San Diego’s Avalon Ventures has had some noteworthy success in the past couple of months. The 28-year-old firm raised $200 million for its ninth fund, which was oversubscribed by 33 percent. Avalon, which invests in both life sciences and Web technologies, also took some winnings off the table with the recent sale of a portfolio company, Boston, MA-based BioVex Group, for $425 million (with another $575 million in potential milestone payments). In addition, two other Avalon portfolio companies were acquired in December (reportedly at significant multiples of invested capital): San Francisco-based Cloudkick went to Rackspace and AOL acquired New York’s Pictela.
And then there is Avalon’s Series A and B round bets on the Zynga Game Network, which was recently valued at $7 to $10 billion and is expected to be the firm’s best investment ever.
With Avalon riding high, there may be no better time for Avalon founder Kevin Kinsella to raise a matter that he finds deeply troubling.
“There have been numerous instances of what I refer to as bad behavior—combined with short-sighted, brass-knuckle negotiating tactics—by some pharma companies that really go to the heart of whether this partnership between Big Pharma and biotech can really continue,” Kinsella says. He maintains that the pharmaceutical industry is doing enormous damage to the life sciences venture capital ecosystem. “Their predatory business practices,” he says, “are pushing the sector almost to the point of extinction.”
Kinsella concedes that Big Pharma CEOs might not even realize how their companies have been undermining the well-being of the biotech startups that Kinsella says are their chief source of new drug candidates. Talk to a Big Pharma CEO, Kinsella says, and he or she will glibly tell you that the next generation of products is coming from biotech, “while two floors below in business development, they are wreaking havoc on biotech startups.”
How is this happening?
In a series of interviews over the past three months, Kinsella has talked with me in detail about some of the egregious business practices in the pharmaceutical industry that he’s encountered, which he likens to overfishing by commercial fisheries. As a respected biotech investor with a 30-year record, Kinsella says he’s seen industry cycles come and go. But he contends the pendulum has gone too far this time, and it may be too late to set it back on its bearings. He’s calling out Big Pharma, and arguing for a more sustainable ecosystem for drug development. It’s not the whole story, but rather the opening fusillade in a debate that’s long overdue. Here at Xconomy, we welcome your response.
Kinsella lumps Big Pharma’s bad behavior into several piles:
—Structuring Completely Back-Ended Deals: During one buyout negotiation, Kinsella says, “The acquiring
