Pharma Capital Ventures (PCV) is the second fund established by the Principals of Merck Capital Ventures, an existing investment firm whose largest limited partner is Merck & Co., Inc., a leading global pharmaceutical company. PCV is a new fund designed to provide its limited partners a unique opportunity to invest in the future of the biopharmaceutical industry. The fund exclusively targets emerging companies with new technologies that focus on business process improvement and operational efficiency in the biopharmaceutical and healthcare industries and will not pursue investments in new therapeutic agents.
During the last century, the industry experienced tremendous success through the discovery of new, important drugs that not only had a dramatic impact on peoples' lives but also generated outstanding financial results. However, over the past decade, the state of the industry has turned. The industry now confronts mounting pressure to deliver strong financial results in the face of many challenges, e.g., fewer blockbuster drugs, major patent expirations, intense competition from generics, growing complexity of research and development (R&D), greater pricing pressures and increased regulatory constraints. While success in the industry will continue to rely upon introducing new drugs, the approaches that have worked well in the past are no longer enough to stay competitive in this environment. More than ever, the industry must find more efficient ways to operate. This will require fundamental changes to core processes, which will be driven by the development of new, enabling technologies and services.
PCV is raising capital to invest in emerging growth companies that identify and develop new approaches to core processes within the biopharmaceutical industry, i.e., to improve performance in all facets of operations, from discovery and development to manufacturing, sales and marketing. The new fund will be managed by the existing Principals of Merck Capital Ventures (MCV).
PCV is the only venture capital fund focused exclusively on identifying and supporting entrepreneurial efforts to develop new technologies and services that reduce cycle time and cost, create efficiencies and improve quality within the biopharmaceutical and healthcare industries. PCV brings a distinctive perspective to this niche market segment, not available through other funds.
The Principals of PCV, Per G. H. Lofberg, Gary M. Lubin and Jeffrey L. Tarlowe, have managed MCV since its inception in 2000. Of an initial $110 million in commitments, MCV has made investments of $50 million, generating significant strategic value and top quartile financial returns to its investors.[1]
The team has worked together for more than ten years at MCV and Merck-Medco, a subsidiary of Merck following its acquisition of Medco in 1993. The Principals have 70 years of combined healthcare experience, completing over 50 corporate transactions of all types. Per Lofberg (MSIA) is a Managing Director and Chairman of PCV. Mr. Lofberg brings extensive industry and management expertise, leading Medco from $300 million to $23 billion in revenue, prior to founding MCV. Previously, he was Partner in charge of the NY office of the Boston Consulting Group and headed its Healthcare practice. Gary Lubin (CPA, CITP, MBA) is a Managing Director of PCV, drawing on his unique strengths in both technology and finance. Mr. Lubin started Merck-Medco's e-Business group, redesigned Merck's worldwide financial processes and created more than 35 commercial software programs. Jeff Tarlowe (MBA) is a Managing Director of PCV, and blends his strong finance and mathematical background with industry knowledge to develop innovative business structures and financial models. Previously, Mr. Tarlowe led Merck-Medco's Financial Evaluations group, Merck's Treasury Planning area and the pharmaceutical industry's Working Group on Industry Economics.
PCV is targeting total commitments of $100 million to invest in 10 to 15 emerging growth companies. The fund will have duration of ten years, with the potential for annual extensions, if necessary. PCV operations will be sustained through a 2% yearly management fee. The fund will maintain an 80%-20% profit split between the Limited Partners and the General Partner. The minimum size of the Limited Partner investment is $5 million from institutional investors.
PCV's approach to investing is to be highly selective in identifying companies and active in overseeing them. The team searches for investments which best leverage its industry expertise and relationships to help establish those companies as leaders in their markets. Financial success in this space results from finding technologies that address gaps in industry capabilities, developing strategies that validate their effectiveness and gain industry traction, and executing well against plans. This is very different from investing in therapeutics where results are generally stochastic: wins can be huge but infrequent, and losses are often complete and unpredictable. The new fund offers investors an attractive alternative to therapeutic funds due to a lower risk profile. While the upside potential of a given PCV investment may not be as high, the likelihood of success is greater and the variability of outcomes is lower.
The team has developed a highly effective approach to investing, which draws on strategic relationships with industry to jointly identify and evaluate opportunities and guide portfolio companies. PCV plans to establish collaborative agreements with several leading biopharmaceutical firms to align the strategic directions of portfolio companies with the needs of industry. The team has established a variety of collaborative methods including proof-of-concept studies, co-development initiatives and conference presentations to demonstrate the value of the emerging technologies. These efforts have helped MCV's portfolio companies gain traction and accelerate top-line growth, which in turn has produced significant financial value for investors. Additionally, the efforts have generated strategic value for Merck and other pharmaceutical companies by introducing new technologies and accelerating their adoption for process improvement in the industry.
[1] Source: Cambridge Associates, U.S. Venture Capital Funds with vintage year 2000
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