The past 12 months has seen the healthcare sector cross an important milestone as more than 100 companies now have corporate venturing units.
The traditional leaders in corporate venturing, such as Novartis and Johnson & Johnson (J&J), which are respectively first and second in the Global Corporate Venturing list of most influential groups (see table and profile), have remained active and applied best practice that peers in other sectors have sought to copy. And these leaders have been joined by sector peers, such as US-based Baxter International, India’s Taj Pharmaceuticals and China-based 3Sbio and WuXi PharmaTech, which have set up relatively large and sophisticated corporate venturing units.
Existing units also expanded their venturing operations – partly for marketing reasons – by setting up country-specific funds, including UK-based GlaxoSmithKline (GSK) raising a $50m fund in Canada and a £50m ($75m)equivalent for the UK, while UK-based medical endowment Wellcome Trust is creating a £200m investment company, temporarily called Sigma, to focus on UK and European transformational technologies with potential for high returns over at least a decade.
The decline in venture capital firms, especially in the US where there are now fewer than 100 active firms compared with nearly 250 at the turn of the millennium, means corporations are also providing crucial cornerstone support to help independent funds get off the ground. GSK and J&J committed half the €150m ($200m) Life VI fund raised by Index Ventures, while Netherlands-based Philips provided the cornerstone commitment to the planned €200m ($250m) Gilde Healthcare Partners fund in August last year. US-based Merck was committing $35m of a a planned $50m Québec-targeted life science fund and peer Eli Lilly backed TVM’s seventh life sciences fund that is raising $150m despite losing its US partner Jens Eckstein to GSK’s SR One unit (see people section).
Heritage Group also raised a $157m fund by adding as limited partners (LPs – investors) Amedisys, a US-based health and hospice care company, Cardinal Health, a Fortune 50 distributor of pharmaceuticals and medical products, Health Care Service Corporation, the fourth-largest health insurance company in the US, operating the Blue Cross and Blue Shield plans in Illinois, New Mexico, Oklahoma and Texas, andMemorial Hermann Healthcare System, the largest notfor- profit healthcare system in Texas, alongside existing fund investors Community Health Systems, Iowa Health System, LifePoint Hospitals, Trinity Health and Vanguard Health Systems.
Outside the developed countries, corporate venturing units were keen to expand into the rest of the world. Germany=based drugs group Merck supported an Israeli incubator while Japan-based electronics company Sony is setting up a team in the Middle Eastern country (see boxes below).
People moves
There have been a number of senior personnel moves at the main corporate venturing units in the healthcare sector over the past 12 months.
The promotion of Brad Vale to head of Johnson & Johnson Development Corporation following the departure of Roy Davis to consultancy InnoSight was a natural step up after Davis’s retirement.
But other corporate venturing units turned to venture capital firms (VCs) for their senior hires.
Sue Siegel, a venture capital, start-up and corporate veteran, most recently a general partner at Mohr Davidson, became chief executive of General Electric’s Healthymagination programme after the departure of Karen Rode to be head of global private equity at Hewitt EnnisKnupp more than a year earlier.
GlaxoSmithKline turned to Jens Eckstein, a venture partner and entrepreneur-in-residence at Germany-based venture capital firm TVM Capital, when Christoph Westphal moved out of the drugs maker to run his own VC, Longworth.
There were also senior moves in the other direction, from corporation to VC. In August, Janke Dittmer moved from Netherlands-based Philips to local VC Gilde following the healthcare company providing
the cornerstone commitment to the planned €200m ($250m) Gilde Healthcare Partners fund in August 2010.
In Asia, Vikram Gupta left Piramal to set up IvyCap Ventures, an innovation and technology VC fund with an approach to focus on the entrepreneurs with high-quality professional educational backgrounds, such as from the India Institutes of Technology.
Deals
Corporations backed nearly 20% of the total number of venture capital deals struck in healthare last year.
Global Corporate Venturing tracked 202 healthcare deals, excluding exits and flotations, globally last year, while data provider Dow Jones VentureSource said there were 1,035 venture deals in the main regions it covers.
Although the geographical regions in the databases of Global Corporate Venturing and VentureSource do not overlap perfectly, the difference is marginal. Series B rounds were the most popular stage at which a corporate invested – at least 40 deals occurred here from public records, excluding a similar number where the stage of investment was undisclosed.
VentureSource said corporations participated in 126 venture rounds (11%) it covered, primarily in the US, which accounted for 90 of the deals. This was down slightly from 139 of 1,070 in 2010 and could be on course for an even lower result this year as there were 24 deals out of 221 in the first three months, VentureSource added.
By comparison, Global Corporate Venturing data gathered over the past two years shows an increase in corporate venturing activity in healthcare. In the 12 months to end-May there were 204 corporate venturing deals, excluding exits and flotations, compared with 148 in the same period the year before.
Corporations played an even more active role in the portfolio companies that made a profitable exit. Venture-Source said corporations were in nearly a third of venture syndicates – 46 of 167 – backing a healthcare portfolio company that made an exit last year. This 28% was higher than the 26 exits tracked by Global Corporate Venturing but similar in proportion to the previous three years even as exit activity increased following the credit crunch-inspired lows of 2008.