Archive | July, 2016

Drug Development: What Does It Cost, and Who Has The Capital?

28 Jul

By Caitlin Kramer, Research Analyst, LSN


Each phase of drug development offers its own unique challenges. The generation of lead compounds that may advance through the pipeline of FDA approval is a costly process, and new molecular entities that are advanced as leads through the process of FDA approval face abundant chances of failure: the likelihood of a given compound making it from Phase I through to approval is only 11.8%*.

Entrepreneurs and researchers developing drugs outside of big pharma will need to understand the costs facing an asset at every stage, and have a plan for how to efficiently structure their capital raises and outreach.

Figure 1 shows a breakdown of FDA-filing costs, estimated costs for each phase of FDA approval, and the likelihood of advancement between phases. The data portrayed in the figure come from the latest (published Feb 2016) in a series of research papers examining R&D costs in the pharmaceutical industry, authored by researchers at Tufts Center for the Study of Drug Development, the Department of Economics at Duke, and the Simon Business School at the University of Rochester. The data comes from a survey of 10 top multinational pharmaceutical firms which conducted in-house discovery and pre-clinical programs. The R&D costs incurred per approved drug in these settings were calculated to be $430 million, a figure which is likely larger than development costs incurred in academic settings. Once an IND is filed ($550,000), each subsequent phase of approval is more expensive. The estimated likelihood of advancement, or success in the phase, is lower in Phase II than other phases, making a Phase II success an important inflection point from an investment perspective.


Figure 1. Estimated non-capitalized costs for new drug development and advancement between phases of FDA approval.

The LSN Investor database contains data about the phases of development that firms have expressed interest in. A breakdown of this data is shown in Figure 2. Venture capital firms have expressed the most interest in funding pre-clinical and Phase I therapeutic leads. Private equity firms, being more risk averse, express increasing interest in later phase assets. Interestingly, large pharmaceutical and hedge fund firms step in for the riskier Phase II trials while their corporate venture arms are more interested in earlier phases of development. Family offices express similar levels of interest across all phases of development.

Knowing the distribution of capital amongst the different firms can help entrepreneurs plan their raises to bring them through the various phases and hurdles of development.

Distribution of capital amongst investor types at different phases of development


Figure 2. Data retrieved from LSN’s Investor Database on 27 July 2016. Representative of active mandates that are open to investment in the Therapeutics sector.

RESI on MaRS: The Family Offices Investor Panel

28 Jul

By Cole Bunn, Senior Research Analyst, LSN


Due to their recent trend toward making direct allocations (as opposed to fund investments) family offices have certainly caught the attention of biotech and medtech entrepreneurs, with many early stage companies keen to add one to their cap table.

Viewed as deep-pocketed, patient capital sources, entrepreneurs tend to have a lot of misconceptions surrounding family offices. Family offices are notoriously heterogeneous; they come in many shapes and sizes and no specific investment characteristics apply to them all. At our most recent RESI event at the MaRS Discovery District, representatives from four different family offices spoke to how they like to be approached, what they look for in an entrepreneur and the importance of the relationship, the types of deals they like to do and what they avoid.

Moderated by Dennis Ford, Founder & CEO of Life Science Nation and the RESI Conference Series, this session featured the following:

Key takeaways from the panel include:

  • Tailor your message based on who you’re approaching – do your homework

This point goes for all investors, but goes a bit deeper and is even more important for the family office. First off, you want to make sure you are talking to the right investor or else you’re wasting everyone’s time – it’s unlikely that an investor whose only ever played in the therapeutics space will be interested in looking at an investment opportunity in a medical device or health IT project. That being said, if your technology isn’t in the same sector but is addressing the same indication as one of their portfolio companies or there is synergy between your project and a portfolio company, this should be noted in the outreach. These types of things can go a long way and can’t be uncovered if you don’t research the investor you’re targeting.

  • A strong relationship is crucial to securing funding from a family office

Some family offices have professionals manage their money and add structure to their investment process while others are more informal. Either way, since the money is not coming from an institutional fund and family offices typically have longer investment timelines, it is key that the entrepreneur and investor have a good relationship. One investor added that a lot of the deals he’s done begun with a dialogue with the entrepreneur long before the deal was formally presented as an investment opportunity, mentioning that it takes a while to get to know someone and naturally people like to do business with people they like and trust.

  • Finding a family office takes work

Family offices are a highly sought after investors for good reason and typically don’t always advertise their investment activity thus uncovering which groups are family offices is not as easy as finding angel groups and VCs. As one investor puts it, “You can’t just expect to wake up and know which family office is interested in the sector you are in.” He further notes that the best way to find a family office is by going to relevant conferences and networking events.

LSN Summer Reading Series Chapter 8: “Leveraging a Cloud Infrastructure to Manage an Outbound Campaign”

28 Jul

By Nono Hu, Director of Marketing, LSN

For those that have been following the summer series thus far, you now have a firm hold on the legal landscape for fundraising as well as the importance of and what constitutes a strong set of marketing materials. In order to organize your outreach and keep track of whom you are sending those materials to, we have found that the proper utilization of cloud infrastructure is the best method to maximize your campaign’s efficiency.

Chapter 8 of The Life Science Executive’s Fundraising Manifesto, “Leveraging a Cloud Infrastructure to Manage an Outbound Campaign,” provides a framework for and describes the key functionality that makes some of today’s cloud infrastructure so valuable in any type of outbound campaign. From task management to content delivery and large-scale email campaigns with metrics and tracking, this chapter provides an in-depth look at the value these cloud based products can provide.

Click here to download/print the PDF.

Next week we introduce Chapter 9: “Global Target List—Match Your Firm with Investors That Are a Fit,” where the importance of having a global list of relevant investors and the process of creating this list will be discussed.

Enjoyed the preview? Buy now from or Barnes & Noble


%d bloggers like this: