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Flagship CEO on Backing NY Biotech, Moderna, and Investing in a Boom

Xconomy New York — 

It’s been a jam-packed few months for Flagship Ventures, one of the Boston area’s most well-known biotech startup creators.

The Cambridge, MA-based VC firm just raised a $537 million fund of its own, and recently became a founding investor in the eye-popping $217 million Series A for Denali Therapeutics, a startup led by a group of ex-Genentech alumni going after neurodegenerative diseases. Seres Therapeutics, a startup it incubated a few years ago and still owns about 55 percent of, will likely soon complete the first U.S. IPO of the microbiome era. And then there’s Moderna Therapeutics, the massive yet mysterious messenger RNA company Flagship created that has morphed into a startup incubator of its own.

But amidst that activity, Flagship is also taking on an unusual challenge. It’s trying to jump-start the creation of a thriving biotech sector in New York City, which has lagged far behind the Boston and San Francisco areas in developing home-grown life sciences startups.

Using $90 million from a New York quasi-government agency and some large pharma and biotech companies, Flagship will search the city’s famed academic and research institutions—Rockefeller University, Weill Cornell Medical College, Columbia University, and Memorial Sloan-Kettering Cancer Center, among several others—for science that can be turned into NYC-grown companies.

“It’s not the kind of thing we typically do,” says Flagship CEO Noubar Afeyan (pictured above). But it’s potentially good for both NYC and Flagship, he says, allowing the firm to dip its toes into a region in a way that might give it a competitive advantage over its rivals.

Here’s the background: the New York City Economic Development Corp. joined with Celgene (NASDAQ: CELG), Eli Lilly (NYSE: LLY), and GE Ventures in 2013 to seed what’s now known as the “City of New York Early-Stage Life Sciences Funding Initiative.” The original goal was to raise $100 million and find a VC backer—a company creation specialist—to help seed 15 to 20 startups.

But during the painstaking, longer-than-anticipated search to find that crucial VC partner, the scope of the project expanded. By the time the NYCEDC and its partners unveiled the fund at a March event at Rockefeller in Manhattan, it had become a $150 million effort, with two venture backers in the fold. Flagship came aboard to manage $90 million and build therapeutics startups; ARCH Venture Partners, another startup creator, took charge of the remaining $60 million to start companies in all other facets of life sciences—like diagnostics, research tools, and digital health.

Though the other details are opaque, sources have told Xconomy previously that the fund has specific provisions that both “incentivize” startups to grow in New York and “dis-incentivize” them from leaving—things like returning cash to investors if the companies bolt the Big Apple. The NYCEDC even added a second, side-by-side “infrastructure” initiative meant to unearth affordable lab space (the lack of it is one of New York biotech’s biggest problems).

Afeyan says Flagship’s foray here is something of an “experiment.” Flagship starts up companies in-house, and tends to be “Cambridge-centric”: most of its companies “are within walking distance” of its office, he says.

But New York biotech has a lot riding on Flagship (and ARCH) and the NYCEDC’s fund. Local academics, entrepreneurs, government officials and more have pounded the tables for years, bemoaning the state of New York’s life sciences scene. Despite being near the top of state ranks in yearly National Institutes of Health grant funding year after year (not to mention home to the financial capital of the world), New York consistently attracts just a fraction of the life sciences VC funding of Boston and San Francisco. Its famed academic and research institutions feel they are, as Afeyan says, “under leveraged” in the startup world.

“They see a lot of the science go straight into large companies,” he says of New York’s institutions. “They’d like to see some of it go into startups.”

There are a number of reasons for New York’s past struggles in biotech—most notably what used to be a competitive, rather than collaborative group of institutions (which Accelerator Corp.’s David Schubert said recently made it “very hard to do business here from a venture perspective”), and a lab space problem that is still unresolved. Indeed, despite the presence of a few local biotech incubators and the Alexandria Center for Life Science (a group of towers on Manhattan’s East Side home to companies like Cellectis, Eli Lilly’s ImClone unit, a Roche outpost, and Kadmon), it’ll likely take years to amass enough space that will lead to the critical mass of startups the region yearns for.

But things are changing, institutions have mobilized and banded together, and Flagship is now right in the thick of it. I spoke with Afeyan recently about the New York experiment, Flagship’s investment strategy during the good and the bad times, and some of the more unique startups it’s involved with, among them Moderna and Denali. Edited excerpts from that conversation follow below.

Xconomy: Why did Flagship decide to back New York’s life sciences fund?

Noubar Afeyan: We were approached quite a long time ago when [the New York] initiative was launched as to whether we would be willing to contribute to it. It’s not the kind of thing we typically do—we certainly didn’t need the money—but the people who approached us were … Next Page »

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