Bayer’s venture arm ramps up, seeking to invest $1.3 billion

Over the last six years, a venture capital team run out of pharmaceutical giant Bayer invested roughly $1.5 billion into small biotech startups.

Now, it’s ramping up. The firm plans to invest a nearly identical pot of money — this time, $1.3 billion — in half the time.

Bayer launched its venture arm, Leaps by Bayer, in 2015. The team scouts out startups that the drugmaker could invest in and potentially make a bit of money. But more importantly, its mandate is to find biotech and agriculture startups that might one day make for interesting R&D partners, or acquisition targets.

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Leaps by Bayer has invested in more than 50 companies so far, a few of which have signed deals with Bayer, including BlueRock Therapeutics, which was purchased by the pharma giant in 2019. The venture team has made some money along the way — “When I talk to Wolfgang Nickl, our CFO, he, of course, doesn’t mind when we have a successful exit and receive hundreds of millions of dollars back,” said Leaps head Jürgen Eckhardt.

STAT recently spoke with Eckhardt at Bayer’s new site in Cambridge, Mass., about where Leaps by Bayer will invest this new pool of capital, its renewed interest in neuroscience, and the influence the team exerts on young biotech companies from board seats.

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This transcript of the conversation has been lightly edited for length and clarity.

Venture is really about making bets for the long-term. You’re not thinking about what the return on an investment is going to be next year, but maybe four, five, six years from now. That’s very different from the quarterly and annual financial reports that a publicly-traded pharmaceutical company needs to produce. Are there specific numbers that the corporate team wants you to hit?

A return goal? No, I don’t have a return goal. It’s very clear: Objective number one, two, and three is to provide strategic benefits to Bayer in the way of new technologies. But I really have to be thankful to the board of management, because these six years, operationally, haven’t been the easiest years for Bayer. Throughout all of these difficult years for Bayer, the support for Leaps was unwavering. There was never, ever even a suggestion that we should cut down on that.

So, if Leaps by Bayer is meant to help the company renew its product portfolio, is there anything written into the term sheets on a Series A deal about future collaborations or acquisitions? I’m assuming you negotiate board seats, which could raise conflict of interest questions.

We do get board seats in almost all [of our funding deals]. We also like to own sizable stakes, contrary to some of our peers. We usually own 10%, 20%, sometimes even 45% of these companies. Over and beyond that, we normally don’t have any hardwired rights to anything. Why is that? Well, it sounds nice to have, but it would strangulate the development of the portfolio. It would kind of cap the upside potential of these portfolio companies, if Bayer had sort of an option-to-acquisition or some other rights on an asset.

The day after we’ve made the investment, we obviously become the company’s best ambassadors within Bayer. I go to my former colleagues and say, ‘Hey, did you see this technology? They have really interesting data. You should talk to them.’”

Looking at the next three years, what types of companies, on the biopharma side, are of interest to Leaps?

So, we have our so-called “10 Leaps,” which are our 10 focus areas. Six of them are health care related. The first is genetic diseases. There are many genetic diseases and we think with these new technologies we really have powerful tools to hopefully provide benefits to patients there. Then, there’s regenerative medicine, stuff like Cellino, trying to use pluripotent stem cells to replace lost tissue function.

The next area is cancer, and then autoimmune disease. Autoimmune disease, in a sense, is sort of the other side of the coin from cancer, right? It’s your immune system attacking your own cells. We want to stop that, but on the cancer side, we’re trying to make a system so that it does attack cancerous cells. As an industry, we should really be able to use similar tools that we are leveraging to kill cancer, to cure autoimmune disease.

Another area is CNS. Brain diseases are a huge burden, but there’s not so much innovation, really, compared to cancer.

Pharma has famously divested a lot of CNS work over the last 10 years. What’s bringing CNS back to the forefront?

The large unmet medical need. And we believe these newer technologies are poised to really make a difference here, finally. So, that’s why we put it on our search map.

The last focus area — I’ve only mentioned five, so far — is transforming health with data. That’s basically in silico drug discovery, remote patient monitoring, digital biomarkers, this whole area of digital health.

How do you think Leaps by Bayer compares to other pharma venture arms?

I think we have really found the sweet spot, in terms of how we are set up, so that we are independent from Bayer’s three main divisions [pharma, crop sciences, and consumer products] and can make our own decisions. But on the other side, we also have good relationships with our colleagues in those divisions, so that we are not seen as just sort of some side activity.

Many, or most, of the peers that I’m aware of haven’t found that balance. They’re either completely viewed as a foreign body that has zero relevance for what the real operating business is, or they are completely embedded into the operating business. In the latter case, they are subject to all the daily trade-offs, resource allocation decisions, and they have to go through layers of approval pathways. They never get anything done. When push comes to shove, their money is taken away from them and they can’t invest anymore.