Lilly's Evolving Corporate Venture Model

Of all the big pharmaceutical companies, Eli Lilly & Co. has arguably been the most aggressive and creative in finding outsiders to help develop its drugs. With its latest venture, Lilly hopes to learn lessons from a past failed initiative.

The Indianapolis drug firm is set to put up to $150 million to work, backing three traditional venture funds as part of a strategy that outsources development of its own molecules. The strategy works like this: Lilly invests up to $50 million into each fund for a maximum stake of 19.9% to avoid accounting complications, and it will be the only biopharmaceutical investor in each fund, says Lilly Vice President of New Ventures Darren Carroll. Each fund will develop a portfolio of early-stage drugs that it selects from Lilly and from outside parties. At Elsevier's recent Pharmaceutical Strategic Alliances conference in New York, Gino Santini, Lilly's SVP of corporate strategy and business development, said the mix of Lilly to non-Lilly compounds would be about 50/50 in each fund. On all Lilly-sourced compounds, the drug firm has the rights to buy back the asset at what it calls "fair market value," although how that value is determined remains unclear