While venture capitalists are usually focused on investing in innovation, this healthcare VC is turning the tables and doing some creative thinking of its own.
Last week, life sciences venture firm Domain Associates unveiled an interesting partnership with Beijing-based Elite Consulting, a consulting and financial advisory firm for the Chinese pharmaceutical and medical device industry.
Under the partnership, fittingly called Domain Elite, the two firms will bring innovations from U.S. companies to market in China by creating new Chinese medical device, drug and diagnostic companies based on technologies licensed from U.S. companies.
That’s a potential big win for all the parties involved given the fast-growing market for drugs and medical devices in China. Sparked by a vibrant economy, a growing elderly population and rapidly rising obesity rates, that market has already caught the attention of many eyes in the U.S. healthcare industry. Stryker and Medtronic, for example, have both recently made acquisitions there and drug companies are making investments and ramping up R&D there too.
The marriage of Domain and Elite makes sense when you think about it. Domain brings to the table a deep network in the U.S. to find the technologies and Elite brings the expertise to evaluate them for the Chinese market. Domain helps in-license the Chinese rights to those technologies and pump a series A into the companies, and Elite helps find a management team and provides financing, regulatory and marketing support to propel the companies forward.
Domain partner Brian Halak said his team is looking at several medical device companies, but wouldn’t go into details about how much funding the firm has allocated for this project or what particular therapeutic areas are of interest. Domain’s already invested in at least one company in China, Eddingpharm, so it will avoid investments in direct competitors, but other than that, it’s “casting a pretty broad net,” Halak said. “Our hope is that this would be a source of multiple deals over the coming three to five years, and that we’re creating our own investment opportunities in China.”
Domain may also do deals with existing companies in China, he said, pointing to the deal with Eddingpharm (Sequoia Capital and OrbiMed Advisors are also investors). “But there’s a lot of competition for those kinds of deals. We just felt that rather than trying to fish in the same pond, we would create our own source of dealflow. It’s more about trying to think out of the box a little bit.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
But given the view of China’s growing importance in certain therapeutic areas, wouldn’t some of these U.S. companies want to keep those rights for themselves? Halak said most of the companies the firm would be talking with would have limited abilities and resources to take the technology to China themselves. Nonetheless, he said the firm has some strategies for getting around this potential issue. “We’re going to be very flexible with the deal terms — maybe it’s a license, maybe it’s a joint venture,” he said. “Whatever they’re concerned about, if it can be solved with a certain business structure, we’re willing to discuss that.”
That’s the very nimbleness that’s led the firm to similar projects in the past. Domain first tried a kind of reverse model with drugs being developed in Japan in the 2000s, which created companies in the U.S. by licensing the non-Asian rights to those drugs to bring them to market here. That initiative created Alzheimer’s drug company Sonexa Therapeutics, GI drug company Ocera Therapeutics and Peninsula Pharmaceuticals, which was acquired by Johnson & Johnson in 2005.
More recently, Domain inked an agreement with a Russian government-backed venture capital firm called RUSNANO to drive innovation in the healthcare industry there. In that project, Domain and RUSNANO jointly invest in emerging U.S. nanotechnology companies and establish manufacturing facilities in Russia that get exclusive rights to manufacture and market products in Russia based on those innovations.
“In addition to always looking for the next big technology, we are always looking for novel investment models,” he said.
Given the laments we’ve been hearing about how “the VC model is dead,” that’s probably something venture capital could use a little more of.
