Corporate-backed investments registered a slight decrease – with $7.45bn of capital over 261 deals last year, down from $7.71bn allocated in 285 deals in 2015. Despite the drop, the sector continues to move towards greater convergence with digital technology.
GCV Analytics’ definition of the health sector encompasses pharmaceuticals, medical devices, diagnostics, healthcare administration and IT, and on-demand health services provision, among other areas.
GCV reported 245 rounds involving corporate investors in the health and life sciences sector between May 2016 and April 2017. A great majority of those rounds (150) took place in the US, 12 in the UK and 10 in China. Most of these 245 commitments went to emerging enterprises in the same sector (219), with the remainder going into companies from the IT (8), consumer (3), financial services (3) and industrial (3) sectors, among others.
On a calendar year-on-year basis, total capital raised in corporate-backed investment rounds declined 4%. The deal count also went down, by 9% from 285 deals in 2015 to 261 last year.
As outlined further in this article, the 10 largest investments by corporate venturers from the health sector cover a range of businesses, spanning medical devices and diagnostics, genomics and gene editing as well as healthcare administration and IT.
Investment professionals at corporate health investors told GCV that aside from impressive breakthroughs in certain areas such as oncology, they also saw many opportunities generated by the convergence of medicine with the digital world.
Roel Bulthuis, senior vice-president and managing director of Merck Ventures, the venturing arm of Germany-based pharmaceutical company Merck, highlighted the increasing importance of convergence with digital technologies and advanced materials.
He said: “With the expansion of Merck Ventures in 2016 from a €150m pure-healthcare-focused fund to a €300m evergreen fund with dedicated investment teams in the healthcare, life sciences and performance materials space, we see a broad range of exciting opportunities in each of these fields. To address the convergence of medical science with digital technologies and new materials development we have also created an investment arm to invest in what we see as potential new business areas that we could support with our background in these individual fields.”
He also cited the impressive breakthroughs in oncology. “In healthcare we continue to see new approaches to disease biology in oncology, immuno-oncology and immunology. We have recently started companies that target the metabolism of cancer cells, changes in the tumour micro-environment and, importantly, approaches that harness the patient’s immune system to fight cancer. In many cases, we develop these drugs in combination therapies to increase effectiveness and reduce the impact of tumour escape mechanisms. With the increasing knowledge we have about disease pathology, more and more of these therapies can be tailored towards individual patient needs.” (See interview)
Francesca Wuttke, managing director of Merck GHI’s venturing unit and specialising in European investments, said Merck was seeking to expand commitments to the digital clinical trial management ecosystem, underscoring its strategic importance. “Efficiency in clinical trial management, both from the perspective of cost and time, can be a valuable competitive asset for the pharmaceutical industry. Clinical trial delays can cost pharma companies up to $8m per day.”
She said this field was bound to grow in Europe given current developments on the demand side for such enterprises. “The clinical trial management ecosystem in Europe is undergoing change, resulting from increased relevance and transparency of results, requiring better data quality and study efficiency from contact research organisations. Digital technology has the potential to meet these demands and create new disruptive opportunities. Clinical trial processes are not yet fully leveraging advances in technology.”
The leading corporate investors from the health sector were pharmaceutical companies. US-based pharmaceutical and cosmetics producer Johnson & Johnson was the top investor, accounting for both the highest number of rounds and participation in the largest rounds. Others topping both lists were US-based Eli Lilly, Switzerland-based Novartis, UK-based GlaxoSmithKline (GSK) and US-based Merck & Co. The 2017 GCV Powerlist 100 included 12 heads of health industry corporate venturing units, two of the them in the top 25 – Tom Heyman of Johnson & Johnson and Jens Eckstein of SR One, the venturing subsidiary of GSK.
Johnson & Johnson was also the top investor in emerging health enterprises, having participated in 47 deals totalling over $1.26bn. Other top investors included real estate company Alexandria, diversified conglomerate Alphabet, internet company Tencent and Merck & Co.
Overall, corporate investment in health-focused emerging enterprises declined in 2016 in terms of both both deal count and total capital committed. According to GCV Analytics data, $8.64bn was invested over 358 rounds in 2016, an 8% drop from the $9.54bn invested over 386 deals in 2015.
Despite these recent drops, the health sector is of the great interest to corporate investors. A considerable number of corporate venturers whose parent companies originate in sectors other than health which commit to health enterprises, such as Alexandria, Alphabet, industrial congolmerate General Electric, media and research company International Data Group, diversified conglomerate Legend Holdings, insurance firm Ping An Insurance, telecoms electronics producer Nokia, and semiconductor manufacturer Qualcomm. These commitments are largely attributable to the convergence of the medical and digital field.
A case in point is Canada-based telecoms operator Telus. Richard Osborn, managing director of Telus Ventures – the company’s venturing subsidiary – said the parent had divisions directly involved in health-related technologies. “Telus Health is the country’s leading electronic medical records vendor, a position it developed through a series of venture investments and acquisitions over the past eight years. It also is a leading vendor in the pharmacy management solutions space as well as Canada’s leading health benefits management vendor, where it provides drug and extended claims services to insurance companies that cover more than 13 million consumers.”
Telus Ventures’ investments in the field are aligned with the strategic interest in digital health. “We are focused on innovations in the following areas of digital health – personalised medicine, ageing in place, home and community care, primary care innovations. By taking small stakes that can quickly be scaled or onboarded into the larger company, we act as a way to learn, influence and benefit from these growth segments without taking on too much corporate risk too soon.”
Deals
Health corporates invested in a number of large rounds, raised primarily by biopharmaceutical and medical device companies, although none of them exceeded $1bn.
Grail, a US-based oncology diagnostics spinout of genomics technology producer Illumina, achieved a first close of its series B round at $900m. The round was led by VC firm Arch Venture Partners and included Johnson & Johnson Innovation, through its subsidiary Johnson & Johnson UK Treasury. Pharmaceutical firms Bristol-Myers Squibb, Celgene and Merck & Co, medical technology producer Varian Medical Systems, pharmaceuticals supplier McKesson’s corporate venturing unit McKesson Ventures, e-commerce company Amazon and Tencent also contributed. Established in early 2016, Grail is working on a blood test for early detection of cancer that combines Illumina’s high-intensity sequencing technology with data obtained through computer science and population-scale clinical studies.
Medical device manufacturer Galvani received funding of $715m over seven years from GSK and Verily Life Sciences – formetly Google’s life sciences unit until last year’s creation of the Alphabet holding company. GSK will own 55% of Galvani, with Verily taking the remainder. Galvani develops miniaturised implantable devices that modify electrical nerve signals. Their aim is to modulate irregular or altered impulses that occur in illnesses.
China-based internet and technology company LeEco secured $600m in capital from corporates including medical device maker Yuyue and pharmaceutical firm Luye Pharma, fashion brand Heilan Home and conglomerate Yihua. The round was also supported by plastic pipe manufacturer Hengxing. Founded in 2004, LeEco operates a range of subsidiaries that focus on technologies such as virtual reality, cloud computing, smart bicycles, televisions and smartphones.
Pharmaceutical and chemical producer Bayer, alongside venture capital firm Versant Ventures, committed $225m in series A funding to launch regenerative medicine startup BlueRock Therapeutics, which will use the funding to develop induced pluripotent stem cell (iPSC) treatments for several diseases, with an initial focus on cardiovascular diseases and neurodegenerative disorders. BlueRock also formed partnerships with New York-based cancer treatment centre Memorial Sloan Kettering and Toronto-based regenerative medicine company CCRM, which will assist with manufacturing.
China-based biopharmaceutical startup CStone Pharmaceuticals closed a $150m series A round featuring WuXi Healthcare Ventures, the strategic investment arm of pharmaceutical research company WuXi PharmaTech. CStone develops therapeutics from a product pipeline covering five areas – oncology, cardiovascular diseases, rheumatoid arthritis, haematology and autoimmune diseases – with the company’s central focus being immuno-oncology.
Pharmaceutical firm AstraZeneca invested $140m in US-based RNA therapeutics developer and strategic partner Moderna Therapeutics, increasing its stake in the company to 9%. Moderna is developing what it calls messenger RNA (mRNA) therapeutics, mRNA being responsible for carrying the genetic instructions transcribed from DNA that cells use as a guide to producing proteins that direct the body’s functions.
Unity Biotechnology, a US-based developer of treatments for diseases related to ageing, closed a $116m series B round backed by WuXi PharmaTech and medical research company Mayo Clinic via its subsidiary Mayo Clinic Ventures. Unity is working on drug treatments that will prevent, stop or reverse ageing-related diseases such as osteoarthritis, atherosclerosis, glaucoma and kidney disease by selectively eliminating ageing cells.
US-based medical device producer CVRx secured $93m in equity funding, a series G round led by Johnson & Johnson’s JJDC venturing subsidiary alongside a $20m term loan agreement. Action Potential Venture Capital, the venture capital fund launched by pharmaceutical firm GSK in 2013, also took part. Founded in 2001, CVRx has developed minimally-invasive implantable system Barostim to treat heart failure and resistant hypertension
US-based personalised health network PatientsLikeMe secured $100m from iCarbonX and Invus through the initiative. Founded in 2004, PatientsLikeMe runs a clinical research platform providing real-time insights into thousands of diseases and medical conditions, helping people to find new options for treatments, connect with others and take action.
UK-based antibody developer Kymab raised $100m in a series C round featuring pharmaceuticals producer Shenzhen Hepalink and life sciences company Malin Corporation. Kymab is working on humanised antibodies based on its Kymouse antibody platform to treat cancer and other diseases. The company’s main focus is immuno-oncology, but it is also developing monoclonal antibodies covering haematology, autoimmune disease and infectious diseases.
There were other interesting deals in emerging health companies that received financial backing from corporate investors from other sectors, particularly based in East Asia.
China-based drug developer Innovent Biologics raised $260m in a series D round that featured corporates such as Legend Capital, the investment arm of Legend Holdings. Insurance providers China Life Investment Holding, Taikang Insurance and Ping An Insurance also participated in the round. Founded in 2011, Innovent Biologics is developing a range of therapies for the Chinese market. It currently has 12 candidates in its pipeline, focused on areas such as oncology, immunity and cardiovascular diseases.
China-based healthcare access app developer Haodaifu Online raised $200m in a series D round led by Tencent. Founded in 2006, Haodaifu operates a platform that enables users to search for hospitals and doctors, book appointments, locate and share information, and receive online consultancies. More than 10 million patients are registered with the platform, which has signed up about 490,000 doctors spanning 7,500 Chinese hospitals or clinics.
Telecoms and internet group SoftBank led a $130m series B round for US-based biotechnology developer Zymergen, which valued the company at $430m. Founded in 2013, Zymergen uses machine learning and robots to engineer microbes. It is working with partners in the agriculture, healthcare, chemicals and materials industries to bring new products to market and improve existing products.
Conglomerate Mitsui & Co invested $101m in Columbia Asia, a Southeast Asian subsidiary of US-headquartered healthcare provider Columbia Pacific Management. Columbia Asia oversees a network of 27 hospitals and one clinic across India, Malaysia, Vietnam and Indonesia, having opened the first in 1996. The company claims to be the largest hospital operator in Asia to run its business in several countries under a single brand, and also one of the few to build most of its hospitals. The Mitsui investment will support additional growth in Asia and the launch of an African branch called Columbia Africa, which will be formalised when its first clinic in the continent opens in Kenya.
Exits
Health-focused corporate venturers completed 36 exits between May 2016 and April 2017, including 16 acquisitions and 20 initial public offerings (IPOs). On a calendar year-to-year basis, GCV Analytics tracked 37 exits in 2016, which represented a slight drop from the 39 transactions in 2015. The exited capital, however, more than doubled to $13.18bn last year, up from 6.13bn in 2015.
Pfizer agreed to buy the remaining shares in US-based healthcare company Bamboo Therapeutics, seven months after investing $43m for a 22% stake in it. Pfizer invested in Bamboo in the first quarter of 2016. At the time of the acquisition, it agreed to pay an initial $150m and another $645m in potential milestone payments. Founded in 2014, Bamboo develops therapeutic reagents to diagnose diseases related to central nervous system and neuromuscular conditions.
Medical device manufacturer Boston Scientific agreed to acquire Switzerland-based heart valve replacement technology provider Symetis in a $435m all-cash deal, providing pharmaceutical firm Novartis with an exit. Founded in 2001, Symetis develops and manufactures percutaneous heart valve replacement products to treat severe cardiac valve conditions. Boston Scientific will add the company’s valves to the range of aortic valvular heart disease treatments it provides through its Lotus platform.
Molecular diagnostics equipment provider Myriad Genetics agreed to acquire US-based precision medicine developer Assurex Health in a deal, enabling Mayo Clinic and Cincinnati Children’s Hospital Medical Center to exit. Myriad paid $225m and could provide up to $185m based on performance milestones. Assurex’s lead product, GeneSight Psychotropic, evaluates 12 genes that play a role in psychotropic drug response and, using pharmacogenomics, assigns patients into unique phenotypes and accordingly recommends suitable psychotropic drug treatments.
Santen Pharmaceuticals acquired glaucoma-treating Microshunt developer InnFocus for $225m, plus additional consideration on reaching certain milestones. The transaction gave an exit to optical product manufacturer Hoya Corporation. InnFocus develops the Microshunt system, which helps reduce pressure within the eye in patients with moderate and late-stage open-angle glaucoma. The treatment is an alternative to traditional glaucoma surgery.
Myovant Sciences, a US-based women’s health spinout of biopharmaceutical company Roivant Sciences, raised approximately $218m in an IPO that included investments by pharmaceutical firms Takeda and Pfizer. The company issued 14.5 million shares at $15 each. Roivant originally spun Myovant out in June last year to develop treatments for diseases affecting women, as well as for other disorders related to the body’s endocrine system.
Vtesse, a US-based rare disease therapy developer backed by pharmaceutical firms Pfizer and Lundbeck, was acquired by biopharmaceutical company Sucampo Pharmaceuticals for $200m. The transaction consisted of $170m in cash and nearly 2.8 million shares of Sucampo class A common stock. Vtesse is developing treatments for rare life-threatening conditions. The company, a spinout of orphan drug accelerator Cydan Development, is undertaking clinical trials for its lead candidate VTS-270, a therapy for the genetic disease Niemann-Pick type C1.
Creabilis, a UK-based biotechnology company backed by pharmaceutical firm AbbVie, was acquired by medical dermatology company Sienna Biopharmaceuticals for up to $150m. Sienna has made an upfront payment of undisclosed size in cash and stock, with the remainder dependent upon Creabilis reaching regulatory and commercial milestones. Creabilis is working on therapies for common inflammatory skin conditions such as psoriasis and atopic dermatitis.
Netherlands-based renewable chemicals producer Avantium secured €103m ($109m) when it floated on the Euronext Amsterdam and Bruxelles exchanges, providing exits to several corporate backers. The company issued just over 9.4 million shares priced at €11 each, achieving a market capitalisation of approximately €277m. Avantium develops techniques and processes to convert biological materials into new materials. Its products include PEF, a recyclable plastic made from plant-based industrial sugars that is used in packaging.
US-based cardiac arrhythmia diagnostics technology developer iRhythm Technologies went public in an upsized IPO that valued the company at $107m and gave pharmaceutical firm Novo an exit. The company priced 6.3 million shares at $17 each, above the $13 to $15 range it had set earlier, when it planned to offer 5.35 million shares. Founded in 2006 as a spinout of Stanford University, iRhythm is developing an ambulatory electrocardiogram that will use a wearable biosensor to monitor patients at risk for arrhythmia.
Emerging enterprises operating in the health sector provided their corporate investors with exits valued at between $8m and $645m. The transactions included 18 IPOs, 29 acquisitions and one merger.
Creo Medical, a UK-based medical device developer backed by medical device company Pentax Medical, raised £20m ($25m) through a placing ahead of a planned listing on Aim, London’s alternative investment market in late 2016. The listing provided an exit for Finance Wales and UK government-backed Angel CoFund, a £100m fund set up in 2011 to bolster the nation’s business angel investment market. Founded in 2002 as MicroOncology, Creo develops minimally invasive surgical treatments for cancer, using semiconductor devices capable of generating high-frequency microwave and radiowave energy to remove cancerous tissue.
Clearside Biomedical, a US-based biopharmaceutical company focused on eye diseases, backed by pharmaceutical firm Santen Pharmaceutical, priced its IPO at $50.4m. The company offered 7.2 million shares on Nasdaq at $7 each. The company’s target size was $57.5m, which it could achieve if underwriters choose to exercise their 30-day option of purchasing an additional 1.08 million shares. Established in 2011, Clearside is working on therapies for eye conditions that cause blindness, focusing on diseases that affect the retina and choroid.
NantHealth, a personalised healthcare technology developer that is a spinout of US-based health technology producer NantWorks and backed by several corporates, began trading on Nasdaq raising $91m. The company priced 6.5 million shares at $14 each. NantHealth is working on diagnostics technology that analyses the molecular profile of a person’s tissue so that drugs can be prescribed more efficiently. Its lead product, Clinics, uses a combination of software, middleware and hardware to sift through billions of data points and provide information in real time.
Funds
Between May last year and April this year, corporate venturers and corporate-backed VC firms investing in the heath realm secured over $5.63bn in capital via 66 funding initiatives, which included 37 corporate-backed VC funds, 13 newly-launched venturing units, eight accelerators, two incubators and six other initiatives.
On a calendar year-to-year basis, funding initiatives registered an increase last year in both count and total capital raised – $5.88bn over 75 initiatives, up from $4.72bn over 43 initiatives in 2015. This increase evidences the enormous interest in health and life sciences enterprises from a wide variety of investors. In fact, most of the top initiatives by capital size had fundraisers from outside the health sector.
IDG Capital Partners, the China-headquartered venture capital affiliate of IT media firm International Data Group, closed its third fund at $1bn. IDG Capital Fund III was raised in partnership with US-based VC firm Breyer Capital and will fund healthcare, energy, consumer products and technology, media and telecom companies that are based in China or looking to enter the Chinese market.
Germany-based drugs group Merck doubled its commitment to its corporate venturing unit to €300m ($340m) as part of a broader role for the team headed by Roel Bulthuis. Germany-based Merck is independent of US-peer Merck. Renamed Merck Ventures from Merck Serono (MS) Ventures, the firm now boasts 14 people in four investment teams covering healthcare, life sciences, performance materials and new businesses.
US-based life sciences investment firm VenBio Partners closed its Global Strategic Fund II at $315m following anchor investments from pharmaceutical companies Amgen, Merck and Baxalta. The fund, which had a target size of $250m, also attracted money from other, unnamed limited partners. VenBio Strategic Fund II will be led by Robert Adelman and Corey Goodman, both managing directors at the firm. The fund will focus on both early and late-stage companies developing “best-in-class therapeutics.”
US-based venture capital firm Pivotal BioVenture Partners closed its first fund at $300m, securing the capital from China-headquartered property developer Nan Fung Group. The Pivotal BioVenture Partners Fund I, as it is dubbed, will make early-stage investments in biotechnology developers, and is focusing on those looking to advance innovative technology to the clinical stage with a view to creating transformative therapeutics.
Netherlands-based healthcare investment firm Gilde Healthcare closed its latest fund at €250m ($280m) after securing electronics and healthcare technology producer Royal Philips as cornerstone investor. JJDC, the corporate venturing arm of healthcare group Johnson & Johnson, also contributed to Gilde Healthcare IV, as did European Investment Fund, which participated via the European Recovery Program and Dutch Venture Initiative II. Other limited partners for the fund include state-owned funds like Danish Growth Fund and undisclosed fund-of-funds, endowments, family offices, entrepreneurs and partners.
People
Merck Global Health Innovation Fund, the corporate venturing subsidiary of US-based pharmaceutical firm Merck & Co, appointed Francesca Wuttke as a managing director. Wuttke came from Spain-based pharmaceutical company Almirall, where she led the corporate development strategy team, specialising in M&A deals. Before that, Wuttke worked at pharmaceutical firm Novartis, assessing and developing commercial models for cell and gene therapies and leading a team that managed its cell therapy assets.
Eze Vidra, formerly a general partner at corporate venturing unit Google Ventures’ European office, was appointed chief innovation officer of clinical trials sourcing platform TrialReach. Vidra was a co-founder of Google Ventures Europe, the London-based offshoot of the unit, which is now known as GV, in July 2014. TrialReach operates an online platform that connects patients with relevant clinical drug trials for their conditions.
Mike Chuisano, vice-president and chief operating officer at healthcare company Johnson & Johnson’s corporate venturing unit, announced his retirement at the end of 2016 after a 36-year career at the company. Chuisano began his career with Johnson & Johnson in 1980 in the engineering division of Ethicon, and held various positions in engineering, operations, research and development, sales and marketing, and within business development.
John Park joined corporate venturing firm Echo Health Ventures as a managing director of the market development team. Echo Health Ventures was created in November 2016 when health services provider Cambia Health and Mosaic Health Solutions, the corporate venturing unit of health insurance provider Blue Cross and Blue Shield of North Carolina, merged. Park was previously chief strategy officer at consumer-directed healthcare company Alegeus, a position he had held since 2012.
Geeta Vemuri, head of Baxalta Ventures, left after its parent company’s acquisition by drugs peer Shire and its focus on strategic deal-making. Vemuri said: “I left Baxalta after Shire’s acquisition as Shire is not going to invest in small companies as venture investments.” Baxalta Ventures had been set up with more than $200m under management. Vemuri was hired to establish and run the new CVC group at Baxter. She came from venture capital firm Quaker Partners, which managed $700m in healthcare funds.
Graeme Martin, founding member and head of Takeda Ventures, the corporate venturing arm of the Japan-based drug producer, left the company at the end of March this year. He was replaced by Michael Martin. Graeme had been president and chief executive of the unit since 2005, having joined it in 2003 just as it was taking flight. The new head, Michael Martin, joined Takeda Ventures in 2015 after three years in its global licensing and business development team. He come to Takeda through its purchase for up to $310m of cancer treatment company Intellikine, where he was a vice-president.
Sven Harmsen was hired as an investment director for performance materials at Merck Ventures, the corporate venturing unit of Germany-based drugs maker Merck Group. Harmsen was previously a principal at BASF Venture Capital (BVC), the corporate venturing arm of the Germany-based chemicals company. Harmsen joined BVC in January 2012 and opened BVC’s east coast US office in Cambridge, Massachusetts. He was a board director for Advanced Bionutrition and a board observer for Slips Technologies and, until its flotation in June 2014, Aspen Aerogels.
Sebastian Schöfer joined Merck Ventures as a senior associate. Schöfer moved from High-Tech Gründerfonds, the VC fund backed by a range of corporate investors. He had been an investment manager at the fund since 2014 after stints at solar system provider Azuri Technologies and technology transfer fund Imperial Innovations.
Harvard professor and serial entrepreneur Gregory Verdine took a venture partner position at WuXi Healthcare Ventures. Verdine, a Harvard Medical School professor, developed a new kind of therapeutics called stapled peptides. They are undergoing clinical development and are being advanced to treat conditions thought to be unsusceptible to medicinal drugs. In addition to his academic work, Verdine has been a founder and co-founder of various biotechnology companies.
Along with the doubling of its funding, Merck Ventures underwent the most notable change in terms of human resources – 16 people joined its team in 2016 and early 2017, including investment directors, analysts and assistants to fill the vacancies generated by an expanded mandate.
Andreas Jurgeit joined Merck’s life sciences team as investment director last year. Jurgeit previously held positions as investment manager at the Switzerland-based VC firm Redalpine, active across various industries with investments in life sciences and internet and communications technologies. He then led business development at Redbiotec where he was instrumental in the trade-sale of its subsidiary RedVax to Pfizer in 2014.
Rom Eliaz joined Merck’s healthcare team as the head of the Israel Bio-Incubator in September last year. He has more than 20 years of pharmaceutical and biotechnology development experience as a scientist, entrepreneur, executive and venture capitalist. Previously, he was vice-president of Branded Products at Israel-based pharmaceutical producer Teva from September 2012, in charge of R&D innovative drugs, and involved in commercialisation, alliance management and pipeline asset management.
Keno Gutierrez also joined healthcare team as an investment director this year. Previously, Gutierrez worked at Omega Funds, where he invested in public and private healthcare companies, participating in direct investments and secondary offerings. Before joining Omega in 2014, he was an associate at Piper Jaffray’s Healthcare Investment Banking group, advising biopharmaceutical and medtech companies on corporate finance, cross-border M&A and licensing.
Javier Rodriguez joined Merck Ventures’ team as CFO last year. Rodriguez started his career in the speciality chemicals sector of ICI and Givaudan in various divisional and corporate controlling roles in Europe, the US and Asia. He then moved to Germany as corporate group controller of an AMG division where he steered planning and forecasting, led due-diligences, valuations of green-field projects and new business opportunities.
