VC Enlight Biosciences Signs Two New Members, Advances Portfolio Companies

Boston-based Enlight Biosciences has signed up two new members – a large-cap pharma and mid-cap biotech – bringing to eight the number of pharma companies participating in its novel approach to vetting and funding new R&D technologies.

The addition of two companies, infusing Enlight with needed cash, and the commercialization of its first product by one of its portfolio companies, is evidence of continuing interest in Enlight’s precompetitive, collaborative business model (Also see "Enlight: Pharmas Collaborate on Novel Start-up" - Scrip, 1 Jul, 2008.).

Precompetitive collaboration took center stage at Michael Milken’s Annual Partnering For Cures meeting held in New York City on Nov. 7-8. One of the more interesting ways of incubating and commercializing innovative R&D technologies was described by Michelle Browner, CEO of Enlight Biosciences. Enlight has created a novel funding mechanism, in partnership with pharma members and academic networks, for technology sourcing and company creation. Unlike an advisory firm that brings ideas to its clients, Enlight flips the process, so that its pharma members – the ultimate end-users – specify their needs and Enlight facilitates a tailored solution.

PureTech Ventures, a Boston-based venture firm specializing in investment in early-stage biomedical technologies, created Enlight in 2008 [See Deal]. PureTech was joined in the initial financing by charter members Eli Lilly & Co., Merck & Co. Inc., and Pfizer Inc., which together raised $39 million.

The initial concept aimed to address the diminishing investment into early-stage R&D technologies and also to tie the development of platform start-up companies more closely to the specifications of their pharmaceutical customers. The precompetitive element in Enlight’s model – in which pharma members share challenges, expertise, and experiences – helps eliminate costly duplication of effort across the industry.

Pharma members meet regularly to identify unmet needs in R&D, contribute to the evaluation of technology solutions, select one and guide its early development, and at their own discretion make investments in its commercialization. “We are open to a variety of financial structures. We’re not tied to a particular one as long as we see a business case in support of the companies we start,” says Browner.

The three founding companies have continued as members (what Enlight calls its investors), and over the past three years, Abbott Laboratories Inc., Johnson & Johnson, and Novartis AG have joined. In 2011, the two as yet unnamed companies came on board (their names have not been made public yet), providing further evidence that Enlight’s business model holds continuing interest for beleaguered R&D executives.

Enlight's founding CEO is David Steinberg, a partner at PureTech. Enlight incorporates several aspects of the PureTech model, including tapping into academic networks for early, pre-publication ideas and technologies, nurturing their discoveries to maturity and then creating companies around them. But there’s a difference.

PureTech conforms to a traditional venture model seeking to create companies around technology it has identified. Enlight, on the other hand, starts with pinpointing a problem, then vetting technological solutions to it. It has an ingenious funding mechanism for doing development and company creation And, unlike PureTech, which focuses on therapeutics, it is also, for now, content to play in the discovery tool and platform space, waiting for the right time to extend its collaborative model downstream.

So far Enlight has launched two companies: Endra Inc. (molecular imaging) and Entrega, Inc. (oral delivery of proteins); and has two others in beta mode – Knode (software for identifying R&D experts) and Ensof Biosystems (biomarker discovery).

Identifying, Developing And Commercializing Technology Solutions

Enlight's bottoms-up approach, which relies on pharma clients – the ultimate end-users – meeting regularly to identify needs and solutions is central to its model. Enlight is not an advisory firm that brings investment-grade ideas to its clients. Rather, member companies define problems collectively by participating in Enlight-sponsored meetings at a senior level as well as at an expert scientific level within their organization.

Individuals typically come from the R&D organization (e.g., senior VP Research or a direct report) or the corporate venture groups; sometimes they’re scientific experts or technology champions, or they specialize in accessing external innovation. Enlight then taps into its academic network to source the technologies that can address the problem. “It’s not necessarily one technology. Sometimes we’re putting things together. Sometimes we’re creating our own IP and contributing that to the company,” says Browner.

At this point, Enlight makes a proposal to its pharma members to launch a company around a technology. Member companies are given the opportunity to invest, and a variety of ways to do so, ranging from equity investment to research collaborations with or without options. They also can determine their level of involvement, whether it be evaluating and accessing the technology, shaping its development, or taking strategic rights to it. Although the invitation to invest has so far only extended to pharma members, Browner says Enlight has the ability to use its own funds to take a technology to the next level, perhaps to proof of concept, and to bring in other investors.

Member companies are given the opportunity to invest, and a variety of ways to do so, ranging from equity investment to research collaborations, with or without options.

An example is Endra Inc., an Enlight portfolio company that specializes in preclinical molecular imaging. “We have a notion with that company about how to go to the next step, which is around clinical imaging,” says Browner. “This is where the model can open up. We can raise funding to continue the development of that technology that doesn’t necessarily come from our Enlight partners, because there are other people who work in that space and would be interested in contributing to that kind of investment. Enlight is also open to funding its companies through grants.

Clearly, there is some flexibility and also complexity in Enlight's approach and that has the potential to get messy unless there are clear and transparent rules around pharma's participation. Browner says that before agreeing to enter, members agree to share the common “mission” of evaluating and investing in technologies “based on the individual pharma company’s interest.” Guidelines are detailed governing the types of investment allowed, how conflicts of interest are handled, when it's appropriate to refrain from investing, and so forth.

For example, if a company has an ongoing internal program in a technology area that Enlight is evaluating, and wants to protect proprietary information, there are standard mechanisms in place defining when a company might want to refrain from sharing or even investing with the group.

Enlight provides a team of its own executives to create a new company and early-level management. “Then the first person hired into the newco is someone who is associated with the technology,” says Browner, “and can help drive it forward. Sometimes this is an academic who has been involved with the technology. They are the co-founders of our companies, and they are rewarded in many ways, including as shareholders of the companies.”

The Payoff

Pharma partners pay to participate, which gives them access to early-stage technologies and the opportunity to invest in portfolio companies. According to material on Enlight’s website, the entry fee for the first six members was $13 million. Therefore, as of the third quarter of 2009, Enlight had raised $78 million through admission fees. Assuming the fee hasn’t changed, the two latest members bring an additional $26 million. (Enlight declined to reveal the specific financial terms of membership, but noted that the participation fee includes a contribution to Enlight’s operating costs.) When companies are launched, Enlight and fellow investing members share in the returns. Thus, Enlight’s investment partners in company creation are not LPs or other VCs with a five-year horizon, but rather the pharma end-users who are their clients and co-investors.

Enlight specializes in the difficult terrain of innovative early-stage research, precisely the space that traditional VC has abandoned of late. As Reid Leonard, the recently named managing director of the Merck Research Venture Fund, put it, “[Enlight] enables the development of technologies that are of genuine interest to a company like Merck or Pfizer or Lilly, but are not sufficiently enabling in terms of providing an immediate competitive advantage that we would undertake their development by ourselves.”

This implies a limitation, but also an opportunity, for Enlight: because it focuses on investment-intensive early-stage technologies, it gives big pharma a way to invest in shaping and accelerating their development without shouldering all the cost and risk. The collaborative process assures the technology’s fit to purpose, and the operating model assures its low-infrastructure, speedy development and commercialization. On the other hand, the early-stage nature of the technologies it focuses on caps the commercial opportunity for Enlight.

The collaborative process assures the technology’s fit to purpose, and the operating model assures its low-infrastructure, speedy development and commercialization.

Hence, Browner’s wish to extend the model downstream. “That’s the potential,” she said. “We have this near-term mission to bring enabling technologies to our partners, but our business plan also envisions how a portfolio company like Entrega Inc. could build out its own pipeline of orally available biologics, become a stand-alone commercial entity.”

One of pharma’s challenges now, she adds, is that they don’t only want to invest in early-stage technologies; their more pressing need is to invest with more immediate impact on their portfolio. “That’s the core of their business. They need access to the new generation of technologies, but they don’t need to own them all for themselves.”

As for exits for Enlight’s portfolio companies, Browner points out that, given their enabling technology focus, the magnitude of potential exits is smaller than for a therapeutics-focused company. However, timelines to revenue are shorter, usually in two-three years. “Companies can potentially become profitable relatively quickly. With positive cash flow you can think about a variety of exit strategies including acquisition and IPO, and also the potential to return cash to shareholders.” Browner notes that Enlight invests at the seed stage, so the timeline to return-on-investment in their portfolio companies is similar to what you would expect for biotech companies at that stage.

Browner points to the two new members as validation of its venture creation model. And she says the portfolio of four companies, two of which are open for business, is also a sign of success. Endra has sold preclinical scanners to customers beyond Enlight’s pharma partners and Browner says that Entrega is involved in multiple R&D partnerships that are making excellent progress. “Endra has already commercialized an instrument – that is pretty impressive in the amount of time that it’s been around. And we’re moving our oral drug delivery technology [Entrega Inc.] into large animals later this year. So, we’re not only finding the technology to create something, but we’re moving it to the next value inflection point. It takes longer to understand exactly how this will play out, and we’ll be judged of course by our return on investment. But I think in the near term, the reason pharma is driven to work with us this way is that it’s about how can we impact their portfolio now.”