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NovaCardia & Domain: New-Model Spec Pharma Investing

 
• By Roger Longman

Domain partner Eckard Weber has become a master of the one-two punch in venture investing. The process (now in its third iteration following Merck's $350 million acquisition of NovaCardia): find a drug no one cares about; create a low-infrastructure company around it; find a second drug; sell off the lead drug through an acquisition; develop the second drug a bit more with the same management; then sell that one too. The first deal at a minimum pays back the investors; the second deal juices the returns. It's a model many VCs want to follow.

Investing in specialty pharma depends more on capital efficiency than spectacular scientific or clinical success. And the new master of this theme is Domain Associates, whose returns--says one of its limiteds--are now among the best in the industry (which, he notes, hasn’t always been true).

Domain’s latest essay in capital efficiency: NovaCardia Inc. Set up in 2001, the company raised $88 million, and it used roughly $50 million before Merck & Co. Inc. acquired it...

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