Merck Serono Venture Fund: Fresh funding for early stage deals
Roel Bulthuis, Head of Merck Serono Ventures
“This is a very interesting time to be arriving with fresh money for early stage biotech,” said Roel Bulthuis, Head of Merck Serono Ventures. “There are a tremendous number of proposals, that’s true. But you need to be pragmatic when you are working upstream of the drug development pipeline.”
In what has proven to be a turbulent period for the biotech industry since Merck Serono launched its corporate venture fund in March, one deal has been announced, and Bulthuis hinted he may have news to discuss at BIO-Europe 2009 when he participates in the panel discussion “Funding Early Stage Programs in Difficult Times.”
Having now hired up staff from outside the company and starting the momentum toward dealmaking, Bulthuis said he hopes to close one or two further deals before the end of this year and has set a target of three to four deals for 2010.
In a fast moving eight months since the start up of the fund, Bulthuis’ pragmatism has defined the first steps for the group, resisting a headlong rush into the vacuum created in biotech financing by the retreat of traditional capital sources. A pragmatic view helps when you are working with EUR 40 million in your pocket for potential partners.
Bulthuis said he keeps a sharp focus on Merck Serono’s well defined strategic interests, looking for products and technologies within the company’s core therapeutic areas, in particular neurodegenerative diseases, oncology, and auto-immune and inflammatory diseases.
Merck Serono facilities Geneva
Yet the corporate intention to build relationships through the new venture fund also requires a keen eye for an often overlooked quality behind a proposal, the people who put it together.
“We can build relationships with capital, yes. And we can offer resources or technical assistance that help to advance a project,” he said. “But the sheer number of opportunities out there creates a challenge to our resources as we also remain aware of the importance of the relationships we start.”
A traditional venture capitalist review of most proposals is usually over in less than 15 minutes, he said.
“The VC reads the executive summary and immediately knows that either the risk profile is wrong or else that this group will never become a viable company,” he said.
“Yet we need to spend more time with the proposal,” Bulthuis said. “Even if at first sight a proposal may not seem to be a fit with our VC strategy, there may still be some intellectual property or a technology in there that is of interest to us, that we may want to discuss with our licensing or R&D groups.”
“Even failing an interest in these areas,” Bulthuis said, “we take the time to give the right feedback to the people proposing the project.”
“It comes back to our primary intention, to enhance relationships with people outside the company, and not to damage relationships with an ill-considered response to their proposal,” he said.
Bulthuis’ pragmatism has defined other key parameters for deals where he will give a green light.
“We are not interested in going it alone in a deal,” he said. “I have noted some recent corporate venture deals where this is the case, and it does not make sense to me. Here the corporate funding ends up paying for everything, making it just a very expensive research and development funding program.”
It also creates the odd situation sometime where a pharma company is trying to tell a biotechnology group how to build a biotech company.
“We prefer to go into a deal with a broader based platform of support and a group that contributes to a broader mindset for developing the young company,” he added.
“Entering as part of a larger deal becomes critically important in later stages of the company’s development. As we typically are entering at the earliest funding stage, there will necessarily be two or three years of activity, and then this company will need more support and financing from deeper pockets than we have alone. So it becomes important to see at the early stage if there is the likelihood of that support for future financing rounds, he said.”
The funding for Anaphore, Inc. in May 2009 to develop a new class of protein therapeutics “was the first announced deal for the fund and provides a very good example of what we seek, and what fits with our strategy. It is in a very early stage of development, yet it also attracted the participation of traditional venture capital funds and another pharmaceutical,” Bulthuis said.
Hitting one of the core therapeutic areas for Merck Serono is the key starting point to draw the interest of the venture fund group that is searching external opportunities for products, or else for the technologies that will help discover products in these areas.
“We are very pragmatic yet, given a target in one of our core areas, we will look at different modalities, whether chemistry or biologics, to hit that target,” he said.
Last, but certainly not the least for Merck Serono, is that “for any deal we fund we look at potential opportunities for licensing the products or the likelihood of a future merger or acquisition,” said Bulthuis.
Yet returning to a practical view, Bulthuis thinks that given the early stage development nature of the projects his group is reviewing, “it is often far too early to be talking always about licensing. It is really our goal to nurture these teams that often have a lot of science but not much else. We look at the potential for these people as partners. We give the young company access to our resources, and explore how we can help them in technical ways to advance their project and how that might lead to a co-development relationship with Merck Serono.”
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