Atlas Venture is teaming up with Shire Human Genetic Therapies to look at investment opportunities in early-stage, rare disease therapeutics. The partnership of the venture capital firm and the biologics division of the pharmaceutical Shire aims to leverage the VC’s managerial expertise with the Dublin-based biopharma’s R&D knowledge and capabilities in rare diseases to identify strategic investments for early stage venture creation around rare genetic diseases.

While rare diseases are currently a hot target for therapeutics development, many early-stage companies are finding it increasingly difficult to fund their companies, with many venture investors turning to less risky later-stage deals that offer the potential for quicker exits. At the same time, pharmaceutical companies are seeking to expand their pipelines with external sources of innovation and are looking for new ways to access promising technology.

Corporate venture firms are increasingly filling the gap in early-stage funding rounds as traditional venture capital firms have backed away from that segment. Shire, which doesn’t have a corporate venture arm, sees the alliance with Atlas as a way to get an early look at promising technologies in the space.

“As a leader in rare diseases, this partnership is another way for Shire to ensure that we expand into new disease areas and continue to apply cutting edge technologies in this space,” says Philip Vickers, senior vice president of R&D at Shire.

Researchers at Shire Human Genetic Therapies will work closely with Atlas venture partners in the multi-year collaborative effort. “The partnership with Shire is truly synergistic and leverages our individual strengths to create and fund new startups around high-potential medical science early in the R&D cycle,” says Bruce Booth, Atlas Venture partner.

In a blog post, Booth says the partners will focus on diseases that extend well beyond what is currently in Shire’s pipeline. Shire will do the wet diligence, test promising discovery and preclinical candidates in the lab, while Atlas will work on the diligence and structuring of new opportunities.

“The possibility for creating option-like structures for these deals is a key part of this alliance, and we anticipate setting them up as part of our initial investment where the structure makes sense,” writes Booth. “In these deals, Shire will have the right to acquire and integrate the company/asset into its R&D pipeline at a pre-defined valuation upon reaching an agreed set of milestones. This secures access to these innovations for Shire, while mitigating the downstream liquidity risk for the team and investors.”

Atlas Venture’s alliance with Shire Human Genetics is its third foray into new forms of backing early-stage companies. In 2010, it launched Atlas Venture Development Corporation to develop early-stage drugs from pharmaceutical companies, biotech start-ups, and academic centers through proof-of-concept clinical trials, after which it considers various deal structures to out-license or sell them. These are assets that cannot be advanced internally.

In April 2011, Atlas struck a deal with Monsanto similar to its deal with Shire. The agbiotech will work with Atlas to identify strategic investments technologies that can enhance Monsanto’s work in improving crop traits to increase yields. Focus areas include genomics, informatics and biology that enhance Monsanto’s biotechnology, breeding, and agronomic practices. Similar to its alliance with Shire, teaming up with Atlas will give Monsanto a window on innovation while its technology expertise in R&D will help support Atlas’ investment decisions.

“These initiatives are complementary to our primary investment focus on life science venture creation,” writes Booth in his blog post announcing the Shire partnership. “The majority of our investment strategy remains focused on creating, sourcing, and funding new startups outside of these initiatives, but it’s clear these types of efforts are playing an increasingly important role in our portfolio construction.”