Having chalked up three marketed drugs after only nine years in existence, Venbio Partners LLC proved its appeal yet again by closing on about $394 million in a capital raise that included new and existing investors, with a broad range of institutional concerns in the mix.
The Venbio Global Strategic Fund III aims for opportunities that can yield important clinical data in five years or less, Managing Partner Corey Goodman told BioWorld. Venbio’s model works in good times and bad, he said, noting that the firm was formed during the last recession. The idea took shape in late 2009, Venbio was founded in 2010, and its first fund came together in 2011. “Markets cycle – we know this,” he said. “We didn’t know that a pandemic was going to push us into a recession, but I think many people certainly speculated that somewhere, either before or after the election, there was going to be a downturn.” How Venbio intended to deal with the prospect of a slump became “a common question [from investors during] the last three to six months,” he said.
With a lean team of six experts and a single office in the Mission District of San Francisco, Goodman said, Venbio is able to stay agile in working its game plan. “Our investors asked us to not have our fund this time around go above $400 million,” he said, so when the oversubscribed push reached a level near the mark, Venbio turned off the spigot. “Flagship and Arch have gone off with other kinds of models, in terms of the size of investments and the size of companies that they try to build,” he said.
Flagship Pioneering Inc. and Arch Venture Partners recently raised a collective whopping $2.56 billion to fund new company creation and growth. Flagship achieved a $1.1 billion capital haul for its seventh Origination Fund. The money pool is meant to operate alongside other Flagship funds of $1.08 billion raised in the past year for supporting its companies once they are spun from Flagship Labs. Arch sealed two new bids, its Venture Fund X and Venture Fund X Overage, with a combined $1.46 billion, both for investing in early stage companies. Backing for a company could come from either group, but the Fund X Overage will be used, the company said, in fewer deals requiring larger investments. Their predecessors, Fund IX and Fund IX Overage, closed in 2016 with a combined $560 million.
“They’re great groups and great funds,” Goodman said of Arch and Flagship, but the venture ecosystem has a vital place for the likes of Venbio as well. Investors were understandably jittery about the times ahead as they queried the model – which, he pointed out, is not reliant on IPOs. “We have always stayed very down to earth in the nature of our companies and the way we build [them],” he said, always with forethought to would-be acquirers. “In our first fund, a lot of our biggest successes were by acquisition,” he said. “In our second fund, the markets were hotter, IPOs were open and a lot of our best companies went public. Our strategy on starting companies isn’t changing,” he said, and the businesses that take shape will be “perfectly set up to be acquired.”
‘Still a lot we can do’
Venbio is mindful of the short term, with “social distancing and the specific issues with COVID-19 that are having a big impact” on manufacturing and clinical trials, Goodman said. “We’re all over that,” and the matter takes up much discussion, even as the firm “take[s] the longer view of looking at what’s going to happen over the next three four five years,” he said. The possibility of a deepened recession “doesn’t scare us. History shows that if you do it right, stay focused and make sure there’s enough capital, with good investors around the table,” it’s possible to produce new drugs and build value.
Some economists have predicted an eventual U-shaped bounce-back, Goodman acknowledged. “I’ve heard that from Morgan Stanley. I’ve also heard that from Goldman Sachs. I hope they’re right, but we have to plan right now assuming that they’re wrong. We have to imagine that the recovery may take longer than the plunge took. I think it’s the prudent and safe way to behave right now.”
Regarding therapeutic spaces, Goodman named gene therapy as “an exploding area. We suddenly feel like the tools are there and the technology is coming along in the eye and in other parts of the body to be able to effectively do gene therapy for genetic diseases.” New methods of targeting RNA molecules are gaining life, as are fresh approaches in antibodies and peptides. “I love the fact that new things keep coming along,” he said. “I feel like I get to be a perpetual student.” Along with gene therapy, cancer holds particular allure. In the latter, “you can [develop drugs] quickly because in phase I, you go right into patients. By phase Ib, if something is a big winner, you already know it” and can start thinking about a registrational trial. In gene therapy, “with many of these rare orphan diseases, there, too, you can go pretty quickly,” he said. “Often you’re allowed to do your phase I trial in patients.” But if an inventor came to Venbio with, for example, a preclinical Alzheimer’s disease idea, “we would say, ‘Come back in a couple of years when you’re within five years of getting meaningful clinical data.’”
The new fund likely will invest in about 15 companies, at a clip of three to four annually. With the passing of the COVID-19 crisis, “I hope our society in general comes out to be stronger-than-ever supporters of science,” Goodman said. “One even sees our government starting to appreciate science,” having no choice due to the pandemic. “Not only do we have to be prepared for the next virus and how we will make antivirals and vaccines quicker, but there’s still an awful lot we can do to help cure people from cancer and other diseases. These things are doable.” Researchers at the CDC and NIH also need funds badly. “Maybe this will help society re-embrace the fact, as I thought we did for years, that the U.S. has been the source of innovation, really, for the world,” he said.