Archive | July, 2016

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

28 Jul

By Caitlin Kramer, Research Analyst, LSN

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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.

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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

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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

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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 Amazon.com or Barnes & Noble

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Hot Investor Mandate 1: Family Office Seeks Clinical-Stage Therapeutics & Medical Devices

28 Jul

A Chicago-based family office investment firm focuses on investments in the healthcare industry. The investment size can vary greatly and is very flexible depending on each company’s needs.  The firm provides venture capital and growth capital to healthcare companies. For early-stage investments, the firm targets companies that provide solutions for hospital acquired infections, medication errors, healthcare system operational efficiency enhancements and cost reductions, and chronic disease management, and it typically invests equity or convertible preferred equity in post series A rounds. For growth investments, the firm targets companies with compelling products and strong position in niche markets and with an EBITDA in excess of $2 million. The firm primarily invests in companies based in US.

The firm will consider investments in therapeutics and medical devices, as well as healthcare IT and services. The firm will not consider companies in pre-clinical stage, and typically invests in companies that are near commercialization and commercialization stage.

The firm focuses on private companies with strong and experienced management team. The firm usually takes a board seat post investment.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

Hot Investor Mandate 2: VC Focuses New Fund on Southeast Life Science Deals

28 Jul

A Venture Capital firm based out of North Carolina recently had a first close on its new fund, with up to 20% of the committed capital going to seed and early stage companies and projects. The firm typically invests between $2 and $4 million initially and $6M to $10M over the lifetime of the investment. Investments are generally in the form of milestone based equity tranches, however the firm also has experience in working with convertible notes. The firm is looking to make 4-6 allocations in the next 6-9 months throughout the United States, however they are focused on companies in the Southeast.

The firm is currently looking for early stage companies in the Therapeutics, Diagnostics, Medical Technology and Healthcare IT spaces. In the Therapeutics space, the firm is opportunistic in terms of subsector but is most interested in indications of Ophthalmology, Cardiovascular, Pulmonary, Anti-Infectives, Metabolic Disorders, Renal Diseases, Oncology, Immunology, Dermatology, and Orphan Diseases. For companies developing therapeutics, the firm is looking for companies primarily with a lead product in preclinical trials, although they will consider companies with products having recently entered Phase I. The firm also has generally stayed away from and is not currently seeking companies working in Wound Care.

In the Medical Technology space, the firm strongly prefers that the company at least has an early prototype of their product and the firm is opportunistic in terms of medical device subsector and is open to all classes of device.  The firm looks for companies in the healthcare IT space to be revenue generating.

The firm often works with spinouts directly from universities, though this is not a requirement as the firm is open to all types of early stage companies.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

Hot Investor Mandate 3: European VC Seeks Therapeutics, Devices & Industrial Biotech Worldwide

28 Jul

A venture capital firm based in Paris, France invests in early stage life science companies, seeking to be the first institutional investor in a company. The firm has over €1 billion AUM and is currently investing from a €300M fund raised in 2015. The firm makes seed and venture investments, oftentimes investing in a company’s seed round and later leading the Company’s A round. The firm can allocate €1-10M initially and up to €15M over the life of the investment.

The firm is currently looking for biotech therapeutics, medical devices and industrial biotech. For therapeutics, the firm is agnostic in terms of subsector and invests in small molecules, biologics, cell and gene therapy, etc. The firm is also indication agnostic, but currently most interested in oncology (especially CAR-T assets), CNS/neurology (with a particular interest in rare neuro conditions) and is exploring microbiome technologies, although the firm is less active in this area. The firm will consider products as early as 24-months from IND through to Phase III. For medical devices, the firm seeks paradigm-shifting technologies that can reach a human proof-of-concept stage in a relatively short period of time, and prefers PMA regulatory pathways although is open to other regulatory pathways as well.

The firm prefers to lead or co-lead an investments and generally requires a board seat in its portfolio companies. The firm seeks outstanding entrepreneurial management teams.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

Hot Investor Mandate 4: Hybrid Fund Seeks Early-Stage Medtech, Diagnostics and Healthcare IT

28 Jul

A healthcare investment firm based in Texas operates as a hybrid of angel and venture capital. The recent fund closed at $21 million in 2014. The firm focuses on making equity investments in the Medical Technology, and Healthcare IT spaces at near commercialization or early commercialization stage. The firm typically invests from $500 K – 1 M per deal, and up to $3 M over the lifetime of a company. The firm plans to make 2-3 investments over the next 6-9 month. The firm is open to consider companies across the US and Canada with a focus on Austin, TX.

The firm is looking for new opportunities in Medical Device, Diagnostics and Healthcare IT, Technology-Enabled Health Services sectors. The firm is open to all classes of medical devices. The firm targets companies with a clear near-term regulatory pathway (such as an FDA 510(k) clearance) and being able to leverage existing distribution channels in order to more efficiently and cost-effectively get to market. The firm typically only considers a medical device or diagnostic that is uniquely differentiated and synergistic with ongoing reform initiatives. The firm does not invest in therapeutics, biotech services or drug development.

The firm will invest in private companies with experienced management team. The firm is most interested in companies that start to generate revenue, but it will also consider pre-revenue companies.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com