Lilly Ventures: Ed Torres




Episode Loading...




PharmaTelevision requires Javascript enabled and Adobe Flash Player to watch our programmes. If you do not have Flash installed, you can download it for free from the Adobe Flash homepage.

Improve your Internet experience and start watching exciting new video content.

Video title: Lilly Ventures: Ed Torres
Released on: February 23, 2011. © PharmaTelevision Ltd
Share/save this page:
Email
Bookmark
Facebook
Twitter
LinkedIn
Follow us:
RSS
Twitter
  • Summary
  • Transcript
  • Participants
  • Company
In this episode of PharmaTelevision News Review, Fintan Walton talks to Ed Torres, Managing Director of Lilly Ventures
Portfolio of investments and types of deals
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here in Munich at BIO-Europe 2010. On this show I've Ed Torres , who is Managing Director at Lilly Ventures, welcome.
Ed Torres:
Thank you.
Fintan Walton:
Ed Torres , Lilly Ventures has been around for a while, but back in May of 2009 about 18 months ago Lilly Ventures spunout from Lilly itself as a separate entity with $200 million in it, could you tell us why that happened and the relationship between Lilly Ventures now and the past Lilly Ventures?
Ed Torres:
Sure, so we started Lilly Ventures in late 2001 and we invested in numerous companies had several exits, we had always understood that corporate compensation and venture capital compensation were different unfortunately we didn't recognize the importance of that early enough we lost two very, very good people and we were about to lose some more. And so last May we spun Lilly Ventures out of Lilly, we took our entire active portfolio with us and continue to exist as Lilly Ventures both in spirit and in main and we just created a different legal structure a classic venture capital fund with classic venture capital compensation and Lilly as the only current limited partner.
Fintan Walton:
Excellent, so clearly then as you've said you had a portfolio of investments today you are out there investing still?
Ed Torres:
Yes.
Fintan Walton:
And the types of investments that you do, so you know quite the key question here really is and what people always ask is are you a strategic investor or you just a pure there to make a multiple return you know the usual to allturn your $200 million into a billion dollars for you?
Ed Torres:
Right, so great question, because there are many different phenotypes of corporate venture firms. So in our case we are a classic and traditional venture firm in every aspect except for one and that is traditionally when we do due diligence instead of checking off 12 boxes as one normally would we probably have one more box and that is the majority of our investments could be of interest if in fact they turn out to be successfull to Lilly someday. I say majority you know in any given year probably 70 or 80% of what we do is in a therapeutic area of interest of Lilly today or perspectively of Lilly just because of its absolute size.
Fintan Walton:
So is the other 20% really blue sky stuff can you, I mean you really go into it?
Ed Torres:
Some is blue sky, some a deal we did last year as an example it's lead product is in the therapeutic area which I do not expect Lilly to ever compete in again, but there was a platform an underlying platform there that we thought had multiple shots on goal in multiple therapeutic areas including ones that could be of interest to Lilly, we did the deal.
Fintan Walton:
Fantastic, so what is the portfolio look like now and what are your aspirations for the types of deals you want to do?
Ed Torres:
So the very classic deal for us is a company with a unique biological inside or a unique technology platform upon which they think they have multiple credible shots to get into the clinical, so we have shied away from single shots on goal late stage assets that only needs one Phase III that's not our kind of deal. So we typically do deals at the lead optimization, candidate selection, pre-IND study stage, we invest 10 to 15 million over the life of a deal which typically means our first cheque is 6 to $8 million on average, we lead co-leader follow always on the board and we're a very active investors we are not helicopter directors.
Fintan Walton:
Right, okay. So that's important because clearly leads or opportunities can arise from both Lilly activities anyway, because they are talking to companies or it comes from other venture capital groups which are independent or they could be other corporate venture arms, so how do that work is there a conflict there, is there a potential conflict?
Ed Torres:
Well clearly there is a potential conflict and one must know we separate real conflict from perceived conflict and both are very important, and because the name of this game is reputation capital perceived conflict is just as important for us as real conflict and so there are two or three corporate VC's out there including Lilly Ventures that manage this spectacularly well, and I would say we do that as well and so what that really means is we are always seeking to act in the best interest of the portfolio company and as you know anybody can check on us. And so it's one thing for us to say it's another for a CEO or an investor who doesn't know us to check on us so we encourage that, because we know what they are likely to hear, we've had numerous instances where we have introduced a portfolio company to another pharmaceutical company, I call it Bristol-Myers-Squibb, I call it Pfizer , et cetera. And so the track record really counts here, and then as it relates to real conflict and that does happen on occasion and it happened to us recently with the recent purchase if in fact Lilly because there are only limited partner is going to compete for the asset then we step out, and it's a maddening time as you can imagine after being with the company for five-years, but because we know confidential information about the portfolio company and confidential information about Lilly we actually can't tell by there one.
Fintan Walton:
You step out of negotiation?
Ed Torres:
We do completely out and except for the shareholder vote we obviously wouldn't participate in votes and interim reviews et cetera.
Acquisition of Avid Radiopharmaceuticals
Fintan Walton:
Right, so recently for an example Lilly acquired Avid Radiopharmaceuticals, [PharmaDeals ID = 38046] which was a portfolio company?
Ed Torres:
Yes so we are, it was, it was the first time in our almost 10-years of existence that Lilly has competed and won. It is the first time that Lilly has competed so we have a numerous chances to be nervous and to sit on our hands as we are cut out for three weeks, or four weeks, or five weeks from the dialogue at the board level, but we know how to manage it and again I don't wanted to be repetitive, I think what's important is what we say it's the way we've acted in the past and the people can check on us.
Fintan Walton:
Sure, venture capitalist sometimes sit on boards, some time sit on you've just said you sit on boards, so does that limit the number of companies that you can actually invest in, because you know you can't sit on too many boards I suppose?
Ed Torres:
It does, and so what we have found is the practical limit from being a good board member as opposed to being just a board member is somewhere around five or six it starts to get difficult.
Fintan Walton:
Right.
Ed Torres:
And that's common industry knowledge many people take on many more seats than that, so somewhere around five or six we have found that we are less productive or less available that the CEO than we need to be.
Fintan Walton:
Right, now like all venture funds there has to be a return and is there the same constraints that you have to make some sort of provide liquidity to some of the investments you've got there?
Ed Torres:
Absolutely. So my sales page inside of Lilly is that we are a supplemental window on innovation, because Lilly has many other groups that are involved with early stage companies many represented here at this meeting, we are supplemental window on innovation in a cost effective manner and that's because we don't cost them anything, we are you know if we do our job correctly we are making money with that $200 million capital commitment.
Fintan Walton:
Well some venture funds also have numerous funds, so is there an opportunity then may be that Lilly Ventures will have investments there have another grants?
Ed Torres:
Can we find some word that I can knock on, I think you know we have to prove ourselves so we spun out with the $200 million capital commitment as we said earlier not all that was cash because I bought the existing portfolio, we still have to go back to Lilly and pitch fund too like anybody else would pitch, and obviously they would use the same criteria that you know other's would use is this a group I trust, are there soft strategic benefits there in order to Lilly overtime because they exist and how are their financial returns.
Ed Torres's perspective: Funding in biotech industry
Fintan Walton:
Right, now one of the benefits I suppose of doing all of this for Lilly and for Lilly Ventures itself is ability to be able to have numerous conversations with other VC's all of which have their own investments or looking to invest in a whole range of different biotechnology companies and emerging companies, technology companies, so you must have now a reasonably good idea of even in the 18 months of what's going on in the biotech industry and the funding of biotech's, where does that leave you know what's your perception or may be is more than a perception a feel for our industry right now and the level of investment and so forth are we in a new phase for biotech?
Ed Torres:
Absolutely, so I think there are three or four ways you can answer that question. One we've seen prices go down, I think recently so we've done seven deals since we spun out last May that all of them are public and so little surprise on your face, but we have seen prices go down since the Lehman crash in the fall of '08. I think we are just now starting to see CEO's and inside investors be a little bit more bullish and little bit more confident and being willing to push back on price, so I think that's one impact. The second and probably more profound impact is that we are all looking at each other around the table much more substantively and we are asking the hard questions about talk to me about your capital reserves, how much money do you have really to set aside for this company. And then the third thing is our syndicate size in terms of number of investors is going up, so with deal that pre-Lehman crash in '08 would have supported may be two major funds or three major funds now you will see a fourth and a fifth being added to those syndicates and everybody being willing to take a smaller relative ownership stake to ensure that there is deep pockets around the table if in fact we need to hold on to this investment longer.
Fintan Walton:
Right, so part of your decision to invest in a company is the fellow investors who are sitting on the table?
Ed Torres:
Absolutely.
Fintan Walton:
Sitting around the table, may get on to the table later on, but sitting on the table so where does that leave us, I mean does this mean that we are slowly coming out of our poor funding position or are we continuing to enter?
Ed Torres:
My view is not quite that rosy, I do think that there are fundamentals that are changing that are in favor of the financing market, but I think we have a lot of firms that are walking dead that aren't and we don't even know who they are and they might not know who they are, they are not going to be able to raise another fund and I think as people begin to understand that.
Fintan Walton:
So you are talking about venture capital funds other investors?
Ed Torres:
Venture capital funds fellow investors, and so I think as you know once that realization is made the things change, motivations change, commitment levels change, I worry about that.
Fintan Walton:
Right, so then does that mean that there has to be a rationalization within the industry of what companies which companies are going to survive not the VC firms?
Ed Torres:
I think we've seen that already.
Fintan Walton:
And what you know in the end we are gonna have a smaller group of companies that are funded rather than a broader group of companies that are partially funded?
Ed Torres:
I believe that to be true.
Fintan Walton:
But it does that mean also that because the rise of corporate venture funds and arms to major pharma companies does that mean that the way in which biotech companies will get funded in the future will change fundamentally that it is not just private equity if I can call venture arm the division of private equity and it is going to be a lot more of the mix and the mix is going to be more dominantly made by the venture corporate arms of pharma?
Ed Torres:
I think the trends that we have seen over the last year and a half will continue. I think there are two or three corporate VC funds who have been around for a long time who are increasing the size of their investment dollars none or decreasing. I think that there are three or four that where just strategic and putting in small amounts into investment rounds hoping that it would lead to business development that are now changing their phenotype to become more like a traditional, so there will be a new source of capital and then there are literally, make sure I don't exaggerate half a dozen big biotech's and a couple of pharma's that call me every three or four months and call my peers every three or four months because they are seriously considering a fund as well. So I think the total mix change that we've seen out of necessity in terms of corporate VC and traditional VC in the last couple of years will continue.
Lilly Ventures's future investment philosophy
Fintan Walton:
Right, so from your perspective obviously you must believe in biotech in the future or else you wouldn't be in this game, but where does that leave us? From your own vision of what you see happening over the next five-years and obviously that relates to the performance of your own fund what do you actually see happening? Do you see what sort of companies do we see out there being funded?
Ed Torres:
So, I will be happy to share my answer, but it's obviously an opinion that not everybody shares.
Fintan Walton:
Right, it's more of a personal opinion rather than representing there?
Ed Torres:
And it turns out to be our investment philosophy as well.
Fintan Walton:
Okay.
Ed Torres:
Innovation is the key, I think we saw a slew when venture capital money was cheaper pre-fall of 2008 of pharma re-do's where we were taking existing drug and look for a different application and you know method of use pattern to et cetera, et cetera, we saw specialty pharma grow, we are of the opinion that at the end of the day innovation is going to be the big driver in the industry and that's where you are going to see us invest, I think that there are people that share our opinion, co-investors that share our opinion there are others that do not.
Fintan Walton:
Right, so your preference is for innovation?
Ed Torres:
Absolutely, and the recent Avid success story proves that out, when we first did that deal I can still remember at the table in 2004 having a debate about whether not the Avid Technology per say was going to be successful and then having an entirely separate debate that said will anybody care about an Alzheimer'sdiagnosticby the time Avid's Technology is matured, so we actually placed two bets in our Avid investment A) that the AvidTechnology would work and B) that the pharmaceutical industry would have a therapeutic ready at the time that Avid's diagnostic was ready such that people cared about the Aviddiagnostic answer.
Fintan Walton:
Right.
Ed Torres:
We took on two risks with that investment and it paid off as it was obvious on Monday.
Fintan Walton:
Ed Torres , thank you very much indeed for coming on the show.
Ed Torres:
Thanks for having me.
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).
Ed Torres
Managing Director
Ed Torres oversees Lilly Ventures operations and brings over 20 years of pharmaceutical and venture capital experience to the team. Since co-founding Lilly Ventures, he has led the investments in, and previously served on the boards of, Serenex (acquired by Pfizer ), Conforma Therapeutics (acquired by Biogen Idec) and Cabrellis Pharmaceuticals (acquired by Pharmion Corporation). Ed Torres currently sits on the boards of Cylene, GlobeImmune, Receptos, Viamet Pharmaceuticals and various non-profit institutions. Prior to his role in Lilly Ventures, Ed Torres had a diverse set of experiences throughout the domestic and international pharmaceutical businesses including operational finance, planning, M&A, business development and global marketing roles. Ed Torres received a bachelors of arts from Creighton University and a master of business administration from the University of Michigan Business School, where he was a Consortium Fellow.
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 commercialisation.
Lilly Ventures
Lilly Ventures has its roots in the scientific tradition of Eli Lilly and Company. Lilly Ventures's investment philosophy drives it to seek great companies with compelling life science innovations and partner actively with the management teams of portfolio companies to realize the potential of their technologies. Accordingly, Lilly Ventures provides both financial and intellectual resources to accelerate the management teams' path to success. Lilly Ventures currently has $200 million under management with a focus on the North American and European regions.