report investment critieria of cvc in life science

7/31/2019 Report Investment Critieria of Cvc in Life Science

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2011

StockholmBusinessRegion

DevelopmentAB

Supervisor:Ylva

Hultman

Erlandsson

FarhangModaresi,PaerhatiAibibula

[INVESTMENTCRITERIASOFCORPORATE VENTURECAPITALINLIFE

SCIENCEINDUSTRY]Abstract:

Venturecapital(VCs)andCorporateVentureCapitals(CVCs)areamongthemostimportantsourceoffunding

ofsmall

companies

in

life

science

industries.

In

this

study

we

try

to

determine

the

employed

criteria

of

CVCs

for

making investmentdecisionsbyanalyzingthe investmentportfolioandalsoconductingphone interviewwith

some investors from venture firms of big pharmaceuticals. In first study, we evaluated their investment

portfoliointermsoffieldofinterest,countries,therapeuticsareas,phaseof investment,roleofinvestorsand

amountofinvestmentbasedontheirpublisheddatainofficialwebsite.Wedidsemistructuredinterviewswith

6 investorsformCorporateVentureCapital(CVCs)andonefrom independentVC.Thedatawerecollectedby

visiting the official websites of CVCs and invested companies, displayed that CVCs are more interested in

Biotech and Pharmaceuticalprojects and inpreclinical stages. The average amount of investment in each

projectvarysignificantlyamongcompanies(Rochewashighestwith65mUS$andMitsubishiwaslowestwith

11.5mUS$).U.Shasmore investmentsthanEUandthere isno investment inSweden.Productswithgeneral

usage,Oncology,neuroscienceand infectiousdiseasesareamong thehighest investedprojects. In termsof

average amount of investment, drug development platform, infectious diseases and transplantation and

immunologycould

attract

more

money.

It

seems

that

the

investment

decision

of

CVCs

are

influenced

by

strategicimportanceofprojects/productsforparentscompanies;howeverfactorssuchaslocation,therapeutic

areasanddevelopmentstageofproductsalsocaninfluencetheinvestmentdecisionofCVCs.Moreover,factors

suchascompetentmanagement team,preferred therapeuticareas,geographical locationandsuccessstory

areamongthefactorsthat investorsusuallytake intoaccount.Networking isoneoftherecommendedtools

thatsmallcompaniescanutilizetoattract investors,as investorpaya lotofattentiontomeetmanagement

teambefore investment. Interestingly, taxstructureandsalaryarenot issuefor investors.Conclusion:small

companiesneed toanalyze theportfolioofCVCs, know theirpreferencesand limitationandmeet investors

beforesubmittingtheirproposalinordertoincreasetheirchanceforreceivinginvestmentfromCVCs.


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ContentsIntroduction .......................................................................................................................... 3

Background ......................................................................................................................... 3

Life-science industry in Sweden ...................................................................................... 3

Venture capitalists and their policies ............................................................................... 4

Corporate Venture Capital (CVC) .................................................................................... 5

Project aim and method ...................................................................................................... 5

Terminology Definition ..................................................................................................... 6

Field of interest ................................................................................................................ 6

Therapeutic area .............................................................................................................. 6

Type of investment .......................................................................................................... 7

Role of investors .............................................................................................................. 7

Result .................................................................................................................................. 7

Discussion ......................................................................................................................... 12

Limitation ........................................................................................................................... 14

Furtherstudies .................................................................................................................... 14

QUALITATIVE RESEARCH IN INVESTMENT CRITERIAS OF CORPORATE VENTURE

CAPITAL (CVC) IN LIFE-SCIENCE INDUSTRY .................................................................. 15

Background ....................................................................................................................... 15

Methodology ...................................................................................................................... 15

Type of study ................................................................................................................. 15

Selection of interviewees ............................................................................................... 16

Interview ........................................................................................................................ 16

Aim of interview ............................................................................................................. 16

Structure of interview ..................................................................................................... 16

Result: ............................................................................................................................... 17

Discussion ......................................................................................................................... 18

Recommendation .............................................................................................................. 19

Meet investors as much as you can proactively ............................................................ 19

Improve and document your management skill ............................................................. 19

Presenting your achievement in professional way ......................................................... 19

Conclusion ......................................................................................................................... 19

References: ....................................................................................................................... 20

Appendix ........................................................................................................................... 22

Summary of Interviews: ..................................................................................................... 23


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Introduction

Enormousamountofresources, includingcapital,humanandtimeareneededfordevelopmentof

anideatoaproduct/serviceinlifescienceindustry.AccordingtothereportofTuftsCenterforthe

studyofdrugdevelopment,ittakes15yearsandUS$1billiontodevelopablockbusterdrugthrough

toregulatoryapproval(HkanKirkbeyBuchet.al,2011).Unpredictableresponseofhumanbodyto

drugs and ever increasing regulatory requirement are among the main factors that lengthen the

commercializationprocessoflifescienceproducts.Sobiopharmaceuticalcompaniesneedtofinance

theiractivities,

usually

externally,

in

order

to

reach

the

market.

There are several ways for lifescience startups to finance their activities including R&D limited

partnership,angle investors,privateandpublicVentureCapital,CorporateVentureCapital,mutual

funds and public offering. Angel investors and venture capitals(VCs) are among most common

methodsthatstartupbiotechnologyandpharmaceuticalutilize for fundingtheircompanies (Beth

Sliverstein and Carl Osborne, 2002).VCs are usually absorb capital from different sources such as

banks, corporation, insurance companies and pension funds and invest in young, high risk

companies.Inlieuoftheirinvestment,VCstakeconsiderableequityofcompaniesandexpectahigh

returnon investment whencompany goespublic or is acquired (Douglas P Lee &MarkD Dibner,

2005).

Dryingtheproductpipelineofbigpharmaceuticalcompanies,theyhavebeeninterestedininvesting

insmallstartupbiopharmaceuticalcompanieswith innovativeproducts.Lookingatnewmolecular

entities that have been approved by FDA during last 5 years, we can find that more than 25% of

themcomefromsmallbiotechcompanies(LTRatcliffe,2011).Asthesesmallcompaniesarehighly

dependent in external funds, it is a great opportunities for big pharmaceutical to make more

collaborationwiththesestartupsviainvestmentinthesetypesofcompanies.

In this report we are going to identify and categorize factors/criteria that affect the investment

decisionofbigpharmaceuticalbasedonanalysisofinvestmentportfolioofcorporateventurecapital

that are affiliated top 50 pharmaceutical companies. We hope that the result of our study can

provideaclearerpictureforminvestmentprocessinlifescienceindustry.

Background

Life-science industry in Sweden

LifescienceindustryisoneofthemostimportantsectorsforSwedisheconomy.Swedishlifescience

industry

representsaround

20%

of

net

export

of

Sweden.

It

is

equal

to

40

billion

SEK

net

export

revenue(Shortfact,Swedish lifescience industry,SwedenBiowebsite).Lifescience industry isalso


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important from the perspective of employment rate. In 2009, 32000 employees were involved in

manufacturing,consultancy,productdevelopmentand/orresearchanddevelopment(R&D) in life

science industry (Life science companies in Sweden, Including a comparison with Denmark,

VINNOVAreport2011)

As the home of the worldclass universities like Karolinska Institute and Uppsala University,

StockholmUppsalaregionistheleadinglifescienceclusterinEurope.About60%ofemploymentin

lifescience industry in Sweden, isatcompanies located in Stockholm, Uppsala andSdermanland

(factandfigureonSwedensnumberonlifescienceregion,StockholmBusinessregionreport)

VentureCapitals (VCs)areamongthemostcommonsources for financingstartups in lifescience

industry. Many startups in lifescience industry have used fund from VCs during the past three

decades(LTRatcliffe,2011).Inrecentyears,especiallyafterfinancialcrisis,theavailabilityoffundin

VCshasbeendiminishedasmanyVCshaveshiftedtheirinvestmentinlaterstagesprojects/products

(PeterMitchell,

2009).

Venturecapitalistsandtheirpolicies

In recent years, VCs frequently invest in hightech startups companies, since the selected

entrepreneursofthesecompanieshaveverygoodtechnicalexpertise inthefield;anotherpoint is

that the new technology has high potentials to be a real product in the reasonable term,such as

biotech, telecommunications, or any other industry where new developments are creating rapid

change and increasing prospects for future growth (Victoria Duff, 2011) Most VC investments are

done inapoolformat,whereseveral investorscombinetheir investments intoone largefundthat

invests in many different startup companies. By investing in the pool format, the investors are

spreadingouttheirrisktomanydifferentinvestmentsversustakingthechanceofputtingalloftheir

moneyinonestartupfirm.

There are some basic criteria that VC will use, after doing exhaustive due diligence, to evaluate

whethertoinvestinacompany.(VictoriaDuff,2011)

Large LucrativeMarket: As we mentioned before, most venture capitalists are only interested ininvesting in the newest, fastestgrowing industries,such as nanotechnology, telecommunications,

biotechor

any

other

industry

where

new

developments

are

creating

rapid

change

and

increasing

prospectsforfuturegrowth.

Qualityofmanagement: VCs look for companies who have assembled a management team withsignificantworkexperienceintheindustry.Asmanagerofasmallcompanylookingforcapital,heor

sheshouldknowhowtoconvinceotherpeopletohelpdevelophiscompanyandhasnotprovided

knowledgeable people in key areas such as accounting, manufacturing, marketing and fulfillment,

theventurecapitalistprobablywillrejecttheinvestmentbecausethemanageristooinexperienced

aleadertobuildasuccessfulcompany.(PeterMitchell,2009)

Breakthroughtechnologyofidea:Noordinarybusinessideaisgoingtoachievebigreturns,sotheinvestmentmustbeinacompanythathascreatedasignificantimprovementorbreakthrough


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technologythatwilldramaticallyleaditsindustryorcreateatotallynewindustry.(Garage

TechnologyVentures,2010)

Competitive advantage: A company also must have a good marketing plan that will launch theproduct rapidly into leadership in the industry. Every good idea or product will soon have many

other companies trying to copy it, so the VC looks for patented technology, trademarks, brand

recognition, extensive research and development necessary to duplicate the product or service;

controlofunusualknowledgeorresourcesnecessaryforproduction;orgreatexpenseinvolvedfora

competitortoduplicatethebusinessmodel.Theseelementscreateahighbarriertoentryforany

potentialcompetitor.CorporateVentureCapital(CVC)

AccordingtoFinancialTimesCorporateVentureCapitals(CVCs)arethespecifictypesofVCsin

whichnonfinancialfirmsinvesttargetcompaniessuchasstartupsorbuyouts.Theseinvestments

oftenfollow

not

only

purely

financial

interests,

but

also

pursue

strategic

goals

in

developing

new

or

complementarytechnologiesorbusinessfieldstothoseinwhichthefirmisalreadyactive(Financial

TimeLexicon,2011). BigpharmaceuticalsestablishedaVCarmwhichscansstartupsandtrytodeal

withinterestingprojectinatearlystages.WhileVCsfocusmoreonROI,CVCsaremoreinterestedin

makingdealwithcompanythatcanfulfillthestrategicneedsofthemothercompany(Peter

Mitchell,2009).

As the continuing financial doldrums temper the appetite of traditional private equity VC for

startups, investmentfundssetupbybigpharmacompaniesarebeginningtodominateearlystage

financingofpharmaandbiotech firms (IanMacMillanet.al,2006). Somebigpharmaandbiotech

firmsuchasPfizer,EliLilyandAmgenhavetheirowninternalventurecapitalunitsorwhollyowned

subsidiaries focusedon venture capital. Thiskind of the investment of corporate funds directly in

externalstartupcompanies iscalledcorporateventurecapital(CVC).Strategicandfinancial issues

are the main reasons for pursuingCVC.Mostpharma/biotech relatedCVC companies looks forat

least be budget neutral to their parent companies; strategic reasons are generally stronger

motivatorsthanfinancialones.Onebasicstrategicreasonmanypharma/biotechrelatedCVCscite

for investing istoseeknewdirectionsanddevelopnewproducts.Anotherstrategicmotivationfor

engaging in corporate venture capital activities is to supplement and support the activities of the

parent company. While all of the companies which were researched also had R&D divisions and

wereactively

pursuing

improvements

to

their

products,

the

leadership

of

these

firms

recognizes

that

developmentsreachedbyothercompaniescouldcertainlybehelpfultothem.

CVCprogramsarestructuredinvariousforms.SomeCVCsareorganizedasindependentsubsidiary

companies, while others operate as a group within the parent company organization. Some CVCs

haveadedicated investmentfund,wherethecorporationcommitsagivenamountofcapitalfor

investment. Other CVC programs are discretionary, in that investment capital is allocated as

investment opportunities arise. Most CVC programs have a corporatewide mission, receive

corporatefunding,andreporttothecorporatelevel(IanMacMillanet.al,2006).

Projectaimandmethod


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Themainaim ofour project is to providean overviewofpharmabackedVCs investmentcriteria.

After meeting with project supervisors we decided to limit the scope of project to CVCs affiliated

withtop50pharmaceuticalcompanies.DiggingmoreinthewebsiteofCVCsandotherdocuments,

weunderstoodthatmostofprovidedinformationbythemaboutinvestmentcriteriaisnonspecific

and could not provide objective information for our purpose. So we decided to analyze the

investment portfolio of each CVC, as we assumed that investment history can provide more firm

dataabouttheinvestmentcriteriawhichareemployedbybigpharmaceuticalventurefunds.

TheinformationabouteachCVCwascategorizedintwomaingroups.InVCcharacteristicspart,we

mainly gathered the information under the categories of field of interests, phase of investment,

amount of investment (in million US$), investment criteria and investment horizon based on

information that they announced in official website of specific CVCs. In the part we called

InvestmentPortfolio,wecollected informationunderthecategoriesofnameofcompanies,field

of interest,region,therapeuticarea,phaseof investment,typeof investment,roleof investorand

amountof

investment

(in

million

US$).

We

found

the

name

of

invested

companies

from

the

official

websiteofCVCsandwegatheredtheinformationabouteachcategoryfromtheofficialwebsiteof

investedcompaniesbysearchinginamongpressreleasesandotheravailableinformationinofficial

websiteofcompaniesifapplicable.Iftheinformationisnotavailableintheofficialwebsite,wewent

tootherbusinessnewswebsitetoprovideasmuchasinformationaboutinvestedcompanies.Allthe

informationwasenteredtoasheetinMicrosoftExceltomakefurtheranalysiseasier.Thecollected

dataisformedtoaPivottablethatenableusertofiltertheinformationbasedonselectedcriteria.

We focus only on the current investment of CVCs, as the information of acquired or merged

companyisnotaccessibleintheirwebsite.

TerminologyDefinition

Asthereisnotgeneralconsensusaboutsomeofemployedterminology,wetrytoprovideaclear

definitionsomeoflessdistincttermsweusedindifferentcategories.

Fieldofinterest

Thefieldofinterestiscategoriesunder6itemsincludingBiotech,Pharma,Medicaldevice,

Diagnostics,Bioinformaticsandvaccines.Biotechappliestoallcompanieswhichclearlydeclarethat

theyarebiotechcompanies,ortheirproducthasaprotein/largemoleculewithmorethan500

kDaltonmolecular

weight.

Pharma

are

all

companies

that

their

products

have

molecular

weight

under500kDalton.MedicalDeviceistheallmedicaltechnologythatisusedfortreatingor

rehabilitationofpatients,whileDiagnosticsisapplicabletoallmedicaltechnologieswhichareused

indetectionofdiseases.

Therapeuticarea

Mostof the employed term is compatible with current clinical practiceand definition; however it

seemsthatsomeoftermsneedtobeclarified.TermGeneral isappliedtoallproductsthathave

morethanone(intended)clinicalusage,whiletermNotspecifiedmeansthatthecompanydoes

not

provide

a

specific

usage

for

its

product.

The

term

Not

Applicable

(N/A)

refers

to

product/services that a clinical indication/category is not applicable for them like some of


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2

101

19 22

97

3

Bioinformatics BioTech Diagnostic MedDevice Pharma Vaccine

Numberofinvestmentdifferentfields

bioinformatics services. Drug Development Process applies to all technologies that are not

specificallyforaspecificclinicalusagewhiletheyareexploitedtodevelopothermedications.

Typeofinvestment

We

use

the

terminology

that

usually

companies

used

for

description

of

financing

round

including

seedfinancing,roundA,B,C,D,andE.

Roleofinvestors

Roleof investorsreferstorolethat investoracquiresafter investment includingBoardmemberor

boardobserver.boardmember indicates theboardmemberwhohasvoting right,whileBoard

Observerhasnot.

Result

BasedonthedatawehavegatheredinpressreleasesfromVCsandinvestedcompanieswebsite,

businessnewsandacademicarticle,wegotaround300investedcompaniesfrom19CVCs.We

analyzedthedatausingdifferentperspectives,suchasFieldsofInterest,Region,andAmountof

investment,Therapeuticareas,andPhaseofinvestment.Unfortunately,ourdataarenotcompletely

sortedinourcategoriesbecauseoflimitedaccessandlackofinformation.Forinstance,someofthe

companiesdidntmentionclearphaseofinvestment.

BiotechandpharmaisstillthetopinvestingtargetforVCs.Around30%investmentwenttobiotech,

theother30%wenttopharmafirms.Below,youcanseetheexactnumberoftheinvestedcompany

inthe

fields

of

interest.

(Fig.

1)

Interestingly,investmentinpreclinicalphasesismuchhigherthanothers,andphaseIIIinvestmentis

reallylow,butinvestedcapitalisthehighest.Thereare140companieswereinvestedinpreclinical

phase.(Fig.2)

Figure 1


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Asyoucanseebelow,theaverage investment ismainlyrangedbetween20till35millionUS$.We

focusedonupfrontinvestment.Inmostofthecases,investmentisinitiatedbyoneortwoVCs,and

then more willjoin in after that. The numbers showed below mostly are the total amount of

investment,andVCwementionedinthediagramisjustoneofVCsinthepool. Itisdifficulttofind

exactnumberofmoneyfromeachsource.(Fig.3)

Thefigurebelow istheaverage investment indifferentfields.Again,biotechandpharmafirmsare

clearlyhigherthanothers.Vaccineinvestmenthasthehighnumberaswell.(Fig.4)

41,4746,10

73,32

22,90

8,38

3934

13

140

6

PhaseI PhaseII PhaseIII Preclinical N/A

Noandavergeamount ofinvestment(mUS$)indifferent

developmentstages

Averageof

Investment

amount(Mil.

US

$) Count

of

Field

of

Interest

33,40

25,44

30,5433,17

25,50 26,10 26,17

30,18

16,13

11,50

36,44

17,07 16,89

65,68

23,33

39,67

24,50

Averageamount

of

investment

(mUS$)

Figure 2

Figure 3

No. of Investment


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U.S.istheheavenforVCs.Itiswellknownthatlotsofandfamousbigpharma/biotechcompanies

arelocatedinU.S.,innovationsarereallyactive.ItiseasierforVCstofindtheirtarget.Thereare189

companieswereinvestedinU.S.,and11Canadiancompaniestoo.WholeEuropealsohadgood

numbersofinvestment,especiallyforU.K.andSwitzerland,butnotinSweden.AsiaandAfricaare

extremelypoorinthisbusiness(Fig.5).WealsodidstatisticofinvestmentinEUbyCVCs,UKand

Switzerlandstandofalmost50%ofinvestment;Denmark,GermanyandIsraelarethesecond

biggestgroupinEU(Fig.6).

7,20

32,24

10,74

22,85

29,83

23,33

Bioinfor matics BioTech Diagnost ic MedDevice Pharma Vaccine

Avarageinvestmentfieldofinterest(Million$)

AsiaPacific;8;3%

Austria;3;1% Belgium;2;1%Canada;11;4%

Denmark;6;2%

Germany;6;2%

Ireland;2;1%

Israel;6;2%

Italy;3;1%

Netherland;3;1%

Spain;2;1%

Switzerland;15;5%

UK;20;7%

US;189;67%

No.of

investment

in

different

countries

Figure 4

Figure 5


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Therapeuticareaistheotherangletoanalyzedata.Wecanseethat27%ofinvestmentwentto

generalproducts/projectsofthesmallcompanies.Oncologywith16%,infectiondisease11%and

neuroscience11%arethepopularareastoinvest.Transplantation/Immunology6%,drug

developmentplatform5%andcardiovascular/metabolism5%alsogotthequitegoodinvestmentas

well.(Fig.7)

Austria

5% Belgium

3%Denmark

9%

Finland

1%

France

2%

Germany

9%

Ireland

3%

Italy

5%

Netherland

5%

Spain

3%

Switzerland

23%

UK

32%

NoofinvestmentinEUcountries

Cardiovascular,Metabolism;21;

8%

Drugdevelopmentplatform;14;

5%

Endocrinology;6;2%

General;74;27%

GeneticDisease;4;1%

Hematology;2;1%

Infectiousdisease;27;10%

Inflammation;12;4%

N/A;10;4%

Neuroscience;30;11%

Notspecified;4;1%

Oncology;45;16%

Ophtalmology;4;1%

Respiratory;5;2%

Transplantation,Immunology,

16,6%

No.&percentageofInvestmentbasedonTherapeuticareas

Figure 6

Figure 7


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Average amount of investment in different therapeutic areas can provide valuable information

abouttheinvestmentstrategiesofCVCs(Fig.8).Drugdevelopmentplatformcouldabsorbabout56

mUS$ineachproject,whileinfectiousdiseaseandtransplantationprojectscouldreceive48and41

mUS$ respectively. These numbers can represent the value of each therapeutics fields for big

pharmaceuticals; however, the value can be affected by many factors such as success rate and

noveltyofcompounds.

During the study we realized that neuroscience, inflammation and oncology are the popular

therapeutic area to invest. The figure below shows the number and amount of investment from

companies(Fig.9).

20,00

19,50

56,50

17,50

30,49

28,50

16,00

48,20

22,43

4,00

25,30

18,45

27,56

15,50

22,60

41,38

Burns

Cardiovascular,Metabolism

Drugdevelopmentplatform

Endocrinology

General

GeneticDisease

Hematology

Infectiousdisease

Inflammation

N/A

Neuroscience

Notspecified

Oncology

Ophtalmology

Respiratory

Transplantation,Immunology

AverageamountofInvestmentintherapeuticareas(mUS$)

32,035,0

44,7

32,3 31,8

26,3

31,3

9,3 8,4

20,016,8 16,5 16,0

23,3

30,4 31,3

1

84 4 3

5 63

1

12

58

10

4

9

4

No&averageamountofinvestmentinNeuroscience,Inflamationand

Oncology

AverageofInvestmentamount(Mil.US$) CountofFieldofInterest

Figure 8

No. of Investment

Figure 9


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13/27


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that involve high number of patients (Arthur Klausner, 2005). Running of these big clinical trials

needsalotofcapitalandextendednetworkamonghospitals,clinicians,regulatoryauthorities,etc,

that usually big pharma has. Successful Commercialization of oncology products is dependent on

worldclass marketing campaign, attending in expensive oncology seminars, sponsoring several

studiesaboutthesafety,efficacyandrecentlyhealtheconomicaspectsofmedicationthatusually

pharmaceutical companies with capable R&D and medical department can handle these issues.

According to survey of Swedish drug development pipeline which was published in May 2009,

NeuroscienceandOncologywereamongthedominantareasinSwedishlifescienceindustry,sothis

compatibilitybetweenthestrategicneedsofpharmaceuticalindustryandstrengthsofSwedishlife

sciencecanbeanopportunityformorecollaborationwithindustryleadersforSwedishstartups.

Itseemsthatvaluationplaysanimportantroleindeterminingtheaverageamountofinvestmentin

differenttherapeuticareas.Theaverageamountofinvestmentindifferenttherapeuticareascanbe

justifiedbythesuccessrateofprojectsintherapeuticareas.KolaandLandisstudiedtheportfolioof

biggestpharmaceutical

companies

between

1991

2000

and

concluded

that

average

success

rate

of

projectis11%,whilefoeinstancethesuccessrateforprojectsininfectiousdiseasesare17%and5%

foroncologyproducts(IsmailKola&JohnLandis,2004)(Table.2Appendix).Soitseemssuccessrate

isoneofthefactorsthatinfluencethefinalvalueofproducts/projectsontopofmarketneedsand

potentialprofitabilityfromperspectiveofCVCs.

Limitation

Finding official and complete information about the investment portfolio of CVCs of different

pharmaceutical

companies

is

one

the

main

barriers

that

we

faced

during

the

data

gathering

process.

Availabilityofpreciseinformationwentworthwhenonetheinvestedcompanieshasbeenacquired

by other ones, as official website and all related information such as press release became

unreachable.

Lack of accepted and employed categorization of therapeutic area was other problem we have

during the designing of study. We employed the system that mainly focus on clinical usage of

product/services in daily practice, while matching all of these products/services were not always

possiblewithourcategories.

Furtherstudies:

The main aim of our studies was determining the main considered criteria for selection of

investment;however,wecouldnotreallydetermineallthefactorsthatCVCstakeintoaccount.We

alsorealizedthatthereisnoinvestmentbyCVCsinSweden,soitseemsthatconductingasurveyin

ordertofindingthemainreasonthatwhyCVCshavenotbeeninvestedinSwedenyet,canbevery

helpful and also can reveal more criteria that CVCs take into account for investment. Our study

mentionedthatstrategicmissionisoneoftheimportantdriversfordecisionmakersinCVCs,soit

makessenseifportfolioofbigpharmaceuticalanalyzedandtheirstrategicneedsarerevealed.This

analysisenablessmallcompaniestopredictnextmoveofbigpharmaceuticalsandattractcapitalfor

theiractivities

more

effectively.


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In the second part, we try to have a short pitch about the available investment opportunities in

Stockholmregionandcorrectmisperceptionifapplicable.Wealsocustomizeourpitchbasedonthe

informationthatwegatheredinthefirstpartofinterview.

Result:

Aswementionedabove,inourquantitativeresearchwegotthedatafrommorethan300invested

companies by 19CVCs, and in thisqualitativestudywe reachedsevenCVCsbyphone interviews.

Ingeneral,managementcompetencyandhumanresourcesarethemostimportantfactorsforCVCs,

whentheyevaluateacompany.Asoneofthemmentionedif Ihaveacompetentmanager, Ican

handle everything. But who is the competent manager? The competent manager should be

experienced inthe fieldof lifescience industryespecially inproductdevelopmentprocess.Oneof

themdefines

competent

manager

as

a

manager

who

has

done

the

process

of

product

development

coupleoftimes.Itseemsthatfindingaqualifiedhumanresources,especiallyinmanagementarea,

isthemostcrucialfactorforthem.

The second important factor for CVCs is the clinical field of company/project. Most of CVCs have

alreadyan internalanalysisandpreferredareas for investment.Theseareasaredefinedbasedon

thestrategic needsofMotherCompany.Proposalsabout the project/product which are excluded

fromthesepredeterminedareasareusuallyrejected.Inmostcases,itisunlikelythatCVCsinvestin

projectsoutofstrategicneedsoftheirMothercompanies.Sodeterminationoftheseclinicalfields

before submission of a proposal is crucial for startups.

Theother important factors is innovationofproject,asmanyCVCsexplicitly announced that they

only invest inreallynovelcompoundratherthan inmetoodrugs.Thenstrongandreproducible

science is one of the factors that CVCs consider to invest in company project.

ThreeCVCsthinksphysicaldistanceisoneofthefactorsthattheyconsiderwhenmakingadecision

aboutinvestment.Themainreasonistheshortageofhumanresourcestoattendinboardmeeting

ofinvestedcompanies.Theyusuallyprefertoinvestincompanieswhichcanflyeasilytothem.For

biggercorporationwhichhasrepresentativeindifferentregions,ithaslessimportance.

Taxation system of host country is not important for investor at all. They did not even ask any

question about the detail of taxation in Sweden from us. A one of them mentioned We lookat

Sweden as a standard financial market, so we are not concerned about taxation in Sweden.

Itseemsthatlabormarketandlegislationcanbeaconcernforsomeinvestors.Oneofinterviewee

askedabouttheliabilitiesofinvestorsincaseofshuttingdownofacompany/projectinSweden.He

describedthathiscompanyhadtopaytwoyearsto itsemployeeafterfailureofoneofproject in

Netherlands. Then it can be one of the areas that small companies should gather enough and

preciseinformationaboutit.


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Weinterviewedsevenbiotech/pharmaCVCsglobally.OurstudyshowedthatCVCsinvestmentmore

reliesonstrategicdevelopmentoftheirmothercompany.Therearesomeimportantfactorsthat

CVCswillconsiderwhentheyevaluatethetargetcompany.Theymorefocusonmanagementskills

andcompetencies,scientificbackground,theirstrategicneeds,communicationanddistancesof

companies.Wealsoobtainedsomeinformationwhichwehypothesizedforlackofinvestmentin

Sweden.Financialstructuresuchastaxisnottheproblem.Thereshouldbesomesuccessstoryin

SwedenasagoodbeginningforattractingCVCsintohere.

References:

DrivingthepathtoasuccessfulEuropeanexit,HkanKirkebyBuch,AnnaCGustafsson,ViktorDrovota&Carl

JohanSundberg,NatureofBiotechnology,2011

Strategiesforattractinghealthcareventurecapital,BethSilversteinandCarlOsborne,JournalofCommercial

Biotechnology(2002)Vol.8,4,315319

TheriseofventurecapitalandbiotechnologyintheUSandEurope,DouglasPLee&MarkDDibner, Nature

Biotechnology,June

2005,

Vol.

23,

No.

6,

AVentureCapitalViewofChallenges,Opportunities,andInnovationinBiomedicalResearch,LTRatcliffe,

NatureofBiotechnology(Feb.2011),VOL.89,No.2

FinancialTimesLexicon,http://lexicon.ft.com/Term?term=corporateventurecapital

Evaluationofuncertaintyofventurecapitalistsinvestmentcriteria,TobiasKollmann,AndersKuckertz,Journal

ofBusinessresearch,63(2010)741747

GeoffMeyersonandAmeyaAgge,BiotechVentureCapital:theinvestmentdecisionprocess,thejournalof

privateequity,summer2008

CorporateVentureCapital(CVCs)seekinginnovationandstrategicgrowth,IanMacMillan,EdwardRoberts,Val

livada,AndrewWang,NationalInstituteofStandardsandTechnology,U.S.DepartmentofCommerce,2006

Corporateventurefundschaseearlystagedeals,PeterMitchell,NatureofBiotechnology,Vol.27,Number5,

May2009

CriticalFactorsforObtainingVentureFunding,GarageTechnologyVentures,2010


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Biotechventurecapital itsnottoolatetobeearly,ArthurKlausner,NatureBiotechnology,Vol.23,No.4,April

2005

Canthepharmaceuticalindustryreducetheattritionrates?IsmailKolaandJohnLandis,Naturereviews,Drug

Discovery,Vol3,P.711,August2004

TheSwedishDrugDevelopmentPipelineproducedfivenewproductsduring2008May,2009,thesurvey

conductedby

SwedenBio,

Invest

in

Sweden

and

Vinnova

http://www.swedenbio.se/en/AboutLifeScience/SwedishLifeScience/ShortfactsonSwedishlifescience/


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Appendix

Table 1


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Summary of Interviews:

Interviewee A is the Head of Venture Investment one of the biggest pharmaceutical industry.

Summary of interview with A:

108;56%

85;44%

RoleofInvestors

0

BoardMember

Table 2: Success rate of project in different therapeutic areas in clinical stages

Source:Canthepharmaceuticalindustryreducetheattritionrates?IsmailKolaandJohnLandis,Naturereviews,DrugDiscovery,Vol3,P.711,August2004

Table 3: The distribution of Board member and board observers in invested companies

BoardObserver


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Aanalysisanddefinesitsneedsperiodicallyandtheprojectsareselectedbasedonthis

internalprioritization

ManagementisthemostimportantfactorsforA.ifAcanfindcompetentmanagers,it

decidestoinvestincompany

Asahugecompanywithdifferentdepartment,theyevaluatemostofprojectthatdifferent

areas;however,theyalsoconsidertheirinternalprioritization

Theyconsiderstrategicfitnessofprojectwithneedsofmothercompany,sotheyareflexible

aboutROI

Theyarenotsoconcernedaboutthefinancialmarketandregulationindifferentcountries,

astheyseethesimilarframeworksindifferentcountries

TheyhaveconcernsabouttheliabilitiesofinvestorsinEUcountries.

Theyprefertohavealocalpartnersthatcanprovidelocalinformationandalsohelpthemto

findlocaltalents

IncontrarytothemostofAmericanCVCs,theyhavelocalagentsindifferentareaswhocan

watchdifferent

projects.

Their

local

agents

for

EU

is

based

on

Belgium

(half

of

his

time)

and

Israel.

ThewaythatAdefinesandprioritizesitsneedsisquiteunique.Theyhavetwodifferent

areas:

o ThestrategicneedsofcurrentbusinessofA

o ThestrategicneedsforfuturegoalsofA.Forinstance,theyrealizedthatAshouldbe

activeinNeurostimulationfieldinnearfuture,sotheylookforprojectsthatcan

helpthemtoaddressthisneed.

OneofthemostinterestingpointsthatrepresentativeofACVCmentionedwasthatthey

firstlookforcompetentmangerandiftheycanfindhim/her,theycanhandleeverything;

otherwisethey

are

so

hesitant

to

invest.

So

competency

and

quality

of

management

is

the

mainandfirstfactorthattheyconsider

Hehasaseriousconcernaboutthelabormarketandliabilityofinvestorinacompanyin

frontofemployee.AhadatoughexperiencefromaninvestmentinNetherlandsandashe

saidtheywereliabletilltwoyearsabouttheiremployeeaftertheirinvestment,whilethe

companyisnotsolongactive.

AisinterestedininvestmentinSweden;however,hereferredmetohiscolleaguewhois

responsibleforEU.

Summary of interview B:

IntervieweeBismanagingdirectorofoneofthebiggestBiotechnologyfirm.

Bpreferstoinvestonreallynovelcompounds notmetooproduct

Strongscienceisneededthatmeansreproduciblescienceindifferentsetup

Theylookforexperiencedmanagementteamswhohasbeenworkedinbiotechorbig

pharmaceuticalinrelevantdepartment;howeveritdependsonnatureofcompanies

Theyinvestonlyinspecifictherapeuticareas.Theyevenignoretheinterestingprojectthatis

notinspecifictherapeuticareas.Thefutureofspecifictherapeuticareaissoimportantfor

B.

Theyprefertonotenterintohighlycompetitivemarketwithlotsofcompetitorsasitisthe

placeofsmallercompanies.theyprefertoworkonnovelclinicalareas


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26/27

Swedenneedsmoresuccessstoryinlifescienceindustry.Thesesuccessstoriescanattract

moreinvestors

theresearchareperfect,butdevelopmentprocessshouldbeimproved

PeopleinBayAreaareveryhardworkeranddisciplined.

Theyfocusonlyontasksthattheyaregoodat.

PeopleinSFhavemorefreedomtochoosetheirworkingstyle(TeachingVs.research)

TransferbetweenacademiaandindustryismucheasierthanKI

GenentechplaytheroleofanenginefordevelopmentandinnovationinbiotechinBay

Area.ItseemsthatStockholmsuffersfromlackofthesamething.

LotsofbigpharmafoundedresearchcentersaroundUCSFcampus.

ThenumberofstartupsinBayAreaisenormous.Manypersonshaveexampleamong

friendsandrelativesthatfoundacompany.Thisatmosphereencouragesotherstobuildhis

orhercompany.

Thecompetentmanagerforinvestorsisapersonwhohasalreadydonetheprocessof

productdevelopment

for

couple

of

times.

Survey from company E

EhadsomecontactsbeforewithInvestinSkneandInvestSweden.Unfortunately,they

couldntsupportsuitableprojecttocompany.

ThereisnodifferenceinEsevaluationsystemamongcountiesintheseareas.

EareverystrategicinvestorforEpharma.Theinvestmentisnotforfinancialreturn,butfor

thereturninginthefuturesuchasresearchcollaboration,licensingoracquisitionofthe

companyby

E.

Eare

looking

for

the

company

which

is

fitting

to

the

Estrategy.

EdontneedinvolveinmanagementofVentureCompany,theyjusttakeboardobserver

rolefortrackingthecompanyprogress,notboardseat.

Scienceandtechnologyarethemostfactors.ThescienceshouldbeevaluatedbyE

researchersoroutsideexperts.ii)Qualityofmanagement.Thecompanyexperienceand

humanityareimportant.iii)Venturecapitalsyndicate.SeewhatkindofVCsisinvolvedin

theinvestment.iv)Businessofmodelofventurecompany,likeisthereanycleargoal,exact

plan,thetimingofthegoaletc.

Financialstructure(eg.tax)isnotaproblematall.EisboardofobserverinDenmark

Companybefore;theydontfeelanyproblemthere.

Theydont

know

that

much

about

Stockholm

Uppsala

region.

EthinksStockholmsituationquitesimilartoCopenhagen,NewZealandorIsrael.Thereare

somanycountriesareenhancingpharma/bioventureactivity.SwedenisagoodplaceforE

tothinkofinvestment.Unfortunately,theycantfindsuitableopportunitythere.Thatisthe

onlyreason.

Survey from F

Fhasstrategicangeltoourbusiness,theydontinvestanycompanyfromfinancialprospect.

Countryandgeographyarenotissuesandproblems.


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CompaniesshouldbeactiveintheareathatFinterestedin,suchasdiabetesand

inflammation.Someothertechnologycompanywhichcouldgenerateandcomplementtheir

internalpipeline.

FhasverygoodinternalcollaborationwiththeirR&Dfunction.Theirneeds,interestswill

makethedirectionoftheinvestment.

FsearchtargetsbasicallythroughotherVCs.JoiningtheVCpool,andattendlotsof

investmentconferences.

report investment critieria of cvc in life science

Documents