Venture Funds in Life Sciences

A new trend in the pharmaceutical world is to partner with up and coming biotech companies as they try to develop drugs to address unmet medical needs. Pharmaceutical companies such as Pfizer and Johnson & Johnson have been doing it for years through their own Venture Funds. Over the past two years, other life science entities such as Merck, Novo, and Medtronic have set up their own Venture Funds as well.

The reasons for setting up these "in-house" venture funds are numerous. The extremely high cost of developing a new drug or device has been well documented. Additionally, pharmaceutical entities are having difficulty in producing blockbuster drugs in the current climate. As a result, these life science companies are seeking new, innovative ways to generate revenue.

Within these internal venture funds, companies such as Merck, Pfizer, Medtronic, etc. are providing the capital these startup biotech companies need to really do accurate research to enhance their product. They also provide advice and guidance by working with their scientists. They hope to get an inside track on a new product to be ahead of competition, even though the way these investments are set up the final product is still up for grabs at the end.

In 2012, Merck invested in Flagship Ventures worth $250 million to partner with early life science funds. Some companies invest a more than others. Pfizer has a set income for private investments with an annual budget of $50 million and invests up to $10 million per round. Johnson & Johnson and GlaxoSmithKline have a joint venture for $199 million. This funding has become necessary in order to capitalize and commercialize solutions. It is a way for innovation to occur in biotechnology, medical devices, drug delivery, drug discovery, and medical technologies.

Harrison Hayes has also been active in this space through its first BioArbitrage Fund, which was launched in 2012. In 2012, Harrison Hayes effectively transacted 8 deals by optioning strategic molecules. Harrison Hayes is currently seeking outside investors for its second BioArbitrage fund to launch in April of 2013.