Archive | October, 2013

Device Companies Set Their Sights on China

31 Oct

By Danielle Silva, VP of Business Development, LSN

In recent time, many emerging life science companies have begun to turn towards emerging markets for both capital and potential distribution opportunities. China has been a central figure in the discussion, and rightfully so: the nation boasts a large amount of new wealth (prospective investors), a lack of domestic innovation and a rapidly growing middle class requiring better healthcare (demand), and a government with the capacity to selectively accelerate industries via central planning (infrastructure). Though China presents opportunities across the board, it has become particularly attractive to a growing number of medical device companies.

A primary reason for this is that the demand for devices in China will almost certainly outpace developed regions like the US and Europe in coming years. This is a reflection of the increasing incomes of the emergent middle class (who want quality care and can pay for it) and the stated intent of the Chinese government to improve access to care. More hospitals and more consumer demand for care translates into a huge opportunity for companies and investors alike.

More importantly, China’s health system is developing in sync with several major device innovations that could be solutions for major diseases in the Chinese market. One example is the high rate of diabetes in China intersecting the proliferation of home-use devices such as glucose monitoring systems and insulin patch pumps. For Chinese consumers, this translates to time and travel reduction (and potentially lower costs), while for the Chinese healthcare system it means reduced strain on hospitals, clinics, and doctors.

However, there are several items that entrepreneurs should consider aside from the obvious cultural and language gaps: one primary challenge for companies looking towards China is the protection of IP in a market that is notorious for a lack of legal enforcement around technology. A strategy to protect against IP theft must be in place to enter the Chinese marketplace. Another major issue is price. Companies will likely need to follow a low-cost strategy to effectively capture the large opportunity, and it is a question of making the economics work. This puts cost reduction-oriented devices at a major strategic advantage, and will likely make them the subject of a great deal of investor interest. At this point, the full potential of the Chinese market has yet to be recognized, but one thing is sure – the opportunity is huge.

Microbiome – A New Class of Therapy

31 Oct

By Max Klietmann, VP of Marketing, LSN

There has been a lot of buzz in the translational research arena as of late on the subject of microbiome technology. This field is still emerging, but much of the data coming out of academic research shows that this could be one of the most disruptive developments in the life science space in recent time. The concept changes the way that we look at the human body – not as a single entity, but as a community of bacteria that reside in (for example) the bowels. With cheap genomic testing, it could soon become feasible to create custom diagnostics and therapies relevant to the specific bacterial populations within a patient.

This technology is being referred to as metagenomics – essentially, the mapping of a bacterial community’s collective genome within a single patient’s microbiome. The most obvious consequence of the commercialization of this technology is the massive expansion of potential target sites for therapeutics. I’ve anecdotally heard estimates that this could potentially double the potential therapeutic angles available for pharmaceutical compounds.

The implications are huge for many major disease areas. Of course there is immediate relevance to IBD and digestive ailments, but there is also the potential for hyper-targeted antibiotics which could redefine the treatment of infectious diseases, and in turn help to reduce the risk of MRSA and other antibiotic-resistant disease outbreaks. Type II diabetes and cancers are also indication areas that could benefit greatly from this new field.

This research is still in its early stages, and no one really knows exactly what is going to emerge. Is this be another fad, or could it be the next monoclonal antibody and revolutionize our industry? The fallout is yet to come, but there is no question that a lot of potential investors, pharma, and translational researchers are excited and interested in seeing what happens next.

Capital from the Crowd

31 Oct

By Lucy Parkinson, Research Analyst, LSN

LSN has been diligently tracking the evolution of the crowdfunding story as the JOBS act passes through the regulatory gauntlet. On October 23rd, the SEC announced interim rules for Title III of the JOBS Act, which covers securities crowdfunding. In summary, the proposed rules are as follows:

  • A company may raise a maximum of $1 million via crowdfunding in any 12-month period.
  • An individual may invest a maximum 10 percent of annual income or net worth (income greater than $100,000 anually) or either $2,000 or 5 percent of annual income or net worth, whichever is greater (income less than $100,000 anually). This is a total annual limit for each individual investor.
  • Equity crowdfunding may only be conducted via a registered broker-dealer or registered “funding portal.”
  • Crowdfunding requires an SEC filing 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of more than $500,000.
  • Annual reports and possibly more frequent reports (depending on final SEC rulemaking) must be filed with the SEC by any company that completes a crowdfunding round.

So, emerging life science companies could stand to benefit from this new avenue of funding, but it’s shaping up to be both narrowly limited and highly regulated.

In addition to creating opportunities for millions of new potential investors, the new legislation has also introduced a new channel for this capital – the funding portal. Registered brokers will be able to act as funding portals, but we may see many new entities taking advantage of the new, less costly option of registering with FINRA as a funding portal. The new regulations state that a company can only crowdfund via one broker or funding portal each year, and as these portals tend to charge fundraising companies for use (typically by charging either a listing subscription or per-transaction fees) while letting investors use the sites for free, we should see intense competition between funding portals to sign companies up as users.  The portals will list investment opportunities and act as issuers of stock for liability purposes, but aren’t allowed to offer advice to investors about which companies to back, nor are they permitted to invest in the companies they list. (1)

Also, as mentioned above, the cap on fundraising is $1 million per year. That’s a hard limit. $1 million in new capital would be a boon to early-stage life science development looking to get of the ground, but in the highly capital intensive later stages, it’s unlikely to be a cure-all to fundraising challenges; a million dollars won’t pay for a Phase III trial. In addition, there is the regulatory/compliance challenge of dealing with potentially hundreds of new concerned investors who have to be provided with disclosures and regular financial statements regarding your firm.  This is a huge cost burden for a startup company to bear. And as crowdfunded equity can only be resold to accredited investors (an unaccredited crowdfunder can’t sell their stock to another unaccredited investor while the company remains privately held), these are likely to be long-term relationships unless the early stage crowdfunders are bought out by an institutional-type investor down the line.

The life science sector ought to fare better than most in the new world of crowdfunding; many people will want to invest in a cure for a disease that’s touched themselves or their families, and many more would like the opportunity to try out direct investing with a low barrier to entry and high potential returns.  But the reality of the life science industry means that many of these nascent cures will fail to reach the market, and we can’t know how new investors will react to these inevitable losses. This could be the start of a new era, but the proof will be in the pudding.

(1) Crowdfunding Regulations Summary by Kevin Laws of AngelList

Hot Life Science Investor Mandate 1: Family Office to Make Several Investments in Coming Months

31 Oct

A family office based in the Eastern US manages 4 funds for a total of approximately $400 million in assets under management. They are currently investing out of their 4th fund, which has $100 million focused exclusively on the life sciences. The office looks to provide up to $5 million of preferred equity capital in the initial investment round, and up to $10 million over the life of the investment. They are very flexible in terms of period to exit, but generally look to exit in around 5 years. They plan to make 2-3 investments over the next 6-9 months and will consider companies globally.

The family office is currently looking for companies developing Therapeutics, Diagnostics and Medical Technology. Within therapeutics, which is their primary focus, companies with an asset in Phase II are currently of most interest. However, they will consider companies with assets as early as 2 years away from human trial data. Within diagnostics, they generally require that the diagnostic be at the commercial stage or have significant positive clinical data. For medical technology they require that the device have some in-human data before being considered for investment. Also, the firm is not interested in medtech companies developing devices that are incrementally improved versions of devices already on the market, groundbreaking technologies and platforms are the firms focus in this area.

Hot Life Science Investor Mandate 2: Virtual Pharma Could Acquire Three Companies Within a Year

31 Oct

A virtual pharmaceutical development company based in the Western US is looking to in-license pharmaceutical assets and bring them through clinical proof of concept, and then sell them to large pharmaceutical companies. The firm is looking for candidates that require less than 3.5 years and $15 million to human proof of concept. They also look to invest in assets – not companies – and as such, they are able to consider assets developed by companies anywhere in the world. The firm is currently positioned to acquire up to 3 assets in the next 6-9 months.

The company is looking to in-license both small and large molecules in either the pre-clinical stage or Phase I of clinical development. For assets in the pre-clinical stage, the firm is not interested in lead optimization projects, and requires that the asset be within at least 12-18 months of entering Phase I. The firm’s current pipeline includes therapeutics targeting the indications of Dermatology, Type 2 Diabetes, Pulmonary Disorders.

The company looks to take a majority equity stake in its chosen assets, leaving the remainder of equity in the hands of the originator.

Hot Life Science Investor Mandate 3: Venture Arm Focuses on Companies Developing New Drugs, Devices

31 Oct

The corporate venture arm of a larger foundation based in Europe has approximately $35 billion in AUM, provides (equity only) seed and venture capital to development stage companies, and also takes significant ownership positions in well-established companies within life science and biotechnology.

The firm will invest at any stage of development – seed, venture, and growth. They also make late-stage investments in public/private companies with a positive cash flow, and can allocate up to $40M or more depending on specific cases, but generally allocate between $5M and $20M. The firm seeks companies that are based in North America and Europe, but has no current mandate for the number of allocations it plans to make.

The venture arm is opportunistic in the life sciences space. Specifically, they focus on companies that specialize in the development of new drugs, new procedures for diagnosis and control of diseases, development of medical devices and instruments, and industrial biotechnology. They are very opportunistic in terms of subsectors and indications.

Currently, this particular firm is active in companies developing therapeutics and diagnostics targeting cardiovascular diseases, infectious diseases, immune disorders, diseases of the nervous system, mental and behavioral disorders, and cancer. Additionally, they have invested in companies developing therapeutics based on small molecules and antibodies. The firm has also made venture investments in companies developing medical technology in the area of reusable instruments, wound care, single use devices, therapeutic radiation devices, and active implantable devices.

 

Introduction: Phone Canvassing Issue

24 Oct

By Tom Crosby, Marketing Manager, LSN

Due to the degree of interest generated by last week’s Email Marketing Issue, LSN is continuing the discussion of outbound fundraising and marketing tactics for life science entrepreneurs. This issue is centered on the topic of phone canvassing, which can be a real challenge to execute effectively, even for seasoned life science fundraising executives.

As the investment landscape continues to change, the ways in which outreach is conducted has followed in step. The typical investor today is absolutely inundated with emails and phonecalls from life science CEOs hoping to secure a face-to-face meeting. For this reason, it takes a solid plan, laser-focus, and tenacity to orchestrate an effective phone canvassing effort.

So, if you’ve successfully got your email marketing materials set up, and your list of targets in line, keep reading for tips from LSN staff on the next step in the journey of fundraising – the ever-daunting followup call. Alternatively, you can click here to download LSN’s Phone Canvassing Workshop.