Roel Bulthuis:
Well, it is a very good point and it's exactly the reason why we set up the venture fund. In a lot of cases when we see an exciting product, when we see an exciting technology, when you go there with your typical pharma 15% across the company diligence teams, in a lot of cases if it's early stage you can guess the outcome there will be key people in that group who will tell you that it's too early to do this deal, it's too early to make that commitment because we want to see some critical data to be generated. So for us and for a lot of pharma companies the typical, the typical route from there is to build the relationship with companies, keep close to the product, get updates and -- but that's as far it goes, in some cases in some select cases we do believe that it's important already at that stage to build a relationship that goes beyond that personal relationship that's based on a part of ownership that's why we choose for the venture fund that really allows us to sponsor technology development, but it also allows us to have a seat at the table when the company, when the board discusses technology development, we can give inputs there in terms of for a [ph] technology what targets which show differentiations of this technology, what experiments do we, do we believe we need to, we need to get done to really validate this technology. It gives you more comfort at the level where you have to make a decision of other licensing deal.
How investees can still develop other partnerships.
Paul Larsmon:
Some biotech's might be concerned that they are getting too close to Merck Serono really, and that you know yeah you have a seat on the board and you are lending the money and then it shackles them too where as later on because they might want to do deal with another company?
Roel Bulthuis:
Yeah, yeah. And I think that's an important consideration for any biotech company in the process of fund rising what type of investors should need to get on board and how that will translate into your abilities later on to do further financing rounds or to get into a partnership relationships or sell your company to a pharma company. For us it's very important that when we do these deals the business model should fit and the main aspect to that is that we are not looking at a single asset or a small collection of assets where you would have that situation, where I think reasonably people would say that we are getting tied up to a partner and we want to keep our options open. So for us the companies that we are looking at generally are companies with a broader platform with a broader engine where at some point in time we would expect deals with multiple pharma partners. And importantly I think the involvement of more than one corporate VC or more than one corporate partner at a later stage is beneficial. I mean for us it's very important that when we do these deals that we get the inputs from different groups, we are very happy to have a balance between traditional investors with a more financial objective us and other corporate VC's to bring in the technology drive there. And again if that leads to partnerships with other companies that's an interesting situation for us, we will get additional capital to, to sponsor our technology development, and if it gets us into a situation where another pharma company decides to buy our investee company I think that's a good problem to have for us.
A typical deal for Merck Serono Ventures under the new fund model.
Paul Larsmon:
Can you give me an idea then of a typical deal, tell me and clearing some of the figures that might be involved?
Roel Bulthuis:
So the first deal we closed with Merck Serono Ventureswas a deal in San Diego a company called Anaphore, this is a deal we announced late May early June of this year, it's a $30 million Series A investment that we did together with a group of top-tier financial investors, 5AM ventures, Versant ventures, Apposite Capital and Aravis as well as with SR One and ourselves, so I think that's a very good example to me of a balance between traditional and financial VC's and the corporate VC's on the other side. This is a technology platform based around in novel protein scaffold that very high level this is something that we believe would provide us if this works out would provide us with a tool with the scaffold to make drug molecules that can do something that we currently cannot do with the already wide range of therapeutic modalities we have in the company, so we have a " as a company a fairly large activity on the side of large molecules, we have a good antibody capability, we have broad protein engineering abilities, we have obviously our small molecules and Peptide chemistry, so there is the lot of things we can use when we see a target and when we, when we aim for some therapeutic mechanism, but still you come across target biology that requires something that has a unique ability that we see with the, with the scaffold on that the Anaphore development. And, and in terms of a decision to engage with this company at the level of the venture fund and at the licensing side this is for me again this is an example of where a company where -- right now the company should be focusing on technology development. They have a very nice balance sheet to do that right now, and they get the time from this group of investors to do that, to be able to do licensing deals strategic collaborations with pharma companies at a later point in time that really add value to them at that point.
Paul Larsmon:
So the relationship has been successful over the last couple of years?
Roel Bulthuis:
This is for us is a relationship that we started building before we launched the corporate venture fund, and since then it's " I think it's worked out very well.
How early Merck Serono Ventures invests in 'early stage' biotechs?
Paul Larsmon:
Okay, finally I think you talk about investing in early stage biotech's, how early is early?
Roel Bulthuis:
Difficult question to answer, and I think one, one comment, one very important comment to make there is that as with the so this comes in line with the story that we sometimes get where people say well okay so, so earlier than what your licensing people would look at means that my company qualifies for this. The important thing is still that the asset works for us, that the business model works for us, so there is, there is other qualifications done early, but I don't think.
Paul Larsmon:
How early could it be?
Roel Bulthuis:
But I think there is, I will give you an example of discussion that we have right now, some of our research people, some of our, our senior research group have relations with one of the top US academic institutions in their field. There is some very interesting biology going on there, there is some people there that I would like to put that biology into a company external driven by VC's and we have discussions at that level to, to essentially spin of a technology from a university. We'll be looking to work with other investors to do that deal, but that's the level where we can already start. So this is really a fundamental research at that point that will have to become applied to research in that environment, but that's the level where we can look.
Paul Larsmon:
Well, thank you very much for joining us.
Roel Bulthuis:
Okay. Well thanks for the opportunity. Thank you.
Roel Bulthuis
Head, Merck Serono Ventures
Roel Bulthuis is Head of Merck Serono Ventures, the strategic venture capital group of Merck Serono Ventures. Through the ventures group, Merck Serono Ventures is committed to actively invest in emerging biotech companies which have the potential to provide innovative products in Merck Serono Ventures's core therapeutic areas, or access to innovative technologies. In addition to the venture fund he is also responsible for all 'externalization' transactions at Merck Serono Ventures, including 'fostering' deals, spin-offs and other alternative financing models. He joined Merck Serono Ventures in 2006 and is based in Geneva, Switzerland. Previously, was a Director in the Biotech Investment Banking Team at Fortis Bank, where he was responsible for the origination and execution of a wide range of financing and strategic transactions in the biotech sector based out of Amsterdam and New York. Before joining Fortis Bank, Roel Bulthuis worked at Devgen NV in Gent, Belgium, as a business analyst.He holds a Msc. in Biopharmaceutical Sciences from Leiden University, the Netherlands, and an MBA in Finance from the Helsinki School of Economics, Finland.
Merck Serono Ventures
Merck Serono Ventures is a strategic, corporate venture capital fund that invests in emerging biotechnology companies. The fund invests in biotech start-up companies that have the potential to provide innovative products in Merck Serono Ventures's core therapeutic areas, in particular in Neurodegenerative Diseases, Oncology, Autoimmune & Inflammatory Diseases, Endocrinology and Fertility. In addition, Merck Serono Ventures invests in companies developing innovative technologies that could enable the discovery and development of new products in Merck Serono Ventures's core therapeutic areas. The company continues to seek opportunities to strengthen their franchisees in: in Neurodegenerative Diseases, Oncology, Autoimmune & Inflammatory Diseases, Endocrinology and Fertility.