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In Venture Reinvention, Versant Sees Gains Amid Biotech Boom Times

Xconomy National — 

There’s not much ice in San Francisco, where I grew up, so hockey metaphors often go right over my head. But I can’t resist noting that Versant Ventures, led by a former hockey player, has made big line changes this decade to be able to skate another day, while many of its biotech venture peers have retired their jerseys.

I write frequently about biotech investors, wondering if they’re losing relevance, or examining if they would be better splitting off from their tech-focused colleagues. I’m particularly interested in the handful of firms that find emerging science—risky, far-out stuff—and try to turn it into new therapies.

Versant is one of those firms, and its strategic moves the past couple days, in two of the hottest areas of biotech research, provide examples of a post-recession strategy that in some ways runs counter to its early-stage VC peers. It also seems to be working.

On Monday, Versant, headquartered in San Francisco, sold San Diego-based Quanticel Pharmaceuticals—which uses cutting-edge genomic sequencing of individual cells to analyze tumors—to Celgene (NASDAQ: CELG) for $100 million upfront and potentially $485 million total.

Today, Versant is announcing its gene editing startup CRISPR Therapeutics, which has moved most of its operations from Europe to Cambridge, MA, has attracted new investors and raised nearly $90 million in venture cash total, more than its three rivals combined.

I wrote about Versant’s reinvention last summer when it finally sewed up a new $300 million fund, which took twice as long as biotech VCs typically take to raise new funds. It is the firm’s fifth. The total was significantly smaller than its $500 million fourth fund, and the firm moved forward without four longtime partners—including Camille Samuels, who resurfaced last year at Venrock.

Until this week, there has been little sign that a big part of Versant’s new strategy—building a portfolio with both traditional deals and unorthodox companies with prearranged sales—might be working. Quanticel is the sign that Versant, and perhaps more important, the people providing Versant’s cash, have been looking for. “It’s a great validation of their model,” says Cedric Bisson, a partner at Teralys Capital in Montreal, which funneled $25 million into Versant’s fifth fund. (Teralys is one of several Canadian investors newly on board, another part of Versant’s reinvention.)

By “model,” Bisson means the part of the portfolio Versant calls “build to buy.” Quanticel was Versant’s first attempt when it launched the company in 2011. It was also Celgene’s first option-to-acquire deal, and Celgene senior VP George Golumbeski recalls that there was a certain amount of “holding hands and jumping off the cliff together” at the time.

The idea is to create a small, nimble company, often built around a single drug, with a prearranged buyer. There’s no pretense of building the next Genentech, Amgen (NASDAQ: AMGN), Gilead Sciences (NASDAQ: GILD), or Biogen (NASDAQ: BIIB). Build-to-buy startups are meant to be acquired, often by big drug makers that are eager to gain access to new ideas and technologies. “We like the concept,” says Golumbeski, whose company has since taken more options to acquire other biotech companies. “It allows us to work incredibly closely with the company, investors, and management.”

Many pharma companies have cut research staff en masse the past few years, yet still need to source new products from the outside. Those cuts are what Jason Campagna, a senior VP with The Medicines Company, calls “starving the beast.” “The simple way to solve the problem is through early-stage M&A,” he says. (Campagna led the acquisition in one “build to buy” deal, not with Versant, which he described here for Xconomy.)

At the same time, the Great Recession and its aftermath made biotech venture capital a difficult proposition for pension funds, endowments, and other large money managers looking to put their cash to use. Biotech investments took eight years, ten years, sometimes even more to reap returns, which were often measly. “On the whole, the perception was it was too tough, took too long and [required] too much capital, and returns weren’t there,” says Bisson.

Life science investors who wanted to survive had to get creative.

Bolzon: We build, you buy.

Bolzon: We build, you buy.

“Biotech was out of favor when we started our last fundraising,” says Versant managing director Brad Bolzon, a former top dealmaker at Roche and the architect of Versant’s big shift. “We needed a differentiated business model, and build-to-buy was created largely around that theme.”

Unlike other investors with similar ideas at the time, Bolzon wanted to scoop … Next Page »

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  • MedTech Catalyst

    We often do this similar strategy for medical devices and diagnostic technologies. We mitigate the front-end risk of valuable intellectual property to prepare the technologies for commercialization.

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