What’s New in The Valley of Death?

7 Jan

By Max Klietmann, VP of Research, Life Science Nation

In the world of big pharmaceutical companies, there exists a void that is the transition phase between promising academic laboratory discovery and the validation of a particular compound’s commercial viability – the so-called “Valley of Death.” This gap exists due to the high amount of risk associated with testing the feasibility of a product so early in the pipeline, which naturally places it far from an exit. This gap has long been an issue for the industry at large, because even though many investors don’t wish to invest so early, avoiding it leads to a diminished pool of strong future investment opportunities, and, on a larger scale, limits how many compounds will successfully make it to market. This is not due to shortcomings in trials, but rather, because of a pure shortage in capital. Most of the large pools of capital, especially venture capital, are no longer making allocations in this area. And despite the fact that large pharmaceutical companies are beginning to invest earlier and earlier in the pipeline, they can’t bridge the whole valley on their own.

Fortunately, a novel funding trend within foundations, nonprofits, and other philanthropic organizations is beginning to address this issue. Worried that potentially valuable treatments will be lost due to a dearth of risk-prone investors, funds are recognizing the vital importance of bringing more technologies over this funding gap. As such, many of these organizations are offering grants for specific indications to help increase the odds of new compounds entering the clinical stage. Keep your eyes open for family offices to begin targeting this space with their high-risk or philanthropic allocations as well, as investment momentum begins to accelerate in this area.

Simultaneously, novel for-profit drug development platforms have started to address this gap by in-licensing emerging technologies, developing them past discovery stages and into early clinical trials, and then promptly exiting these assets into pharmaceutical companies now targeting early-stage products. This is mainly a product of large pharma offering a compelling exit for investors in early stage assets as much as a decade earlier than one would traditionally expect.

These trends have massive repercussions throughout the industry, not only for emerging biotechs and investors, but also for service providers such as CRO’s, who will be presented with a rapidly growing population of potential clients. As the “Valley of Death” is bridged, there is an incredibly powerful gearing effect that will help to accelerate the market faster than ever.

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