Dive Brief:

• An unorthodox life sciences investment firm closed its inaugural fund on Monday, a $167 million bankroll that will support investments in companies providing pharmaceutical services to young drugmakers. 
• Called NewVale Capital and based in Boulder, Colo., the firm backs companies selling the tools startups use to discover, manufacture, and market drugs. It has about $200 million under management, some of which comes from certain special-purpose vehicles, and has completed three initial investments. 
• NewVale is run by Todd Holmes, who has two decades of experience investing in private and publicly traded biotech companies at Third Rock Ventures, Gurnet Point Capital and elsewhere. Over that time, Holmes claims he’s witnessed a shift in how drug startups are built, creating a greater need for the companies that support them. 

Dive Insight:

Several biotech investment firms have debuted or raised new funds in recent years. 

By and large, though, those investors build and back startups that make new medicines, a lengthy journey that can take hundreds of millions of dollars, if not billions, to complete. Those investors have to have long time horizons and typically see returns if their startups go public or get acquired. 

But drug startups are only part of the biotech ecosystem. Many of them don’t have their own labs, computing tools or manufacturing capabilities. As a result, they often turn to service providers, the companies that help young drugmakers run key experiments, make their drugs, and even engage with regulators. 

Holmes argues those companies are now becoming more important. An “evolutionary shift” is underway in the business of drug development, he says. Small- and mid-size biotech companies are running more clinical trials, commercializing more medicines, and staying independent for longer. Because of that, they’re becoming “more reliant on this complex system of outsourced services,” he says.  

“We are in this moment where the science behind novel therapeutics has never been more promising,” Holmes told BioPharma Dive. “Yet we have an out-of-date infrastructure that suboptimizes time, cost and quality to get those drugs to patients.” 

NewVale aims to solve that problem and fill what Holmes refers to as a “crucial gap” in support for these companies. Venture investors are focused on early, unproven technologies, while private equity firms step in to support mature businesses and aim for control. Neither provide “growth” funding to companies already generating revenue but needing more cash to scale up, he said.

“This is an area currently underserved by other investment models and difficult to repurpose from other investment funds,” he said. 

So far, NewVale has led fundings for Aizon, a developer of machine learning software; Argon Manufacturing Services, which helps sterilize and standardize pharmaceutical products; and Beaconcure, which provides software used in data analysis. 

Overall, NewVale intends to put between $10 million to $50 million into about eight companies through its inaugural fund. The remaining five to six investments will be made in the coming years, according to Holmes.