PureTech’s long view on biopharma
Company building a new life sciences model for commercialization of intellectual property
A visitor to PureTech Health PLC’s new headquarters in the Back Bay could easily mistake the collection of small offices for a technology incubator.
PureTech does provide space to biotech and medical device startups housed in the former New England Life Insurance Co. building at 501 Boylston St. But it’s more than a landlord because it owns about 75 percent of each of the fledgling firms.
The company also feels a lot like a venture capital firm, collecting money from investors to bankroll new ideas. The difference, said founder and chief executive Daphne Zohar, is that it doesn’t manage specific funds and doesn’t need to sell the companies or take them public in five to seven years, the typical game plan for venture capitalists.
“We really think of ourselves as a next-generation biopharma company,” said Zohar, 45, an Israeli-born entrepreneur who launched several businesses, ranging from making consumer products to exporting olive oil, before training her focus on health care.
PureTech, which raised $196 million through an initial public offering on the London Stock Exchange in June, has hatched a dozen operating companies working on everything from patches for combating obesity to depression-easing headgear.
It has attracted a star-studded board, including serial inventor Robert Langer, MIT Media Lab director Joi Ito, former Sanofi SA chief executive Christopher Viehbacher, and former Economist CEO Marjorie Scardino.
And every PureTech business is viewed as “a multibillion-dollar opportunity,” Zohar said.
Each company in PureTech’s portfolio is likely to have a different trajectory. The parent firm can spin off some, hitch others to the wagon of big drug makers, and hang onto others as they market their products.
“If you think about it that way, we have a pipeline of programs,” Zohar said. “We're flexible. We’re not looking to sell a program, but we could.”
At Tal Medical Inc., which is developing products to improve the symptoms of acute depression, scientists test a head-size device that looks like a miniature MRI machine. At the early-stage Sync Project, engineers are analyzing the health benefits of personalized music playlists for everything from reducing anxiety to treating neurodegenerative diseases. Other portfolio companies work out of the Lab Central incubator across the river in Cambridge.
Zohar has taken to describing PureTech’s hybrid model as “IP commercialization,” meaning it licenses patents from academic labs around the world and uses them to develop products. Unlike other venture firms that evaluate companies seeking capital, Zohar said, PureTech starts with health care problems — such as the inability to deliver many biotech medicines orally or the difficulty today’s drugs have in absorbing sugar — and builds companies to solve them.
“This kind of model is very different from their peers,” said Charles Hall, head of research at the London investment bank Peel Hunt LLP. “They have accumulated a group of highly qualified people who go to the best experts, whether they’re in Boston or Tokyo or London, to source their [intellectual property]. As an investor, you’re not backing one individual breakthrough but a range of them. It’s a model that UK investors like because it reduces their risk.”
Most active IP commercialization firms, notably IP Group PLC and Imperial Innovations Group PLC, are based in the United Kingdom and trade on the London Stock Exchange. The largest US player, Allied Minds in Boston, went public on the London market last year, also raising about $200 million. PureTech decided earlier this year to follow that route, too.
Chris Silva, chief executive of Allied Minds, which commercializes high-tech and life sciences patents licensed from US universities and labs through 22 portfolio companies across the country, said the new model may be attractive to investors who can’t buy into venture capital funds restricted to a small number of limited partners such as pension funds and endowments.
“We do venture capital work, but we’re not a venture fund,” Silva said. “Investors can gain access to early-stage companies by acquiring our stock.”
Unlike buying stock in more mature companies that report quarterly sales and profits, shareholders of IP commercialization firms like PureTech and Allied Mind might wait long periods between financial milestones. They are betting on experimental products — mainly drugs and medical gear — that could take years to bear fruit. But the payoff could be substantial.
PureTech, founded in 2001, is run with a staff of 61 employees — 25 at the parent firm and the rest at its operating companies. Among the companies in its portfolio, seven are classified as “growth stage,” meaning their products have cleared initial hurdles, while five are in an earlier “project phase.” In that phase, Zohar said, “We run the experiments trying to kill the project.” If it survives those tests, the company moves on to growth stage. (To date, Zohar said PureTech has killed five projects after spending an average of $500,000 on each.)
Among its growth-stage companies are Vedanta Biosciences, which is developing a class of drugs to treat autoimmune and inflammatory diseases with Johnson & Johnson; Entrega Bio, which is working with the research house Google X on an intestinal patch drug-delivery system; and Gelesis, which is testing an approach to treating obesity and diabetes.
“We’re starting every company ourselves from scratch,’’ said Eric Elenko, PureTech’s executive vice president of science and technology. “And we’re using a proactive thematic-based approach.”