Abbott pioneers corporate venture investing

Increasing costs and diminishing returns of pharmaceutical R&D have led venture capitalists to shy away from making investments in the biomedical industry in recent years. Those who do invest do so at a much later, less risky stage in development. This leaves pharma companies struggling for enough capital to bring treatments from target identification to clinical trials, or even pre-clinical testing. Small startups may be hit hardest, but even industry giants like Abbott are feeling the burden, says Nicole Walker, director of Abbott Biotech Ventures. She outlined Abbott’s strategy to offset these costs at the QED@QB3 seminar on Thursday, December 8 at UCSF Mission Bay.

The cost of developing a single drug exceeds 1 billion dollars. For a large company like Abbott, with dozens of drugs in their pipeline, the costs add up fast. Many large pharmaceutical companies have diminished costs by decreasing in-house early stage R&D. Instead, they reallocate these funds to purchase startups who have already carried projects to later stages in development. Augmenting their pipeline using this strategy averts some of the risk and is less costly, Walker said.

Abbott has taken a slightly different approach with corporate venture investing, realizing that many promising startups don’t have the funds to carry a project far enough. Many struggle at the critical stage of IND filing through phase IIa clinical trials. Abbott develops early partnerships with these companies, investing money and operational resources to carry the project forward, with the end goal of acquisition when the project has progressed sufficiently.

This strategy is not as risky as early acquisition, Walker said, as Abbott is not committed past the initial investment. If the project takes a turn for the worse, Abbott has an easy exit strategy. Abbott also shares the financial burden with other venture capital firms who trust Abbott’s expertise to guide their own investments. It is also less labor intensive, as Abbott leaves the R&D efforts up to the other company. Overall, Walker estimates that an investment of $20 million saves Abbott an equal amount in R&D costs, while minimizing risk and enhancing Abbott’s pipeline and long-term growth.

In looking for investments, Abbott balances the interests of venture capital and pharmaceutical development. As venture capitalists, they ask questions about end market potential, such as how the product will be viewed by physicians and insurance companies. But it’s not all about commercial return, Walker said. Abbott is equally vested in the assets themselves. Abbott is particularly interested in augmenting their pipeline in therapeutic areas they are known for, such as immunology, neurology and oncology, as well as in expanding fields like women’s health and renal disease.

So how has it worked out? Abbott has approved eight corporate venture investments since the program was established in 2009. The competition is fierce, with only 1% of applicants chosen for investment. Most come from the US, but Walker and her colleagues review applications from around the globe. Thus far Walker is pleased with Abbott’s investments, which have ranged from small $200,000 seed stage funding to large $10 million dollar deals. While some have already paid off financially, the full value of the assets won’t be clear for a few years.