Merck jumps in the biotech VC game with $250M plan

Big Pharma is betting more big bucks on early-stage biotech. As drugmakers seek more external sources of new products to feed their rusty R&D pipelines, drug giant Merck ($MRK) has plans to pump $250 million into various wells of funding sources for young companies, InVivo Blog reports.

Under an effort dubbed the Merck Research Venture Fund, the second-largest U.S. drugmaker wants to back venture groups around the world that are investing in biotechs, serving as an LP with benefits, according to the blog post. Those benefits include advice to portfolio companies from Merck's deep bench of scientists, as well as a potential partner for the young developers once their programs mature sufficiently.

Biotechs are unlikely to fret over Merck's late arrival to the VC game; other major drugmakers such as Pfizer ($PFE), Eli Lilly ($LLY), Amgen ($AMGN), Novartis ($NVS) and GlaxoSmithKline ($GSK) have been active players for years. Early-stage drug developers are hungry for cash as always, but traditional VC sources have been shriveling recently. That harsh reality showed in the 9% drop in venture dollars and 24% decline in the number of deals year-over-year for biotechs during the second quarter, when $1.2 billion trickled into 116 financings, according to data from Thomson Reuters in the PwC/National Venture Capital Association MoneyTree Report.

Pharma VCs have generally been welcome guests in biotech's investor syndicates as traditional venture firms have seen their peers shy away from risky deals involving young developers. For example, the biotech Aileron, after getting initial funding from Apple Tree Partners, later brought on equity investments from the venture units of GSK, Lilly, Novartis and Roche in a $40 million round in 2009. That appears to have paid off for the biotech and its initial venture backer, as Roche later put down $25 million upfront in a potential $1.1 billion deal to access the start-up's stapled peptide tech in multiple disease areas.

So far, Merck has found one undisclosed venture firm partner as the company looks to gain early looks at hot science, according to the InVivo Blog piece. And the effort follows its Global Healthcare Innovation Fund, disclosed early this year to invest $250 million in non-pharma deals such as health IT and health services.

- here's the report

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