About 8 years ago, the crew at Clarus Ventures had a sit down with a pharma company they were looking to sell one of their portfolio biotechs to. The talks went well, the company wanted the assets. But there was a big obstacle.
The buyer they were talking to couldn’t afford to just acquire the company and fit in another late-stage drug program under its R&D budget. Those numbers couldn’t change willy nilly — no matter how good the new late-stage drug looked.
So Clarus got creative. They agreed to come in with funding for the Phase III, working a deal on their payback for taking on the risk. That creative deal became a business at Clarus, and a good one at that, to hear them tell the story. They followed up with a string of deals with a lineup of top-20 pharmas and now Clarus has raised $910 million more to fund the next wave.
“Over the past 7 years, half of our investment strategy has been focused on risk sharing,” Clarus Managing Director Nick Galakatos tells me. Clarus IV — which broke well past its initial $750 million goal — will allow them to grow these kinds of structured investments past the top 20 with enough cash to fund roughly 12 to 14 more deals at $50 million to $300 million apiece.
This is a far cry from the classic kind of venture investments that VCs make in life sciences. And Galakatos says it’s the kind of deal that should do well in the current restricted financial environment that pharmas have to work with.
“For the most part the R&D budget of the major pharma companies is constrained,” says Galakatos. “They have a very exciting pipeline and frankly they cannot fund their existing budget.” The risk-sharing deals provide the added cash for the pharmas to take more shots on goal, and there’s substantial Phase II data for Clarus to consider before making a bet.
Not too surprisingly, cancer deals are at the heart of this strategy, with red-hot immuno-oncology pacts as the centerpiece. Pharma companies in general are loathe to publicly detail the numbers behind deals like this and Galakatos knows the value of remaining discrete.
But he did offer that Clarus worked one structured deal on ibrutinib that was unveiled, buying a royalty stream from Royalty Pharma alongside Aisling Capital when that drug was under review in 2013 by J&J and Pharmacyclics. And of the 8 drugs they financed that made it through Phase III, he says, 5 are approved and 3 more are being positioned for a regulatory decision.
Clarus is ready for more.
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