AAA Returns for the determined

Returns for the determined

Twelve months after the first ranking of the most influential corporate venturing units in the healthcare sector and it has been a busy year for the industry.

The pressures to use an acquisitions strategy to fill gaps in a portfolio or as a way to step back from an impending patents cliff when blockbuster drugs face generic competition remain.

This can cause turmoil in corporate venturing and other longer-term innovation strategies. Cephalon’s decision to set up a ventures group came shortly before it became the target of a $6.8bn takeover offer from peer Teva.

And, as with any venture operation, experienced managers are only human, and despite the best efforts of the medical profession to keep us working longer and living more fulfilled lives, established teams can break up with retirements.

The thoughtful approaches to succession issues by Takeda Ventures, MP Healthcare and MedImmune Ventures, which has seen significant upheaval with its three managing directors stepping back or away, are testament to the advantages corporate venturing has in being able to tap a cadre of experienced managers from internal and external sources.

The challenge for GlaxoSmithKline’s SR One will be to do the same with the departure of Christoph Westphal – picking someone who will stay longer than a year is vital and there are some good internal candidates to choose from.

The healthcare sector shows what can happen when corporate venturing is taken seriously and given adequate resources. In the same way the existence of a marketing director was queried in some places 30 years ago, so in a decade it will become axiomatic that every company has a board-level representative tasked with dealing with innovation, including venturing.

The present-day leaders, therefore, are in a prime position not just to take that role but also the ultimate top job.

The chief executive of the present and future has to be someone who not only understands a balance sheet and can set a strategy for growth but who is also able to manage innovation and the innovators from all sources.

The promotion of Darren Carroll to vice-president of corporate business development at Eli Lilly in the autumn is testament to his abilities and thoughtfulness in setting the direction for a highly influential team.

The top spot this year, however, was taken by a group that often flies below the radar – Safeguard Scientifics. Financial returns help justify any corporate venturing group that also needs to show it can have strategic relevance when required.

Safeguard’s three so-called big exits this past year highlight the merits not just of medical devices – which have consistently delivered strong returns for investors and which are at the cusp of further evolution – but also the better returns provided by corporate venturers compared with the average independent venture capital firm.

Gary Dushnitsky, associate professor at London Business School, has previously in these comment pages identified these better returns, but at last month’s Global Corporate Venturing Symposium he revealed his latest research tracking the past 20 years’ performance data.

Precision instruments were the area to back. Safeguard has seen about $300m in net returns from just the three exits, more than covering its investments.

By comparison, research by US-based bank SVB Financial Group, which lends to about half of healthcare entrepreneurs and venture investors, said calculating the realisations of the top three life science-focused venture capital firms by number of exits, based on an assumed 15% ownership, found they would gain between $455m and $684m between 2005 and 2010 – double Safeguard’s return from its latest three exits.

However, SVB then measured these realisations as a percentage of the capital the three VCs had raised between 2000 and 2007 and it was between 86% and 131% – "not exactly setting the venture world on fire, but at least a good start", SVB said.

These are the top three, albeit excluding flotations. Corporate
venturing units have higher expectations than this, and rightly so.

Separately, a thank you to those who came to the Symposiumand Best Practices Banquet last month. Thanks also to our sponsors SVB, Field Fisher Waterhouse and Dow Jones. To see the supplement on the evenings Banquet with Best Practices click here and for photos go here

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