When people think about experiments in Big Pharma, the image that comes to mind is probably that of a petri dish. But given the crisis state of pharma R&D and early-stage biotech investment, there are also a lot of experiments going on now to find ways to reform the way drug companies and venture capitalists work together. One of those experiments is gradually starting to take shape between Polaris Venture Partners and Johnson & Johnson.
Polaris, as readers in the Boston area know well, is one of the big fish in the life sciences innovation community, with $3 billion of capital under management and a big network of scientists and entrepreneurs who try to keep their fingers on the pulse of what’s new. New Brunswick, NJ-based J&J (NYSE: JNJ) naturally has the big name as the massive healthcare company that rakes in billions every year with its drugs, devices, and other health technologies.
Each organization has its issues. Polaris is one member of a rapidly shrinking industry of biotech venture capitalists, who are all groping for ways to deliver investment returns when there’s an anemic IPO market for biotech startups and slim opportunities to sell their companies to get acquired. J&J, like most every Big Pharma company, has to find a way to generate new revenue streams from new products as patents expire on its aging blockbusters. So these two groups announced a collaboration back in January at the JP Morgan Healthcare Conference, in which they will scout promising new investments together, look to co-invest, and hopefully serve the mutual needs for investment returns and valuable new products.
“As a company that’s dependent in part on external innovation, we want to make sure there’s a good healthy innovation ecosystem out there, and this is one way we can contribute to it,” says Michael Elliott, an entrepreneur-in-residence with Janssen Pharmaceuticals, the pharmaceutical group within J&J.
Detailed terms on how the Polaris/J&J relationship works aren’t being disclosed. But in broad terms, here’s how it works. J&J and Polaris are actively scouting for new investments in the Boston biotech hub, and the two organizations plan to co-invest capital in new companies, Elliott says. The companies may end up going into the Dogpatch Labs physical space that Polaris has established in Cambridge, not far from MIT. J&J is agreeing to chip in its industrial resources—things like small-molecule drug screening capability, drug testing facilities, and expertise in everything most startups lack, like commercial sensibility and regulatory affairs savvy.
Elliott is a key player in making this collaboration work, as the crucial liaison between the startup community and various units within Janssen. He says he’s spending roughly two days a week at Polaris’ Dogpatch Labs in Cambridge, and working closely with Polaris’s Kevin Bitterman and Paulina Hill.
For the past four months, Elliott and his Polaris colleagues have been making the rounds at campus tech transfer offices, and with top faculty. Elliott says he’s optimistic from this scouting effort that the partnership has a future. “We have a pretty unusual relationship, between Janssen and Polaris,” Elliott says. “Kevin and I often share a taxi when we visit folks at the universities, and I when sit I with Kevin and Paulina in a meeting to hear about the science, we often go away to discuss it later. The analysis is made together as a team.”
No actual investments have materialized yet between J&J and Polaris, Elliott says. But the two groups have reviewed 20 different projects in the past four months that he says represent “the best and most exciting biology going on.” A short list of projects has been put together, which is being reviewed, he says.
Of course, J&J and Polaris aren’t the only organizations trying to figure out how to revamp the historic relationship between Big Pharma and the venture capitalists the bankroll the biotech companies that attempt to fill up Big Pharma’s pipeline.
Pfizer has sought to do a better job of supporting early-stage innovations coming out of academic centers, through what it calls its “Centers for Therapeutic Innovation.” And Sanofi CEO Chris Viehbacher has been vocal about the value he sees in external innovation—as opposed to doing everything with his in-house scientists. One prominent example of the new approach was Sanofi’s investment alongside Third Rock Ventures in a startup called Warp Drive Bio, which Sanofi has agreed to nurture, and eventually acquire, if it can deliver on its promise.
J&J itself isn’t wedded to any single approach, and it is trying a different type of business experiment with a startup incubator it has established in San Diego. The San Diego approach amounts to a “parallel business experiment” J&J is testing, Elliott says.
Polaris has developed a comfort level of working with Elliott, says Polaris general partner Terry McGuire, through a relationship that dates back to J&J’s acquisition of TransForm Pharmaceuticals, a Polaris portfolio company, for $230 million in 2005. By having a trusted partner at Janssen, McGuire says each side can get something out of it the other needs.
“If you look at the various players in the healthcare space, their portfolio is broader than anybody’s,” McGuire says. “We get access to their deep knowledge. And we work with them to help them identify really interesting early-stage companies. We probably have the broadest collaborations with MIT and Harvard of any VC firm.”
It’s possible some of the startups that result from J&J and Polaris’s investment, if they hit their goals, could end up getting acquired by J&J, Elliott says. But McGuire says the actual structure of the deals, such as whether there will be pre-negotiated acquisition prices for companies, is still to be determined on a company-by-company basis. “We’re starting in Phase 1, which is basically, ‘let’s find some interesting companies together,’” he says.
I’ll be interested to see if and when this collaboration can bear some fruit, since it could end up being a template for solving a couple massive problems in the pharmaceutical industry—the need for Big Pharma to find new products, and the need for startups to find money and manpower to get started at all. I’m planning to probe a little more deeply next Tuesday as the moderator of a free event Polaris is organizing at Dogpatch Labs, with guest speakers from Janssen, Harvard Medical School, MIT, and the Biotechnology Industry Organization. For more information on how to register, click here. If you’ve got questions you’d like to ask these folks, send me a note at email@example.com or show up in person and fire away.
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