Corey Goodman of venBio: Building an Inside Periscope on Biotech Acquisitions
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equity and debt to develop its immunotherapy drug platform and conduct a Phase IIb trial of its experimental drug CYT003 for allergic asthma.
In October, venBio led a $50 million Series D financing for Aragon Pharmaceuticals of San Diego, which had recently announced results of a Phase II trial of its drug candidate ARN-509 in prostate cancer. Aragon’s drug platform targets hormone-driven cancers, which include breast cancer.
VenBio led the $31 million Series A round announced Jan. 3 for Labrys, a company Goodman founded to outlicense an antibody drug candidate for chronic migraine headaches, RN-307, from Pfizer. Goodman said he had supervised work on the drug, developed by Rinat, while he was at Pfizer, and jumped at the chance to take it over. Labrys plans to start a Phase II trial of RN-307 this year.
VenBio’s latest investment, announced Jan. 4, was “the odd one out,” Goodman says. Solstice Biologics is an early-stage company with a platform technology designed to realize the therapeutic potential of experimental drugs that regulate gene expression. Solstice is developing methods to allow these microRNA and RNAi drugs to pass through cell membranes. VenBio led a syndicate that contributed $18 million in Series A financing.
Goodman says the portfolio companies will benefit from the combined experience of Amgen (NASDAQ: AMGN), Baxter, and PPD, in addition to the guidance of venBio’s veteran executive team. Goodman’s co-founders are Kurt von Emster, a former partner at MPM Capital and a veteran biotechnology investment fund manager; Paul Brooke, a former MPM Capital advisor and board member of the MPM BioEquities Fund; and Robert Adelman, a former private equity partner at OrbiMed Advisors.
To help young companies look attractive to potential buyers, venBio makes sure their clinical trial designs are sound, Goodman says.
“A lot of biotechs do a trial that’s underpowered,’’ he says.
VenBio may do another three to four deals a year. “If we keep the proper reserves, we’ll be fully invested within four years,” Goodman says. VenBio has committed about $40 to $50 million of its fund so far.
Each of the companies funded by venBio will have high visibility with at least two potential acquirers—Amgen and Baxter—which will also have had input into their development.
The two companies may have a bit of a leg up if they want to buy one of the portfolio firms, because they’ll have formed their own relationships with the startups’ management teams, Goodman says. But venBio’s investors will have no special option or first right of refusal on acquisitions or licensing, he says.
VenBio’s co-founders decided not to create a so-called “option fund’’ backed by a single drug company with built-in rights to purchase the portfolio businesses. Goodman says he believes that the best startups wouldn’t sign on with venBio if they knew they could only negotiate with a limited number of potential buyers.
In fact, venBio goes outside the circle of its three major investors to gauge industry interest in a potential portfolio company before the venture firm makes a decision to back it, Goodman says. When venBio was evaluating the prospects for Labrys, Goodman asked as many as 10 outside companies how they’d view the startup as an acquisition target if it developed good Phase II data. This practice is also followed by other venture capital firms that go in on investments with venBio, Goodman says.
Those surveys not only familiarize big pharmaceutical and biotechnology companies with the young companies, but may also reveal particular concerns that an entrepreneurial scientist or a venture firm partner didn’t foresee.
For example, the path to FDA approval might be thorny for the first therapy created with a new technology, Goodman says. Some types of clinical trials might be hard to carry out, or a drug company may know that health insurance companies could deny reimbursement for a certain new treatment. Getting that buyer’s perspective early could help avoid doomed investments, Goodman says.
“The VC firms doing well and raising money are the ones that have been thinking with that perspective,” Goodman says. Among the venture firms that VenBio has teamed up with on investments are Aisling Capital, Abingworth, Aeris Capital AG, Canaan Partners, InterWest Partners, and Sofinnova Ventures.
VenBio’s sleek offices, in a modern Owens Street building sheathed in turquoise glass, are just a short walk across UCSF’s Mission Bay campus from the building where Pfizer had once planned to install Goodman as the head of a unit that would bolster its pipeline with new acquisitions. His new role as a venture collaborator with drug companies seems to replicate aspects of that job, but with a bit more autonomy.