Corey Goodman of venBio: Building an Inside Periscope on Biotech Acquisitions

1/23/13Follow @Tansey_Xconomy

Veteran neuroscientist Corey Goodman says young life science entrepreneurs who want to launch startups often ask him for advice. Those aspiring biotechnology leaders might be surprised by what they hear from Goodman—a former Stanford and UC Berkeley professor who went on to become co-founder and CEO of two public biotechnology companies, Exelixis (NASDAQ: EXEL) and Renovis.

“My advice is going to be, ‘Don’t do what I did,’ ” Goodman says. “That worked then—it won’t work now.”

The changing realities of biotechnology financing inspired Goodman to co-found a new San Francisco venture capital firm, venBio, which steers fledgling companies clear of the strategies that prevailed in the booming biotechnology period of the 1990s and early 2000s.

No longer can biotechnology entrepreneurs form a company around great science and count on the kind of payoff that Goodman reaped from his shares in Exelixis of South San Francisco. Those stock holdings paid for Goodman’s ranch near Tomales Bay in Marin County, where he now takes work breaks to admire a pair of eagle-like ferruginous hawks that hunt his winter fields.

When Exelixis was founded in 1994, biotechnology companies could aim for an initial public offering that might allow the founders and their venture firm backers to clean up, even before the companies brought new drugs to market.

“A lot of companies got created with the thinking, ‘If you build it they will come,’ ” Goodman says. But the flush times receded as the financial returns from many companies fell short, he says. A shakeout among life sciences venture firms followed, as IPO exits became fewer and leaner. These days, startups and their investors should be setting their sights on an acquisition by a larger pharmaceutical or biotechnology company, not an IPO, Goodman says. And to do that, they have to figure out what those larger companies want.

Goodman had scored an insider’s view of decision-making at the largest drug company in the world in late 2007, when Pfizer (NYSE: PFE) tapped him to create a major in-house R&D unit to revitalize its pipeline. Under Goodman’s leadership, Pfizer’s Biotherapeutics and Bioinnovation Center was to buy up promising assets like Rinat, a South San Francisco company that Pfizer had already acquired.

But Pfizer later canceled its plan to build the bioinnovation center at Mission Bay in San Francisco as a sizeable entity within the drug company. Pfizer, facing an imminent plunge in revenues as patents expired for Lipitor and other drugs, decided in early 2009 to shore up its earnings by purchasing Wyeth. That brought Pfizer a leading biologic drug, etanercept (Enbrel), and Wyeth’s own pipeline of biopharmaceutical candidates.

Still, Goodman stayed at Pfizer for nearly two years, watching the huge drug company navigate the changing industry environment and evaluate its pipeline options. After he left in mid-2009, he and his three venBio co-founders devised a venture firm model they thought could help them capture an insider’s view of big-company acquisition strategies while maintaining the independence to back the startups they judged best. They kicked off fundraising for their first fund in September 2010.

VenBio sought capital from major life sciences companies that were not only looking to make good corporate investments, but would also be willing to tell venBio what types of young companies they’d be interested in buying, Goodman says. Their participation as limited partners in venBio would not only be financial, but strategic—because they might eventually purchase a company that venBio had nurtured. Goodman says venBio is pioneering a new venture model that may improve financial returns.

“I’m a scientist,” he says. “This is an experiment.”

VenBio raised its first fund of $180 million from Thousand Oaks, CA biotechnology giant Amgen; Baxter International, a Deerfield, IL, medical products company with a major biotherapeutics division; and the global contract research organization PPD (Pharmaceutical Product Development, LLC) of Wilmington, NC. Another $20 million came from undisclosed limited partners.

Along with their cash, Goodman says, the three major venBio investors also contribute their expertise in areas such as conducting due diligence reviews and evaluating clinical trial plans. It’s “an intimate relationship” that involves weekly contact between venBio executives and their three major funding sources, Goodman says. Amgen, Baxter and PPD also help shape the strategies of growing companies that receive venBio funding.

VenBio announced its first four portfolio investments in 2012 and early this year. Three of them met a basic criterion of most life sciences businesses acquiring smaller companies these days: buyers want their acquisition targets to have a product in clinical trials, or close to it, Goodman says. In March, VenBio led a syndicate that recapitalized the publicly traded Swiss company Cytos Biotechnology (SIC: CYTN), which collected about $40 million in … Next Page »

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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