After a quarter of a century of healthcare investing, Barbara Dalton, senior managing partner of Pfizer Ventures, has won the Global Corporate Venturing Lifetime Achievement Award 2019.
One sign of her wisdom is being able to focus on what works while being able to leave the rest.
Earlier this month she, along with tens of thousands of others, spent three days at the J Morgan healthcare conference in San Francisco. However, rather than scurrying between the multiple venues and discussions – the agenda for the industry’s premier event runs to 10 pages – she stayed in the Pfizer-occupied hotel and worked the 7am to 11pm days receiving delegations.
There were plenty of people wanting advice from Dalton, leader of the world’s largest pharmaceutical company’s corporate venturing unit and also vice-president of its worldwide business development function under senior vice-president Doug Giordano.
This is a consolidating industry. Earlier in the month Bristol–Myers Squibb agreed to acquire Celgene in a $74bn cash-and-stock deal weeks after peer Shire agreed Takeda’s $59bn offer and GlaxoSmithKline (GSK) announced it was investing $5bn in cancer biotech Tesaro, which was just before US pharmaceutical company Eli Lilly announced its biggest takeover yet – an $8bn deal for cancer drug specialist Loxo Oncology.
For Pfizer, therefore, being able to deliver the next generation of hits can make the difference between growth and a share price big enough to acquire rivals, or being a takeover target.
Dalton has certainly done her share. While Pfizer’s venture returns are undisclosed, Dalton said “it is significant and would put us in the top quartile for most biotech VC funds”.
Performance analyst Cambridge Associates noted a 26.8% internal rate of return (IRR) net of fees for initial biotech investments made during the decade of 2006-16, which outperformed the venture capital asset class as a whole by more than 500 basis points for realised – exited – investments, while the top quartile had a 3.5-times return on invested capital.
This is part of a long-term pattern of success for Dalton. UK-based pharmaceutical company GlaxoSmithKline’s SR One corporate venturing unit had a 10% to 20% IRR over 17 years from 1985 to 2002 – including the period when Dalton worked there from 1993, according to a research paper.
Founded by Peter Sears in 1985, SR One first invested on behalf of Smithkline Beckman before a series of mergers resulted in GlaxoSmithKline. Dalton became president in 2001 when Brenda Gavin, who took over from Sears in 1999, moved on to co-found Quaker BioVentures.
After formally leaving SR One in 2003, Dalton joined EuclidSR Partners, a $260m venture firm set up in 2000 and backed by GSK. EuclidSR grew out of a partnership between Euclid Partners, a venture capital firm, and SR One, and Dalton and other SR One principals invested on behalf of both GSK and EuclidSR until their departure in 2003. She worked at EuclidSR until the start of 2007 – an era typified by difficulty of floating or selling portfolio companies following the dot.com bubble – and has now spent a dozen years at Pfizer.
Her Pfizer profile says she has managed more than 30 fund investments and 80 diverse company investments in the US and Europe, and has had direct investing responsibility for biotechnology therapeutic and platform companies, as well as some healthcare IT and service businesses. She currently has responsibility for Pfizer’s investments in Accelerator NYC, Artios Pharma, Complexa, Cydan, Imara, Ixchelsis, Lodo, Magnolia, Morphic Therapeutic, Petra Pharma, and Rhythm Pharmaceuticals.
One of Dalton’s latest deals, for example, was joining the board of US-based biopharmaceutical firm Complexa after a $62m series C round in July.
Founded in 2012, Complexa is working on a therapy for focal segmental glomerulosclerosis, an orphan disease affecting the kidney, as well as one for rare disease pulmonary arterial hypertension.
But for corporate venturers, financial returns are usually only table stakes to align with VCs and avoid being a cost centre to the parent. The potential for greater support to portfolio companies through connecting them to the corporation and, vice versa, providing strategic insights and options to the parent offer a dimension of added-value investing.
GSK had relationships with about 50% of portfolio companies at the time of her departure from SR One, while Dalton said Pfizer was “probably about 25% and there are always discussions ongoing with portfolio companies”.
She added: “Right now about 15 portfolio companies are talking to someone in the organisation. We have been as high as 45% with relationships, but the more new companies you add, that number drops because it take time to generate those connections.”
Options for the parent in the longer term are also important. While strategic shifts and breakthroughs in science and business models may make a portfolio company redundant, they can also result in some becoming important partners from adjacent or non-core peripherals.
Dalton gave an example of three SR One-backed portfolio companies – Aquila, Ribi and Corixa.
GSK bought Corixa, which had acquired Ribi, the inventor of a substance that enhances the body’s immune response to an antigen. GSK had earlier licensed Ribi’s invention for use in a vaccine of its own, while Ribi had acquired another company, Aquila, to boost its search for an alternative to the sole regulated antigen enhancement substance, based on aluminium.
The whole process, however, took more than a decade leading to US Food and Drug Administration approval in 2009 of Cervarix for the prevention of some cervical pre-cancers.
At Pfizer, Dalton inherited a portfolio focused on areas outside the drugs company’s core therapeutics area, such as in diagnostics, but has moved the ventures portfolio into that space as well as into adjacencies.
Initially founded in 2004 as Pfizer Venture Investments, by last year the corporate venturing unit had grown to a portfolio of more than 40 companies and had invested approximately $500m.
In June, the parent company said it was planning to invest $600m in biotech and other emerging technologies through the renamed unit, Pfizer Ventures, with early-stage neuroscience companies as a focus. The renaming was part of a restructuring effort that combined Pfizer Venture Investments with research and development equity investment vehicle R&D Innovate.
Initial areas of interest include neuro-degeneration, neuro–inflammation and neuro-metabolic disorders, with approximately $150m allocated to such startups.
Pfizer Ventures already has at least six neuroscience–focused startups in its portfolio – Aquinnah, Autifony, -Cortexyme, MindImmune, Mission Therapeutics and Neuronetics – and is one of several healthcare corporates to have backed the $190m Dementia Discovery Fund in 2015.
Pfizer Ventures will continue to invest in areas that are of strategic interest to its parent, including oncology, inflammation, immunology, rare disease, internal medicine and vaccines, as well as in companies working on novel approaches to drug discovery, development and manufacturing.
But as part of last summer’s restructuring and larger fund size, Pfizer Ventures added existing Pfizer executives Denis Patrick, Laszlo Kiss, Margi McLoughlin, Chris O’Donnell and Nikola Trbovic, a GCV Rising Star 2019, to its team. They joined Elaine Jones and William Burkoth who had worked under Dalton as Pfizer Venture Investments’ small team.
The personnel challenges of building and leading a team are hard to overstate. Dalton said: “You need a partnership of equals with different skills. The personnel dynamics are critical and it is a very different job from being a corporate manager. Elaine and I came more from a science background while Bill was our first hire from venture capital and startups.
“In the new job [adding R&D Innovate to form Pfizer Ventures] we have brought in the internal network with the corporation. I told them all: ‘You are here for life.’ I look for those with the social and intellectual drive who can get along in a team. You have to go to the cocktail parties and cold call. This not the usual scientist’s skill.”
It was an aptitude Dalton herself showed early on. Dalton, who has a PhD in microbiology and immunology from Medical College of Pennsylvania, now the Drexel University College of Medicine, began her career as a research scientist pursuing anti-inflammatory drug discovery research at SmithKline and French Research Laboratories.
Her “serendipity” in finding corporate venturing came as she volunteered to help SR One with due diligence. “I did not plan on a career in venture capital. I was in the immune-oncology lab and when asked by SR One I said it would be great if immune-suppression could be achieved. Twenty-five years on and it is still correct. I tracked the very small community then in the 1980s and helped others in the space.
“I then learned on the job about investments. Peter Sears worked alongside me as a mentor so I could learn about the business world, something he had not done before. But he realised that, like him, I had no MBA and in the lab had been so far removed from the business world.
“Peter had great foresight and knew how to manage the organisation as he had grown up in the company and been number two to the CEO. No doubt the success of that group going from fund commitments in 1981 to direct investments from 1985 was because for its first 10 years he reported directly to the CEO and you don’t mess with what the CEO wants.
“The great challenge of CVC is not finding a company or being a good investor and choosig people, but it is managing things inside the corporation whose core business is so different from venture investing. Managing the relationship is the point of friction in whatever industry.
“You have to define what is strategic, set expectations and deliver strong financial returns, too, to be in the best position with VCs. Setting expectations is hardest as people change. A CVC’s portfolio is like an archaeological dig of corporate strategy at the time and its changes.
“My second great mentor was Brenda Gavin – her view of how to form a picture of the company and the role of the people in it. The networks, going out in an evening, was what you needed to do, and if you smell like a VC you get invited to their parties. Biotech is a syndication world, not a corporate my-way-or-the-highway one. She and Peter believed in the corporation as a good citizen, and joining the chambers of commerce.”
This is something Dalton has taken to heart. She established the corporate venture capital group within US trade body the National Venture Capital Association, has been on the board of the Alzheimer’s Disease Research Foundation, the NYBio organisation, and currently chairs the healthcare group of the Partnership Fund for New York City.
And, unlike many VCs who prefer to invest only in companies within Tesla-driving distance of their home or office, Dalton said: “Coming from Philadelphia, we would go anywhere with good science. It is hell on family life.”
But it is a first-rate position from which to see the big changes still affecting the industry ever since 1976 when 29-year-old venture capitalist, Robert Swanson, famously parlayed a 10-minute appointment with biochemist and genetic engineer Herbert Boyer into a three-hour meeting over beers that led to the creation of Genentech.
In Dalton there remains a pioneering spirit reaching back to almost the very origins of the biotech industry, and one that is still determined to fight the flight from risk in investing and continue to back visionaries from all regions and backgrounds able to attack the big problems of healthcare with a different approach. The path to her door remains well–trodden as a result.