Merck is a VC! Our problems are solved! 
Posted by Carlos on Sep 16, 2011

Some members of the media are ebullient with the news that Merck is “getting into venture capital.” However, as In Vivo is reporting, Merck is undertaking two initiatives that are quite different from direct venture investing in biotechs:

First, Merck is establishing the Global Health Innovation Fund to invest in non-pharmaceutical health care spaces:

It’s led by ex-J&Jer Bill Taranto and has a remit to invest capital in service-oriented businesses like home health as well as health IT, and other so-called ‘adjacencies’ where Merck may see itself as a future player. Internally the GHIF strategy is referred to as ‘Pharma Plus’; so far it has made a handful of (undisclosed) investments [Emphasis added].

Second, the Merck Research Venture Fund, also staked with $250 million, will be investing in venture funds as a strategic Limited Partner, and not directly in biotech companies:

Merck plans to invest in a handful of funds as a strategic LP (in the US, in Europe, in China, and elsewhere), provide ‘advice and guidance’ from Merck scientists to those funds’ portfolio companies, and hope it secures an inside track on those biotechs or their programs when they mature to the point that Merck’s business development group can step in. So far Merck has teamed up with one (undisclosed) venture fund.
Merck itself is making the point that it is not taking options in nor contributing assets to the biotechs where it invests.
There is no question that our industry needs more early-stage, risk capital. Limited Partners around the world are looking at their portfolios and questioning their participation in early-stage life science investing. As Phyllis Gardner recently noted:
At the heart of the funding gap, however, is the overarching downturn in the global economy, Gardner observes. “With the market having plunged, limited partners having lost lots of money on the market, and the losses of state pension funds and private funds — people were spooked. So ventures are highly risk-resistant. When the economy comes back, people start to relax and put more money where it isn’t just safe, but has the potential for high risk and high reward — the traditional venture investment. But right now, high risk doesn’t mean high reward, and people are afraid of high risk.”
So, we welcome Merck’s participation. We hope the VCs who accept Merck’s investments into their funds will make as many early-stage investments as possible. However, we should remain cautious in saying that the markets for early-stage (pre-proof-of-concept) investing have suddenly turned around.
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