The biotech industry often frets over the availability of funding for early stage biotechs, but start-ups are not the only ones feeling the pinch these days.
Most of the largest venture rounds in 2011 went to late-stage biotechs not willing or able to exit through the anemic initial public offering (IPO) window, including Symphogen A/S' $131 million Series E round, Intrexon Corp.'s $100 million Series E round, Portola Pharmaceuticals Inc.'s $89 million Series D round and Agios Pharmaceuticals Inc.'s $78 million Series C round. (See BioWorld Insight, Jan. 9, 2012.)
Many late-stage private biotechs are doing good work and building value, but their needs for continued funding can tax the reserves of their venture backers. Further, their failures to exit can hamper the ability of venture firms to tout good returns and raise new funds – not that any new money raised would help those legacy biotechs anyway.
Domain Associates has found a potential answer to some of those problems in the form of a $760 million tie-up with Rusnano, the Russian government's state-owned venture capital firm.
Under the deal, as Domain applies its reserves to another late-stage round in one of its portfolio companies, Rusnano will match that investment. And Rusnano isn't matching just what Domain puts in – it also is matching the contribution of all the other VCs who invest with Domain in the syndicate for each company. Domain and its various syndicate partners plan to invest up to $330 million in that fashion, and Rusnano will provide a further $330 million.
Investments will be made in about 20 health care firms, spanning pharmaceuticals, biotechnology, medical devices and other areas of life sciences. In return, Rusnano will not only reap whatever venture returns it is due when those companies eventually exit, it also gets exclusive rights to manufacture and market the companies' products in Russia, the Ukraine, Belarus, Kazakhstan and other CIS countries.
That manufacturing and marketing will be handled by a new firm to be jointly established by Domain and Rusnano in Russia. Each will invest up to $95 million in the new firm, which will aggregate Russian rights to the various products from Domain's portfolio companies funded through the deal. The new firm will have a GMP manufacturing facility in Russia and will assist with late-stage clinical trials and regulatory approval in Russia.
"It's rare that you can see a win-win situation like this, where Domain and Rusnano will both benefit," said Domain partner Brian Dovey.
Rusnano burst onto the biotech investing scene last year, working with London-based private equity firm Celtic Pharma Holdings to found Pro Bono Bio and making investments in Selecta Biosciences Inc., Bind Biosciences Inc., Cleveland BioLabs Inc. and others. Rusnano also invested as a limited partner in Burrill & Co.'s Capital Fund IV – it was rumored that the Russians put $200 million into the fund, which has a target of $500 million. (See BioWorld Today, Jan. 17, 2012.)
Steve Burrill, president and CEO of Burrill & Co., pointed out that while most of Rusnano's investments involve a strategic partnership, facility or co-development deal in Russia, the investment in Capital Fund IV came with no strings attached.
But for Domain, Dovey said a similar arrangement wouldn't make as much sense, because Domain's new funds tend to focus on earlier-stage investments, and where Domain wanted support was with its later-stage, existing portfolio firms. That focus fits Rusnano, too, because the Russian firm is interested in later-stage products that it can more quickly bring to market in Russia, Dovey explained.
Domain got involved with Rusnano two years ago, when Dovey went to Russia along with a group of VCs to advise the nascent government program. He came away "very impressed," he told BioWorld Insight.
Russia is certainly not alone in wanting to build a life science hub – every city, state, region and country is hoping to do the same. But Dovey said that while most economic development groups are funneling money only into technology or companies based in their own regions, Rusnano is investing in U.S. companies and aiming to benefit from the resulting technology.
"This is creative and quite different," Dovey said.
And while he was initially drawn by the opportunity to get funding for Domain's later-stage portfolio companies, Dovey said he has become more and more excited about the opportunity to build the new joint venture in Russia.
"The Russian company will be the beneficiary of the results of the development at all of the portfolio companies," he said. "We won't have to generate data on stuff that's a failure, and it's an opportunity that requires very little capital."