Trends in Healthcare Corporate Venture Capital Investment: Industry consolidation creates opportunities and challenges

By Geeta Vemuri, PhD, MBA, Managing Partner, Baxalta Ventures

The healthcare industry has recently seen an unprecedented wave of consolidation, with major attempts at combining (Pfizer/AstraZeneca and AbbVie/Shire) and asset swaps in the last few years. This trend has resulted in opportunities for corporate venture capital, or CVC.

The M&A activity reflects various dynamics. In the Pharma/Biotech sector, for example, such M&A chiefly reflects the need for break-through pipeline products as R&D innovation lags, as well as interest in quickly diversifying therapeutic pipelines through acquisition.  Other drivers range from the current low interest-rate environment to the desire to improve pricing power. This is true for the healthcare insurance field especially, the Aetna bid for Humana and Anthem’s bid for Cigna underscore that strategy.

For CVC, this provides opportunities that could generate a stronger balance sheet to invest from or a broader base of product opportunity to invest in.  In Baxalta’s case, as we look ahead to the integration with Shire, for Baxalta Ventures the therapeutic interests could expand from the current focus areas of Hematology, Immunology and Oncology to include CNS disease, Ophthalmology and Gastroenterology.

In the short run, however, uncertainty can creep in as decisions for follow-on investments and new financing may be delayed due to integration activities and a change of guards at C-level Investment Committees.

Exciting scientific advances persist at an unprecedented pace

The last two years recorded a marked increase in innovative drug approvals and launches that could have blockbuster potential.  These include products that cure – not just treat or manage – Hepatitis C, along with five game-changing therapies that could redefine the following therapeutic categories:

  • Opdivo® (nivolumab), a skin cancer drug from Bristol-Myers Squibb received the first approval for immunological therapy.
  • Ibrance® (palbociclib), a novel drug to treat advanced breast cancer from Pfizer.
  • Novel cholesterol-lowering drugs from Amgen and Sanofi/Regeneron (PCSK9 inhibitors).
  • Cosentyx® (secukinumab), a first-of-its-kind treatment for moderate to severe plaque psoriasis from Novartis.
  • Entresto® (sacubitril/valsartan), a ground-breaking treatment from Novartis for adult patients with symptomatic chronic heart failure with reduced ejection fraction (HFrEF).

Other therapeutic classes that will accumulate clinical data over the next several years include CAR-T cancer therapies and gene therapies for conditions such as hemophilia.

At one point or another, most of these innovative drugs were developed at a biotech company funded by venture capital, and chances are that CVC participated in their financing.  These drugs, of course, must prove themselves by delivering strong outcomes for patients and value for payers. This will stimulate further support/investment from the CEOs of Pharma/Biotech and their directors.

CVCs are spinning out technologies and forming companies

Corporate Venture Capital groups are adopting fresh ways to work with innovators and entrepreneurs.  Baxalta, for instance, not only has invested in startups right out of academia, but also begun a novel accelerator/incubator with Mayo Clinic and Presidio Partners (a VC group) to form project-focused companies (PFCs).

Other healthcare companies have also put significant resources behind incubators/accelerators.  These models vary from soup-to-nuts supporting the entrepreneur – from providing facilities such as lab space, technical support and seed funding, to simply providing facilities such as lab space and meeting rooms.  Some of these models are public-private partnerships and geographically-focused incubators; for example Johnson & Johnson (J&J) has been active in the last several years establishing biotech incubators in a group of U.S. and outside U.S. hubs, including San Francisco, Boston and San Diego, and in Toronto. Johnson & Johnson Innovation has provided valuable technology to startups and has backed some of them and set up development collaborations that can help accelerate their growth.[1]

In addition, Merck Serono is expanding its investment in early-stage biomedical companies through its Israel Bioincubator. Three companies have joined the incubator and it has room for as many as five more.[2]  Other pharma that have such efforts include – Celgene & Eli Lilly joining to invest $100m in biotech fund in New York.  Bayer & Roche are supporting California Institute of Quantitative Biosciences and venture capital firm Mission Bay Capital.

In conclusion, Pharma and Biotech have recognized that innovation needs to be nurtured and supported inside and outside their walls and consequently they are investing massive amounts of capital in this ecosystem through direct investments in companies, supporting general partners as limited partner investors – Baxalta, and previously as a part our former parent, Baxter,  has committed funding for four venture groups over the last few years, and if we tallied total pharma/biotech commitment as limited partners, the number can reach more than a billion dollars.  Bottom line, there is money and deep resources available; and CVC is looking for solid ideas that improve patient’s lives not incrementally but dramatically.



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