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By Christopher Alessi 

FRANKFURT -- German pharmaceuticals giant Bayer AG and U.S. health care investor Versant Ventures plan to establish a stem-cell research company, marking the latest effort by a big pharmaceutical company to develop new and innovative drugs by joining with venture capital and biotechnology firms.

Executives at Bayer and Versant said in an interview that they would launch the startup, to be called BlueRock Therapeutics, with initial joint funding of $225 million. BlueRock plans to focus on developing stem-cell therapies to regenerate heart muscles following a heart attack and treatments for Parkinson's disease.

The companies plan to formally announce the deal on Monday.

The agreement follows a wave of similar deals in the Big Pharma sector. Companies including Sanofi SA, Johnson & Johnson and GlaxoSmithKline PLC have been increasingly partnering with external investors and then jointly outsourcing the research and development of new technologies to smaller biotech outfits and academic institutions.

But the Bayer and Versant agreement represents one of the largest ever initial venture capital financing deals for a biotech startup, according to Nooman Haque, the director of healthcare and life sciences at Silicon Valley Bank's UK branch. "It's a monster," he said, noting that most original funding for biotech firms is an average range of $10 million to $20 million.

The trend has accelerated in recent years as patents for many of the industry's blockbuster drugs have begun expiring, putting new pressure on companies to discover differentiating drugs, experts say.

About 70% of the pharmaceutical industry's new sales come from drugs that were originally developed in small companies, up from 30% in 1990, according to the Boston Consulting Group.

"We at Bayer were not so familiar with these new technologies and needed a different spirit to really drive them to maturity," said Axel Bouchon, the head of Bayer's Life Science Center. Bayer launched the center recently to develop innovative R&D partnerships.

Mr. Bouchon said that the more dynamic environment of a biotech firm would give the stem-cell experts the space to "solely focus on the science."

The high risk of investing in newer technologies has made it more necessary for pharmaceutical companies to form new partnerships to share the burden of development, said Jerel Davis, a managing director at Versant.

Mr. Davis said the broad range of experts and stakeholders connected to the new firm would give it the "ability to pursue multiple programs and bring some [new drugs] into clinic by 2018."

Versant is not new to collaborating with Big Pharma.

"More and more pharmaceutical companies have been approaching us to do these kind of projects," said Bradley Bolzon, a managing director at Versant. He said Versant had already partnered with three other pharmaceutical companies on projects around the "frontier" technologies of cell therapy and gene therapy.

Bayer was unique in establishing a brand new company to tackle stem-cell technology, rather than joining forces with an existing biotech firm or going it alone, Mr. Bolzon said.

BlueRock has licensed foundational stem cell intellectual property from a Nobel Prize winning scientist at Kyoto University and has begun to assemble a team of researchers through partnerships with the Toronto-based McEwen Center for Regenerative Medicine and Memorial Sloan Kettering in New York. The startup, which will be based out of Toronto, New York and Boston, expects to hire more than fifty employees within the next year and a half, executives said.

Bayer's Mr. Bouchon and Versant's Messrs. Davis and Bolzon will all initially serve on the BlueRock's board of directors.

The stem-cell biotech group is the second investment by the Bayer Life Science Center. The unit last year established a joint venture with gene-editing startup Crispr Therapeutics AG, a company co-founded by Versant. That venture aims to use gene-editing technology known as Crspir-Cas9 to find new drugs for conditions such as hemophilia, heart disease in infants and a form of blindness called Stargardt.

Mr. Bouchon said that both the Crispr and Versant endeavors aimed to harness new medical technologies to push the pharmaceutical industry to tackle "the challenge of moving from treatments to cures."

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

December 10, 2016 02:47 ET (07:47 GMT)

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