The new fund, Osage University Partners III, raised more than its target of $250 million, and nearly doubles, to about $600 million, the total assets OUP has raised since managing partners, including Robert Adelson and Marc Singer, started its first fund in the late 2000s.
“Our goal is to work with world-class professors, entrepreneurs, and venture investors to help turn university research into life-changing products, generating exceptional returns" for investors, said OUP managing partner Bill Harrington in a statement. OUP also said it has named Matt Cohen a partner, among other promotions.
The fund says it has signed “exclusive long-term contracts” that give it participation rights (also called preemptive rights) in license agreements for start-up companies whose intellectual property is owned by the University of Pennsylvania, Caltech, Columbia, Duke, Harvard, the University of Michigan, and 13 other research universities. The fund also has non-exclusive “associate partner contracts” with Children’s Hospital of Philadelphia, Drexel, Penn State, Princeton, and 75 other schools. OUP posts a list of these partners here.
The way it works: “We sometimes get equity when we license technology to a company, and we ask for participation rights that go with the equity, that would allow us to invest" as a company becomes successful and attracts outside venture capitalists, said John Swartley, associated vice provost for research at Penn, and managing director of the Penn Center for Innovation. “We call it ‘pay-to-play,’” he added, allowing the university to keep a valuable proportion of its scholars’ spin-off companies without getting diluted by later investors.
But a lot of times, colleges don’t actually use those participation rights, Swartley added. For example, it can be inconvenient to come up with the cash, right when it’s needed. And university officials don’t claim unique insight into when it’s the best time to buy. So they sit on the sidelines.
“The genius of Osage is that they figured out that maybe the universities would assign those participation rights [to OUP], in an exchange for a share of the profits” from other universities’ rights investment profits, collected in the OUP funds, such as OUP III, Swartley said.
That way, “we get a piece of the action for something we normally wouldn’t invest in,” from “high-flying companies that become IPO candidates or acquisition candidates. And we don’t have to play the market. We let the experts [at OUP] figure out where the investments are, and ride along,” he concluded.
OUP has bought rights in five Penn-founded companies: Avid Radiopharmaceuticals, sold to Eli Lilly for $300 million plus future payments back in 2010; Corridor Pharmaceuticals, now part of AstraZeneca PLC; MC10, which is developing flexible biological sensors; Picwell, predictive health-care analytics; and Arrakis Therapeutics.
OUP says it has backed 90 university-founded companies over the last decade, many of which have attracted funding from large venture capital firms. Its second fund, which raised $215 million in 2015, has supported a string of companies that have since sold shares to investors through initial public stock offerings.
Those public companies include brain-therapy developer Aptinyx (APTX), with ties to scholars at Northwestern University; Biohaven Pharma (BHVN), Yale; Kura Oncology (KURA), the University of Michigan and University of California-San Francisco; Homology Medicines (FIXX), Caltech; Selecta Biosciences (SELB), Harvard; Spero Therapeutics (SPRO), UCSF; and Synthorx (THOR), Scripps Research Institute.
Precision BioSciences, which has ties to Duke, is among the next batch of IPOs that observers expect are on the way from Osage, says Richard Vague, founder of Philadelphia-based Gabriel Investments.
Among other sales of companies backed by OUP: Semiconductor maker Luxtera, which uses Caltech technology, was recently acquired by Cisco for $660 million. In 2017, Cell Design Labs, (UCSF), was acquired by Gilead Science for up to $567 million, and human-body-modeling software developer Body Labs, founded by scholars at Brown and the Max Planck Institute, was acquired by Amazon for a price reported at more than $50 million.