Gates Foundation Makes First Equity Investment in a Biotech Startup, Liquidia Technologies

3/8/11Follow @xconomy

Global health innovators have a rich new venture capitalist to turn to—the Bill & Melinda Gates Foundation.

The Seattle-based nonprofit, the world’s largest philanthropy with $36.4 billion in assets, made its first direct equity investment in a for-profit biotech company last week when it pumped $10 million into Research Triangle Park, NC-based Liquidia Technologies. While the foundation has made grants to companies for years, and has linked its support to specific programs with clear global health goals, this is the first time the foundation has structured a deal to take equity ownership, and have board-level oversight of a startup’s work, much like a venture capital firm.

It took more than a year to sort through the technical, financial and legal issues before the Gates Foundation was comfortable enough to make the Liquidia investment a reality. But it could provide a template for a new financing approach, which seeks to balance the focus and discipline of a venture investment with the nonprofit mission of fostering global health innovation, says Doug Holtzman, a deputy director on the infectious diseases team at the Gates Foundation.

“This was not a decision made with the snap of a finger,” Holtzman says. “We explained our charitable intent, as a slightly different kind of investor in the company. We don’t want to interfere with their ability to make money, but we do have an expectation they’ll make this technology available for (global health) product development.”

The Gates Foundation has been thinking about new ways to structure its support for innovation in global health for quite some time. Tachi Yamada, the executive director of global health at the foundation, has spoken about how venture capitalists and biotech entrepreneurs haven’t done enough to support the cause.

The foundation’s interest in Liquidia emerged about a year ago when Holtzman saw the company’s chief medical officer, Frank Malinoski, at a meeting of the President’s Council of Advisors on Science and Technology. Holtzman—a scientist with experience working at biotechs like Icos, Millennium Pharmaceuticals, and Microbia (now Ironwood Pharmaceuticals)—says he was intrigued by what Malinoski had to say about Liquidia’s potential for new vaccine development.

Doug Holtzman

The Gates Foundation certainly isn’t the first group to see potential in Liquidia’s work. The company already had significant venture backing, including a $25 million Series C venture round last April from Canaan Partners, Pappas Ventures, Morningside Venture Investments, New Enterprise Associates, PPD, and Firelake Capital.

Liquidia has attracted the interest in a technology for creating specific 3-D shaped particles that can be made to look like an invading virus does to the human immune system. Getting the proper shape is critically important, because it could coax the immune system to mount a defense against a particular invader. Even more importantly, Liquidia’s technique can be used to make these precise shapes, make them consistently, and do it in a scalable fashion, Holtzman says. Those are essential factors any company must figure out to make … Next Page »

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