New York City to Start Venture Fund for Biotech
Bloomberg Administration, Venture Capitalists to Create $100 Million Program for Small Firms
Dec. 3, 2013 3:04 p.m. ET
New York has built gleaming new research facilities and lured at least one large drug company, but the city still trails places such as Boston and San Francisco in fostering small companies that experiment with cutting-edge medical treatments.
To help the local biotechnology scene catch up, the Bloomberg administration is working with large pharmaceutical companies and venture capitalists to create a $100 million fund to invest in fledgling life sciences companies.
Government is hardly a typical venture-capital investor given the public-sector's aversion to risky investments. But city officials said they needed to fill a void left by the private sector, which has been pulling back on investing in early-stage biotechnology companies. Driven largely by time-consuming clinical trials, investments can take years to pay off.
"It takes a long time for something to go from an idea to a therapy. It requires a patient amount of money," said Kyle Kimball, president of the city Economic Development Corp.
The city will invest $10 million in the fund, along with $40 million from pharmaceutical companies Celgene Corporation and Eli Lilly & Company, and GE Ventures. The Economic Development Corp. is seeking a venture-capital firm to manage the fund and invest at least $50 million.
The city expects the new fund to help launch 15 to 20 new companies. These would fill an important role in the biotechnology's industry, helping create new drugs that can be picked up by larger drug companies and putting into practice new ideas generated by its major research institutions. Target ventures also would also delve in medical devices, diagnostics and research tools.
"For us, the key thing is to spot unique, world-class research very early so we can be both an investor in future opportunities but also to potentially learn from that and adapt our own science into new areas based on new discoveries," said Jan Lundberg, chief scientific officer at Elil Lilly.
Private investment in biotech startups has declined around the country and New York is behind other hubs, such as Boston, San Francisco and San Diego.
Venture-capital firms invested $113 million in biotechnology companies in the New York area in the third quarter of 2013, compared with $267 million in New England and $209 million in Silicon Valley, according to MoneyTree Report, a joint project by PricewaterhouseCoopers and the National Venture Capital Association.
Overall, venture-capital investing in biotechnology declined to $4.2 billion last year from $5.8 billion in 2007, according to MoneyTree Report.
Investors' attention has shifted to startups experimenting with new mobile phone apps and social media products, which promise quicker returns.
"It's quite unfortunate that early-stage investment has been reduced over time from venture capital companies and that's the reason that big pharma companies like Lilly are interested in this area," Dr. Lundberg said.
About 13,000 people are employed in New York City's life-sciences sector, according to the Economic Development Corp., but job growth in the area largely has been stagnant. The industry accounts for about 0.4% of private sector jobs in the city.
The Bloomberg administration has invested in creating a more than 1 million-square-foot laboratory campus on the East Side, which recently attracted Swiss pharmaceutical giant Roche, and in the New York Genome Center, a DNA-sequencing research center. But those projects have tended to create isolated job growth. City officials hope the fund will spur a thriving new industry, in much the same way as New York has nurtured a technology startup scene.
"Roche and Alexandria were important components of the picture but they weren't the entire picture," Mr. Kimball said. "This is a much bigger picture look of what needs to happen with life sciences in the city."