Aim of Merck Serono Ventures' fundFintan Walton:
Hello and welcome to PharmaTelevision News Review here at BioTrinity 2011. On this show I have Roel Bulthuis, who is Head of Merck Serono Ventures, welcome to the show.
Roel Bulthuis:
Thank you.
Fintan Walton:
Merck Serono Ventures has a venture fund which was set up several years ago couple of years ago now you've been involved right from the very beginning, tell us what the aim of the Merck Serono Ventures is?
Roel Bulthuis:
Well we launched Merck Serono Ventures two-years ago so this is a March 2009 so it's little bit over two-years old with the aim to make strategic investments. So we are looking for companies that are developing products through our technologies that we could see as our business going forward, and since March of 2009 we've been making investments along those lines.
Type of investmentsFintan Walton:
So the types of investments that you put your money into are what type of what type of companies are you investing?
Roel Bulthuis:
It's really diverse the overarching theme is that we need to see that companies are active in therapeutics areas that we could see as part of our business, so the core therapeutics areas for us as a company are oncology, neurodegeneration, inflammation, fertility and endocrinology and within those areas we have to see that we are looking at technologies that are either too early stage for our research group or for our licensing group to engage with where we really can nurture a technology to the extent that it becomes of interest to the overall organization or fields that are adjacent to our commercial organization.
Policy of fundFintan Walton:
Okay, so in terms of the size of the fund and the number of investments that you've done so far could you give us some indications of what that is?
Roel Bulthuis:
So we have 40 million Euros to invest right now. The 40 million was committed to make investments in 8 to 10 companies and the commitment was given for the first three-years of the fund. We've made five investments to-date, we are looking to do another two or three this year.
Fintan Walton:
And in terms of because it's a strategic fund what sort of return? Are you working on a return basis, Do you have a specific limit on the length of time you hold an investment? How do you run the policy of your fund?
Roel Bulthuis:
It's a good question, because that's something that we come across in almost every investment that we make it's the primary interest for us, the primary mandate for us is to make strategic investments and therefore the return is going to be finding a technology, nurturing a technology and in the end being able to move that into a licensing or other type of relationships with Merck Serono. At the same time we realize that if we want to finance companies we'll have to do that in syndicates with other corporate VC's or traditional VC investors and therefore we have to make sure that the investments that we make, make sense for me from a returns on investment perspective as well. So I think we can make that combination especially in the current market I think strategic returns and financial returns are very much aligned.
Fintan Walton:
It's that difficult to do?
Roel Bulthuis:
I don't think it is difficult to do, I mean if you look at the market right now the exit the likely exit for most biotech companies is going to be either a trade sale or structured deal with pharma and that means that if we were building companies together with our co-investors we are building them with the objective to sell these companies to pharma, and I think to do that based on our expectations of a data set to do that on the basis of how we could like to see a molecule or a technology develop before we make that decision is going to position these companies well for acquisitions or deals with other pharma.
Co-investment with other corporate VC'sFintan Walton:
Right, so would you fund a biotech company with another corporate venture fund which is also looking at it from a strategic point of view?
Roel Bulthuis:
Yes, there we would and we have. So far out of the five companies we've invested in to-date three of them are co-investments with other corporate VC's and in two out of those we have more than one corporate VC co-investing with us, just today we announced the follow-on investment in our portfolio company f-star where the incoming shareholder then the new external shareholder was SR One, we were already co-investors in that company together with Mitsubishi Pharma Ventures as long as we have a good balance between traditional finance driven VC's and corporate VC's on the other hand I feel very comfortable to co-invest with other corporates.
Fintan Walton:
So how do you identify your target companies which one to invest and is that through your own BD activities at Merck Serono or is it through your the other funds which could be normal venture funds how do you find your targets?
Roel Bulthuis:
So everything we do is separate from the BD activities at Merck Serono let's put that as a first. The identification of companies for us is based on a combination of I guess proactive approaches by companies through our website, through some of the social media networks, but a lot of it also comes from relationships that we have with other investors and I think I mean if I look at the portfolio right now five of the companies, five of the five companies that we've invested in to-date were really based on relationships that we have with other VC's and discussions that we have with them.
Fintan Walton:
So in a way you really feel much more comfortable co-investing?
Roel Bulthuis:
Well I think there is, I would not do a deal when I have the expectations we would have to fund the company alone, we would be willing to take the lead on the deal, we'd be willing to be the sole shareholder in a seed financing, if we have the expectation that at some point in time we can syndicate these deals, I think with the strategic mandate that we have and very importantly we have to make our management team understand that if we make venture investments it has to be on the basis that we can co-finance that with other VC's, we can only do that if we own shares and nothing else, alright. If I fund the company alone it's essentially a very, very expensive licensing deal and so that fits in a different pocket into in the company.
Fintan Walton:
So it's risk sharing?
Roel Bulthuis:
It is risk sharing, yes and it's not just risk sharing but it's also benefiting from the expertise that we find with our other corporate VC's, our co-investors then, but also the insights that we find with the financial VC's I think and that's why it's for us it's critical that we have that balance between corporate VC money and financial VC money the drive that some of our VC colleagues have towards generating returns is very, very important for the quality of the assets that we're developing.
Follow-on funding on existing investmentsFintan Walton:
Sure, so let's just go to the other component which is obviously the size of your fund you've done these investments a lot of these investments will need follow-on additional funds funding rounds are you now need to think about increasing the size of fund or launching a new fund so that you can fund these existing investments?
Roel Bulthuis:
So to fund the existing investors we don't. So the 40 million has the money that we've used for the investments to-date it also has reservation, significant reservations to follow-on in each of these investments. We will have to make decisions going forward about how we see this as an activity for Merck Serono, right now my understanding from our senior management and as part of our strategy is that this is an important activity we've created some very important deal flow for the company with this and so I have very good expectations of our discussions with our board later this year may be early next year, but that is obviously something that we will have to do say at that point of time.
Roel's views : Quality of opportunities in Biotech industry Fintan Walton:
Okay, so taking into account that our industry now in 2011 is undergoing changes there is a climate out there the weather everybody talked about from a biotech perspective but also from a pharma perspective, so what do you see, you are now out there you are obviously investing in biotech companies first of all in terms of the quality of opportunities that exist for your organization is there quality still there or is it do you have challenges?
Roel Bulthuis:
The quality is there, but it's very selective we have a lot of discussions at conferences like this and panels where we get the question that there is a funding gap that there is so many biotech companies and there is just not enough funding to provide capital for all these companies, there are selectively there are very good ideas, there are very good business ideas there and I think it's very, very useful that there is an increased involvement of the corporate VC funds in funding and selecting these companies in a lot of cases we see some very, very good science, but in many cases that to translate that science into a commercial idea into a commercially viable business is a step that's not there, so I think the input that we can give, the input that some of our colleagues at SR One, Novartis, Roche can give when we look at this business magazines if you have to sell this asset in the end if you want to create value from this company there has to be something that you can sell in the market, we have to make money from it, it's not just about getting good science, getting science that differentiates there needs to be a medical and a commercial need for it and that's certainly an input that we can provide and selectively that will lead to some good deals I think.