Three years after starting a €40m fund ($60m), the corporate venturing unit of Germany-based pharmaceutical company Merck is finding its unconventional decision to opt for a strategic approach to the life sciences sector yielding success.
This approach sets Merck Serono Ventures apart from many of the best-known corporate venturing units in life sciences, such as GlaxoSmithKline’s SR One, which have opted for a largely return-based approach.
Roel Bulthuis, head of Merck Serono Ventures, said: "When we started the venture fund, we decided to make specifically strategic investments. This generally went against grain of how the life sciences industry had been thinking about corporate venturing. The approach has worked really well for us. The exit environment for companies is driven by strategic deals and everybody is developing products and technology with the view of licensing or selling them to pharmaceutical companies.
"As a mid-size pharmaceutical company it is important for us be seen as an attractive partner with biotech companies. If you do not show creative commitment to doing deals and do not have personal relationships with entrepreneurs and venture capital boards, the big pharmaceutical companies will be the people who get asked first. Merck Serono Ventures is one of our main instruments for doing this."
In April, Merck Serono opened an incubator in Israel, which plans to invest €10m in that country by 2018 through its Israel Bioincubator Fund. Simone Botti, head of the fund, said: "The Israel incubator is a way for us to tap into the country’s wealth of early-stage innovation. It enables us to derisk assets and technologies and make them into companies ready for investment from venture capital."
The decision to open the fund is based on the unique structure of Israel’s start-up scene, with many start-ups and limited large organisations. Botti said: "Israel is a very peculiar country as far as the life sciences industry is concerned.
It is a flat pyramid, with hundreds of early-stage companies and very few mature ones. This is a result of the entrepreneurial spirit in Israel, which is exceptional. Everyone is ready to risk and do their own start-up, and they have a skill at starting things from scratch.
"In contrast to the local high-tech industry, where giants like Google, Intel, Motorola and Apple have a significant research and development (R&D) and manufacturing presence,
Israel’s biopharma industry is also lacking the presence of multinational companies. As a consequence, it is difficult to find experienced people to add management skills and experience to start-ups, so they can grow into mature, multi-layered companies. This is where Merck Serono’s strength as a partner comes in. We have been present in Israel for almost 40 years, with a strong R&D presence, and thus we can bring significant value to the start-ups we incubate that goes beyond the financial investment."