INDIANAPOLIS, Indiana — Eli Lilly has spun out its venture arm, heading the same direction as other drug companies that want to take full advantage of its private equity investments, VentureWire reports.
The spin-off version of Lilly Ventures will start with $200 million to invest in early-stage biotech companies, particularly those that can create multiple drugs.
VentureWire says the move is a trend that’s happened to several pharmaceutical-based funds, which used to pick its start ups to secure product rights. Now, though, those dollars are used to keep up on new technologies and make money. Lilly Ventures in its old form couldn’t take profits from investments because Lilly’s compensation policies did not permit it, VentureWire stated. It also couldn’t keep up with the marketplace in other ways as well.
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Creating market compensation systems could also help drugmakers improve relations with venture firms, which want to work with investors who are just as profit-driven as they are, some observers said. Russell Greig, president of GSK’s SR One, said the firm and the company are considering a new system that would allow SR One investors to earn 20% carried interest, though nothing has been approved yet.
“It’s a bugaboo of many corporate venture groups – it is the major reason private [VCs] still have suspicion of getting into bed with pharmaceutical venture groups,” Greig said. “One of the major topics when strategics get together on VC is the compensation plan, and everyone is exchanging notes on how they’re progressing in getting a competitive compensation plan pinned down.”
The new Lilly Ventures Fund I LLC will manage existing portfolio companies, invest in those businesses as well as make new investments, according to VentureWire.
