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Glaxo joins Johnson & Johnson in VC deal

by Ben Fidler | Published March 21, 2012 at 3:22 PM

GlaxoSmithKline plc and Johnson & Johnson have teamed with venture capital firm Index Ventures to launch a fund to invest in life sciences companies, continuing Big Pharma's push to tap into innovative drugs while cutting down the billions it has historically spent on internal research and development.

Index announced that it has started a €150 million ($198.46 million) fund -- its first fund solely dedicated to life sciences investments -- that includes cash from several of its largest existing limited partners as well as U.K. pharma giant GSK and the venture capital affiliate of the Janssen pharmaceutical companies of healthcare conglomerate Johnson & Johnson.

GSK and Johnson & Johnson will each pour €50 million into the fund, called Index Life VI, with Index and its investors taking care of the rest. GSK and Johnson & Johnson executives will sit on the scientific advisory board of the fund, but Index will maintain full decision-making rights to the fund's portfolio companies. The fund will primarily invest in companies in Europe and will target assets with either "first-in-class or best-in-class" mechanisms of action and treatments earmarked for areas of unmet medical need, Index said in a statement.

That GSK and Johnson & Johnson are committing to a VC partnership is the latest example of the bevy of methods Big Pharma is using to externalize portions of its research and development chain and thus, cut down the massive amount of cash it lays out for an in-house R&D structure that has been producing fewer and fewer big-selling drugs. Large pharmaceutical companies have been doing this in a number of ways. Many forge collaboration agreements, where they team with biotechs to co-develop a drug while promising milestone payments as the compound works its way through a pipeline. Through such arrangements, pharma companies aren't on the hook financially for the infrastructure involved in developing a drug, such as a manufacturing facility or team of scientists. Additionally, Michael Keenan, a vice president of consulting firm North Highland Co., said there is now a "hyper-emphasis on the business development function within pharma" to find programs through partnerships with VC funds, academic organizations and other sources. He noted Big Pharma's push to create its own venture arms and invest its own money in the marketplace (several companies, such as Pfizer Inc., Eli Lilly and Co., Novartis AG and Merck & Co. have done so). And such companies have also been selling early-stage assets that they don't want to fund out to the market -- with the help of VC firms -- and then retaining the rights to buy those assets back down the road, he added.

French pharma giant Sanofi added another creative wrinkle to that strategy in January, when it joined with Boston-based Third Rock Ventures and other investors to pour $125 million into the creation of Warp Drive Bio LLC, a startup biotechnology company focused on drug discovery.

"Every single major pharma company has some version of this in their pipeline," Keenan said. "What's kind of interesting is that five or seven years ago, driving R&D through both internal and external [measures] would have been a unique strategy."

The move by GSK and Johnson & Johnson to collaborate with Index follows suit, as the fund will allow them to tap into the VC model to foster the growth of innovative drugs.

"New and creative approaches to funding early-stage innovation are crucial to the development of transformative medicine," said Paul Stoffels, the worldwide chairman of Johnson & Johnson's pharmaceuticals group, in a statement. "We believe that supporting and nurturing startups and encouraging entrepreneurship and innovation will be good for the entire industry."

Index, based in London and established in 1996, invests in both technology and biotechnology companies. Some of its portfolio companies in life sciences include Acutus Medical Inc., a medtech company that develops medical devices for patients with complex cardiac arrhythmias; Cellzome AG, a drug discovery company; and Molecular Partners AG, which creates protein therapeutics.

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Tags: GlaxoSmithKline plc | Index Ventures | Johnson & Johnson

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Glaxo joins Johnson & Johnson in VC deal

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