Index Ventures made news recently when it announced a new €150 million fund to invest in early-stage, life science companies. With many venture firms scaling back or exiting the business entirely, any successful fundraising is good news. However, two aspects made the announcement from Index particularly noteworthy: first, the fund is focused on early-stage innovation, a segment largely shunned by traditional VCs and, second, two of the industry’s largest firms – Janssen and GlaxoSmithKline – agreed to throw their considerable weight behind the Index team.
In describing their investment rationale, Dr. Moncef Slaoui, Chairman of R&D at GSK said, “this unique collaboration shows our commitment to the biotech ecosystem and to continuously pursuing creative new ways to access groundbreaking new science.” This sentiment was echoed by Paul Stoffels, Worldwide Chairman, Pharmaceuticals Group for J&J, who added, “we believe that supporting and nurturing start-ups and encouraging entrepreneurship and innovation will be good for the entire industry.”
As never before, the manner in which the industry conducts R&D is changing. Today’s large pharma are increasingly linked to a complex network of other companies – small biotech, CROs, academic institutions and service vendors – all of whom must collaborate effectively in order for each to thrive. This phenomenon has changed the basis of competition from battles between firms to battles between networks of firms. This shift has profound implications – namely, more than ever, a pharma’s success depends on managing assets it doesn’t own.
In their book The Keystone Advantage, authors Marco Iansiti and Roy Levien draw parallels between business networks and dynamics of biological ecosystems to show how companies can leverage networks for long-term success. The book’s title is taken directly from biology – it refers to “keystone species” – which are species that proactively maintain the healthy functioning of their entire ecosystem because their very survival depends on it. In their book, Iansiti and Levien argue that in order to ensure their own success large firms can and, in fact, must protect and deliberately foster the health of the network in which they operate.
Now, pharma VC investing isn’t new. Most firms have their own venture arms or have invested in traditional VC funds. However, an unusual aspect of this latest Index fund is more visible and active participation by the pharma on the scientific advisory board (SAB). While Index maintains full decision making rights to the portfolio companies, the SAB can help Index connect the innovation supply with R&D demand. In a twist on this idea, the collaboration among Quanticel, Versant Ventures and Celgene to fund early-stage technology with an attractive return for investors suggests this trend will only accelerate.
In our ecosystem, large pharma are the keystone species. Perched at the top of the food chain, they acquire companies, assets and technologies from the network in which they exist. With the shrinkage of the VC industry, financing for biotech companies – particularly early-stage opportunities where the risks and rewards are largest – is in jeopardy. In this regard, it’s encouraging to see Drs. Stoffels and Slaoui demonstrate vision and leadership through their commitment to fostering a healthy, well-functioning biotech ecosystem.
