Being a CVC - A perspective on Novartis Venture Fund's investment (& exit) strategy

If anything, the recent news of Novartis agreeing to sell its vaccine & veterinary businesses while simultaneously acquiring oncology assets from GSK consolidates my earlier view/ observation that the investment philosophy of a corporate’s venture arm seldom reflects the strategic goals pursued by the corporation itself - effectively meaning that there’s hardly any difference between a CVC and a VC as far as the ‘intention behind the investment’ goes – the intent in this context being a tangible ROI.

There is albeit a definitive difference between a CVC & VC as far as the ‘intelligence behind the investment’ goes – the intelligence in this context being the insider-edge the CVC enjoys when it comes to identifying, qualifying and investing in a promising enterprise, an edge seemingly acknowledged by the VC & angel community given the sheer number of fundraising rounds led by the likes of Google, Intel & Novartis compared to than those led by non-CVC brave-hearts – This propensity of the investing junta to look up to the CVCs to take lead is demonstrated once again by the quantum of followers the likes of Kevin Rose (Google Ventures) & Jerry Yang (Yahoo) command on AngelList, the new age pit-stop of investors & enterprises alike.

I realize though that compared to the regular VC, an average CVC can afford to be lot more adventurous/ less-conservative since the LP, which is the corporate itself, has a far less looming presence given the non-financial nature of the corporation.  This context of less-intense LP scrutiny thus affords a CVC greater liberty & hence their investment strategy may not be that de-risked after all & this isn’t saying anything.

With no prejudice whatsoever on the relative merits of a CVC vis-à-vis a VC & going merely by the data, I think Novartis Venture Funds (NVF) is what one could refer as the ‘Google Ventures of pharmaceutical innovation’, a yard-stick, if not a bench-mark other VCs could use within the pharmaceutical domain. With this premise, I went about analyzing the NVF’s investments data, of both current & exited portfolio, the key takeaways of which I have discussed below;

DUALITY OF VISION

A quick comparison of NVF investment focus & Novartis business focus;

  

INVEST SMALL – EXIST FAST

When it comes to making small molecule therapeutics work both as a business strategy & investment focus, few seem to be able to bend it like Novartis. Despite Small molecule therapeutics being a mere 20% of the total invested value, this segment is a star performer at 63% when it comes to exits. This performance is consistent in both the major exit types of IPO (69%) and Acquisition (59%) – the relatively higher contribution of IPO as an exit also seems to suggest that the chances of an IPO are higher for an enterprise developing small molecules & that going public isn’t an easy game for a company developing biologicals.

No wonder then that the current portfolio of NVF once again is dominated by enterprises pursuing small molecule therapeutic dreams (53%). However the marginally higher percentage share of biologic therapeutics in the current investments indicates NVF is cautiously optimistic about these living herbs!  

ATTITUDE, IT’S THERAPEUTIC

The NVF investment spread across therapeutics is nothing counter intuitive & is expectedly skewed towards oncology. What’s interesting is the sentiment/ attitude driving these investments in different disease segments.

Looking at the interplay of number v/s value of investments, NVF’s investor attitude can be summarised as follows for a few key segments;

Oncology           -->          Casting the net far & wide

Hematology      -->          Betting high

Cardiology         -->          Upping the stakes

Allergy               -->          Risking it big

Infection            -->          Seeding a promise

EXIT THROUGH ACQUISITION THAN IPO

With companies having FIC assets making up 60% of the total current investments & since FIC assets are typically more attractive acquisition targets, it can be surmised that NVF is not counting on IPO as the primary exit path.

BULLISH ON EARLY & BEARISH ABOUT LATE-PHASE ASSETS

Perhaps this is more of an alert to enterprises seeking venture funding than other VCs – the date clearly shows NVFs reluctance to risk its green-backs on the very volatile PIII assets – this once again underscores the primal premise that for NVF’s vision is limited to supporting viable clinical assets and NOT in seeing them through to the market.

The message hence for the biotech is - knock at the doors of NVF after your IND is filed & count on their support till end of Phase II & showcase the potential of your clinical asset to get acquired even as it is still in PI or PII.

SLOWER, LONGER & BIGGER – NVF’s NEW MOTTO?

VC is more a patient fund than earlier & NVF seemingly realizes that – that’s what the numbers say at least

Despite the now apparent & clear segregation of objectives of a corporate & of its venture fund, a CVC seemingly still employs the insider-edge in making its investment & exit decisions.

Meray Chaaraaney.