Next Phase Newsletter

By Lucy Parkinson, Senior Research Manager, LSN

Cancer immunotherapy technologies frequently star in biotech news headlines. Scientists have pursued many approaches intended to enlist the immune system to fight tumors, including CAR-T therapies and checkpoint inhibitors. Cancer vaccine technology is one of the technologies under this broader immuno-oncologic umbrella. This approach entails using one or more immunogenic antigens to teach the immune system to attack tumors.

As a recent article in Xconomy highlighted, there are no approved products that use this approach to fighting cancer. However, using the LSN Company Platform we can identify many companies worldwide that are developing the cancer vaccines that could come into clinical use in the future.

The LSN Company Platform provides detailed profiles on early-stage life science companies and products under development worldwide. From this data, we took a sample of vaccine companies developing therapeutics for the oncology sector. This sample consisted of 69 companies. While a significant number of these companies are based in the USA, we also found information on companies developing cancer vaccines throughout Europe and the Asia-Pacific region.

Source: LSN Company Platform, Data as of Oct. 21, 2015

Only 5 cancer vaccine assets in this sample are currently undergoing Phase III trials. This affirms the perception that cancer vaccine technology is a field that is approaching maturity; the many early-stage assets identified by the LSN Company Platform show the field’s potential, but few cancer vaccine assets are likely to reach market in the near term. However, investors interested in early stage immuno-oncology assets will be closely watching the field’s progress.

Source: LSN Company Platform, Data as of Oct. 21, 2015

On the topic of investors, the LSN Investor Platform tracks investors both by indication area (such as cardiovascular, respiratory or cancer) and also by technology types of interest (such as small molecules, antibodies or vaccines); this means that we can use the platform to identify investors who are open to considering both vaccines and cancer. Our data set includes over 500 investors who are open to considering development-stage products in both of these two fields, thus representing a broad universe of potential investors for a cancer vaccine company. Much like the emerging companies in this field, these investors span the globe:

Source: LSN Investor Platform, Data as of Oct. 21, 2015

Multiple investor types are open to investing in cancer vaccines. Venture capital and private equity firms predominate, but we see significant potential interest from other types of investor, including large healthcare corporations and their venture arms.

Source: LSN Investor Platform, Data as of Oct. 21, 2015

With this level of global investor opportunity, cancer vaccine companies have many potential sources of capital to move their assets forward. LSN will look forward to seeing cancer vaccine technology mature and reach the marketplace in the years ahead.

By Christine A. Wu, Research Analyst, LSN

What kinds of companies are healthcare IT investors looking for, and what is the first question they ask in a meeting? Healthcare IT investors answered these questions and offered unique insights and valuable advice at LSN’s RESI Boston conference in September.

Moderated by Barbara Gamez Sims, Technology Licensing Manager, Mayo Clinic Ventures, our panelists include:

• Aaron Nelson, General Partner, dRx Capital
• Gabe Ling, Venture Partner, General Catalyst
• Hyuk-Jeen Suh, Head of East Coast Office, Samsung Ventures
• Michael Jin, Managing Partner, TEEC Angel Fund

“What’s in it for us to care?” This is the first question Hyuk-Jeen Suh of Samsung Ventures asks in a meeting. “Many start-up companies have not thought of that,” Suh clarified. Many entrepreneurs would highlight their ability to increase phone sales, but “that doesn’t mean anything to us.”

Gabe Ling of General Catalyst agreed – “What makes us different from other funds and how can we be helpful for you?” Yet most of all, Ling explained that investors are “always testing the quality of thinking behind any company.” As his first question, Ling asks, “Have you built something that is thoughtful?” All the questions around market and competition should be answered if the entrepreneur has put necessary time to think through all the relevant strategies behind his or her company.

Aaron Nelson of dRx Capital highlighted that not only do entrepreneurs need thoughtfulness, but they also need passion and trust from the very beginning. “If not, then the probability [of a good meeting] will be very low.”

Suh advised entrepreneurs to reveal a taste of their “secret sauce.” On one particular meeting, Suh asked how the company’s technology worked, in which the entrepreneur, rather than explaining, said to just trust in his technology. “He just couldn’t get over that hurdle.”

After a good meeting, the panelists focus on the management team. Along with developing trust, investors look at the quality of the entrepreneurs and their ability to work together in the field and plan a clear investment process. Michael Jin of TEEC Angel Fund builds the relationship to thoroughly evaluate how the team progresses the business of their company. Ling, on the other hand, does background checks. “You would be surprised with what some people hide!” he exclaimed.

Finally, each panelist provided a takeaway piece of advice for entrepreneurs:

1. Companies must thoroughly investigate their benefit to the investor.
2. Timing matters. “If you come to approach us a week before the round will close, we will have difficulty with that time frame because we have to check your IP.” Suh explained.
3. Have a good energy level! “I personally love working with high-energy people…If you have a great idea and a high-energy personality, that’s great,” Ling exclaims.
4. Have a fundamental understanding of your business. “Oil down what you’re doing into an understandable map,” Nelson explains, “If you can’t explain fairly quickly and easily without spreadsheets and excel models, that’s a big stretch for me.”
5. Focus on what you’re good at. Jin explains that this doesn’t mean to just look at your technology, but “sometimes you need outside help to build up your sustainable area.”

Reveal a taste of your “secret sauce.” A lot of entrepreneurs approach VCs, and especially CVCs and get nervous to sharing their mechanics. “I don’t need your nuance or source code, but be able to explain why is it that this works where the whole world has tried and you are the first to succeed?”

By Christine A. Wu, Research Analyst, LSN

What are life science corporate venture capitals excited about these days? What is the best point of entry to get to them? How early do they invest in, and how long is the investment timeline? The Corporate Venture Capital panelists hooked a full room of entrepreneurs as they offered their intriguing perspectives at LSN’s RESI Boston conference in September.

Moderated by Donnie McGrath, VP of Business Development, Bristol-Myers Squibb, panelists include:

• Mark Powers, CFO, Integrium
• Martin Heidecker, Director & Investment Manager, Boehringer Ingelheim Venture Fund
• Ann DeWitt, Senior Director of Investments, Sanofi-Genzyme BioVentures
• Edward Hu, CFO & CIO, WuXi AppTec

Each CVC has its own unique structure.

Not one of the firms represented on the panel had the same venture structure as the other (structures listed below do not encompass all CVCs).

Dependent on the Parent Company

Traditional CVC structures, like Sanofi-Genzyme BioVentures (SGBV), make investments dependent on the context of what the parent company seeks. SGBV makes “plain vanilla” investments with no rights and no agreements, explained DeWitt, and weighs the desires of its parent company heavily as a strategic investor for the Sanofi pipeline.

Independent of the Parent Company

Boehringer Ingelheim Venture Fund invests in therapeutic platform companies outside of what BI is currently researching. The CVC is usually the first money in, and helps companies run their business plan and business agents.

Limited Partnership (LP) Agreements Only

As a drug development organization, and not a venture capitalist, Bristol-Myers Squibb (BMS) takes LP positions with venture capital firms with trusted companies, and partners with “those who are good at what they’re doing,” explains McGrath, “[we will] not to be something when we won’t be as good as others out there, so we partner with companies.”

CVC of a Large CRO with External LPs

WuXi Venture Fund invests to leverage its parent company WuXi PharmaTech, a large CRO that helps clients in product development from seed to commercial stages. While the firm enables companies to discover products more efficiently, explains Hu, WuXi also recently raised its global fund, where 25% came from capital and 75% came from Asia-based family offices.

The timeline of investment can vary.

Phase of Development

CVCs can invest as early as its first onset with just the entrepreneur and concept. Even while most WuXi investments are series A, once the license comes up, WuXi would form a company. Similarly, BI Venture Fund is usually the first money in. Heidecker describes his earliest investment was when the company didn’t even have an IP, which was unusual.

Other CVCs will invest in what makes sense at the time. SBGV will look depending on context, opportunity, and the company’s investment thesis.

Integrium, on the other hand, will only look post series C. This CVC supports financing for companies until their next inflection point. Powers explains that companies come to them, usually referenced from other VCs, when there is a piece of financing that had not shown up and is necessary for its next point of development. Integrium looks at how to get the company from one value to the next and whether it can be done in a matter of months before handing it off upstream.

Time Between Meeting the Company and Closing the Deal 

It can be a fast process. Heidecker explains that the competition in the space can push the flow to the deal. Yet, the process is also fast when the CVC comes across a technology that “you just can’t invest in.”

On the other hand, it can take as long as 2.5 years before finally investing. The added element of looking for co-investors also extends the overall timeline.

CVCs are interested in lots of HOT opportunities.

“I can get excited about many things!” both Heidecker and DeWitt exclaimed. Other than the more “common” indications of interest—such as oncology, cardiovascular, diabetes, MS, among others—panelists highlighted their particular interest in transformative therapies—therapies that fundamentally change the life of the patient, as well as microbiome and the way the immune system can crosstalk with bacteria. And then, of course, “Gene therapy is more and more hot.”

Your final advice:

1. Have a clear plan – You should have a clear idea of where you want to take your company and to what level. Do you have a path (with convincing data) to your inflection points? As an entrepreneur yourself, you probably know more than anyone else. “If we don’t have this confidence, then we won’t start this conversation,” says Hu.
2. Be introduced through CVC leadership – the best point of entry is when you directly have a relationship with someone inside the leadership team and are introduced.
3. Establish some type of credibility – whether a paper publication, an academic fund, an established CEO, mark yourself.
4. Have a perfect 30-second pitch – “It’s amazing how crisp you can be in 30 seconds to tell us what it is you’re about and why we should continue our conversation,” says DeWitt.
5. Don’t be married to your protocol or approach – When you and the CVC convert to the clinical setting, generally things will change 90% of the time.
6. And finally, “If my group says no, don’t go to my boss!” McGrath concludes.

By Shaoyu Chang, MD, MPH,  Senior Research Analyst, LSN

Earlier this week, one of the largest money managers announced the first US impact-backed mutual fund, reflecting a trend of impact investing in the investment community. Impact investing attempts to address the dual bottom line of financial returns and measurable social and/or environmental impact. It has been gaining traction quickly in recent years, especially among a new generation of socially-conscious investors, with an estimated market of $50 billion.

The global health community is also seeing the rise of impact investment. One reason is the growing awareness of the global disease burden, partially thanks to outspoken philanthropists, foundations, and advocates such as the economist Lawrence Summers. In his recent article, Summers was on a mission to bring preventable maternal, child, and infectious diseases to universally low levels by 2035. He argued that “the necessary investments [in global health] would have benefits that exceeded their costs by a factor of 10.”

Their optimism is well grounded. The convergence of medicine and communication technology has created unprecedented opportunity to tackle age-old diseases worldwide. The better understanding of disease and human biology has led to new diagnostic, treatment, and prevention methods for disease that plagued the world’s poor for centuries. Coupled with the widespread use of mobile phones and the Internet to facilitate patient monitoring and outbreak surveillance, global health agencies are hopeful to completely eradicate several ancient diseases, such as polio, malaria, and filariasis.

Another reason for a growing interest in impact investment is a financial one. According to a 2015 analysis that reviewed data from 1998 to 2010, social impact investment funds performed as well as conventional mainstream funds in terms of financial returns. In Asia, health tech saw the fastest growth in venture funding among all healthcare sectors.

Driven by a growing middle class and a rising healthcare demand, developing economies are seen as a source of future growth, especially by multi-national corporations. Global health serves as an ideal platform for them to build non-competitive collaborations with entrepreneurs, academia, and other corporations.

Based on our interviews with several global health investors, LSN has discovered that these investors are not only interested in startup teams emerging from low-income countries, but also in repurposing or adapting developed world innovations for specific, global health-related applications. Entrepreneurs could receive additional funding if they are flexible and willing to explore their technology’s applications.

While many global health entrepreneurs are passionate about their work, they frequently have a mismatch between their passion and their “investment readiness.” Entrepreneurs urgently need basic education on business strategy and investment landscape to realistically assess their assets and reach out to the right funding sources.

Development of health technology is a long, risky, and capital-intensive process. In global health, a successful project may involve multiple funding sources, including government grants, donations, impact equity, and impact debt. Entrepreneurs should carefully choose “smart money” investors who understand the timeline and provide strategic guidance when necessary. Good financial planning can help entrepreneurs pool capital from different sources to achieve milestones within a reasonable timeframe. The report by the Global Health Investment Landscaping Project provided a few useful case studies.

The increasingly crowded investment landscape poses both opportunities and challenges for entrepreneurs in the healthcare arena. We expect the growth of local innovation and global collaboration will advance healthcare for all.

By Cole Bunn, Research Analyst, LSN

The allure of gene therapy is very strong, mostly due to its potential to cure, not just treat symptoms, of any disease with a genetic basis. The so-called “magic bullet” treatment—that if perfected, would revolutionize medicine (not to mention several other industries)—has drawn a lot of attention since its inception, and rightfully so. The field has seen many advances as well as setbacks, leaving investors and other industry stakeholders with a lot to ponder and speculate. All things considered, most leaders in the life science industry believe that major breakthroughs are right around the corner, including big pharma who has partnered with several of the biotechs developing these therapies.

The relatively recent gene editing technologies that have surfaced, with the CRISPR/Cas9 technology getting the most attention (more on this later), have once again put the spotlight on gene therapy. Given that gene therapy efforts are still moving forward, we have decided to utilize the Life Science Nation (LSN) company and investor platforms to create a sample of the space and look at some of the current trends.

The LSN company platform, which tracks 30,000 biotech, medtech and healthcare IT companies around the globe, provides a nice sample of what is happening in the industry. Using the platform to look at gene therapy companies by country, the LSN platform found 68 companies that were operating in the gene therapy space. As shown in Figure 1, the U.S. led the way with 35 gene therapy-related companies, with most others spread out fairly evenly across Western Europe.

Figure 1 | Companies with Gene Therapy Assets by Country Data from LSN Company Platform | October 13, 2015

Treatment of genetic disease is usually what comes to mind when thinking about gene therapy, but this technique also has utility in treating infectious disease. Gene therapy for infectious diseases requires the introduction of genes designed to specifically block or inhibit the gene expression or function of gene products, such that the replication of the infectious agent is blocked or limited [1]. In addition, gene therapy techniques have several uses in research, including studying protein function and creating genetically modified cell and animal models.

The rekindled interest in the viability of these treatments, given new technologies and more clinical data, is bringing an influx of capital into the space. Using the LSN company platform, we’ve looked at a sample of gene therapy financings. Figure 2 shows the number of funded gene therapy assets, by indication, from the five largest funding rounds over the past three years.

Figure 2 | Funded Gene Therapy Assets by Indication Data from the LSN Company Platform | October 13, 2015 *Data of the five largest gene therapy funding rounds ranged from $45M-$75M

The new gene editing technologies, CRIPSR/Cas9 in particular, has excited researchers and certainly peaked the interest of some noteworthy investors and big corporations alike. So what’s the hype? What is CRISPR?

The CRISPR/Cas system is a prokaryotic immune system that confers resistance to foreign genetic elements such as plasmids and phages [2]. The gene editing technology known as “CRISPR” is a bacterial immune system that researchers have learned how to exploit in order to edit specific genes of interest in plants and animals. In nature, the system works by chopping up pieces of invading viral DNA, inserting some of these sequences into its own genome so that the next time the viral DNA is encountered, it is recognized (based on the specific DNA sequence – this is KEY to technology) and destroyed via the Cas enzyme. Simply put, using the system to actually edit genes works like this – researchers are able to guide the Cas enzyme to a specific gene sequence, which cuts the DNA strand in the specified location, allowing for editing/correcting the sequence.

The CRISPR technology has brought a lot of excitement along with it due to its targeted nature and compact system, among other advantages over conventional gene therapy technologies. However, this new technology isn’t exempt from some of the roadblocks that previous gene therapies encountered, most notably delivery of the gene editing therapeutic itself.

It is yet to be seen if gene therapy will be a realized therapy, but there is no doubting the enormous potential of the field, given some of the inherent issues are resolved (not to mention ethical implications and possible pricing scenarios). There are a lot of gene therapy hopefuls out there and most everyone from angel investors to big pharma have a horse in the race. If you’d like to learn more, we find this article useful to read. The LSN team will keep you informed as we continue to track trends in the gene therapy field.

1. Bruce Bunnell and Richard Morgan, Gene Therapy for Infectious Diseases. Clinical Microbiology Reviews (1998) 11(1): 42–56.
2. CRISPR.  Wikipedia: The Free Encyclopedia. Wikimedia Foundation, Inc., 10/14/2015.

By Lucy Parkinson, Senior Research Manager, LSN

Investors have told us that out of all the therapeutic assets they review, 50% are uninvestable or very difficult to work with as a result of mismanagement. At LSN, we often stress the importance of a company’s management team, and we support our clients in positioning a team to effectively showcase their experience and expertise. The team matters precisely because there’s a lot of ways a good therapeutic asset can be damaged by poor management decisions. This article will bring together some advice we’ve heard in conversation with experienced therapeutic investors and at the RESI Conference about what can go wrong at an early stage of therapeutic development that will damage a company’s future chances of finding an investor or a strategic partner.

Protecting Your Intellectual Property

Establishing a strong IP position is the issue most likely to cause difficulties for an inexperienced entrepreneur. If you’re attempting to commercialize a scientific discovery made at a research institution, it’s vital to ensure that your IP position is solid.

One reason this difficulty arises so often is that academic scientists who are focused on advancing their research careers may feel more pressure to publish their work than to patent it. “I’ve seen papers presented at scientific conferences that could collectively cure hundreds of diseases if the discoveries were patented – but many of the scientists don’t follow through on protecting their IP,” one expert told me. Many times, investigators will make public disclosures of their proprietary technology (via publication, oral presentation or a poster) without having filed at least provisional patent applications. Without strong patent protection, investors will walk away from these opportunities.

Scientists typically work with their institution’s tech transfer offices to file suitable patent applications on new discoveries, but these groups are limited to working with what the scientist gives them. The scientist needs to generate the kind of data that will support broad patent claims, even if it won’t get published in a journal.  If possible, the scientist should seek out an IP expert to help guide the process. If a start-up company has already been established, the academic entrepreneur needs to focus considerable resources on building the broadest IP portfolio possible.

Creating A Solid Data Package

LSN has consistently found that a large number of therapeutic investors are interested in assets at the preclinical or Phase I stage, where major value inflection points occur. However, at this product development stage, it’s critical to have a strong data package that attracts investment. It’s easy to make mistakes at or around the IND filing stage that leave your asset with a poor data package. If your data package can’t convince a pharma company that your asset has promise or they see that they will have to generate a new data package, they will likely walk away.

Common mistakes include using an unsuitable animal model, or using the wrong controls. Importantly, if there are approved agents that you are competing with, there should be comparative study arms that will indicate the strength of your asset and the required dosage.

In addition to bad trial decisions, an inexperienced team may also fail to address early issues related to manufacturing a drug. This is particularly the case for biologics, where it’s vital to select the right cell line to make the drug. Investors will want to know that the production method is stable, and can scale to produce sufficient quantities of the drug.

It’s not just a matter of inexperienced researchers committing errors – sometimes, specialists at CROs will drop the ball too. It’s vital for management to understand what an investor will want to see in the data package to prove out an asset’s potential, and how to design and perform a preclinical study that will meet those goals.

Defining Your Asset’s Safety Profile

This area is particularly concerning to investors who look at assets prior to IND enabling studies. It’s very important to provide an investor with indications that a new therapeutic agent is safe, otherwise the asset will fail at an early stage. If you can’t produce some strong indications of safety, investors will walk away from the table.

Keeping Your Focus

Many breakthrough discoveries have potential in a number of areas, and that can make it hard for an entrepreneur to zero in on the technology’s real commercial potential. At a pitch event earlier this year, I saw one entrepreneur present a company with 6 programs in the pipeline, and outlined a plan to raise a financing round to advance all these programs. Investors at the event were very skeptical, because they saw this program proliferation as a sign that the company lacked focus.

As was noted in last week’s edition of Next Phase, investors say that 95% of a company’s valuation rests on the lead program. Advancing a therapeutic program is difficult (and expensive) enough that a small company needs to put a lot of focus into advancing their lead program. It’s often useful to have other assets further back in the pipeline, as these programs can serve as a backup if the lead asset fails, but small companies need to be very selective and focused regarding which assets they bring through the IND and into the clinic. It’s a bad idea to aggressively pursue as many programs as you can dream up. Having a high level of focus is a sign that investors look for in order to assess the management team’s competence and ability to execute. Investors want to be assured that those funds will be focused on making rapid progress in advancing the lead program.

Showcasing Your Strength

For all these reasons and more, investors and strategic partners look very closely into a management team before signing a deal. In addition to looking for signs of these common mistakes, investors often prefer to work with teams that have prior experience of commercializing a therapeutic asset, either within a large pharma company or as part of a prior entrepreneurial experience. A scientist who doesn’t have that commercialization experience can do well to surround themselves with experts who do, perhaps including team members that specialize in complex areas such as IP or regulatory issues.

If you’re introducing your company to potential investors or strategic partners, it’s important to highlight the team’s prior successes and experience. Investors want to see a team that has the right expertise to cover the most major pitfalls; they also want to know that your team is levelheaded, focused on the lead program, and will stay on top of the details. Your team members are, themselves, an asset to your company, and when you pitch to an investor, you need to highlight them appropriately.

By Michael Quigley, Director of Research, LSN

The medical device industry has long been plagued by a lack of early stage venture capital, with investors in the space often citing uncertain regulatory issuers, reimbursement and adoption as reasons for not heavily allocating into the sector. As such many medical device companies find themselves unable to secure funds from traditional venture capital firms. More and more large and established companies interested in the medical device space however are looking further upstream for innovative companies to collaborate with and add into their product lines. LSN’s research team has spoken with over 60 of these companies across 17 countries, who have established corporate venture funds or allocating directly off of their balance sheet, to identify the types and stages of technologies that they are currently looking for.

Figure 1 | Source: LSN Investor Platform | Data as of October 7, 2015

Corporate venture investors tend to be the most global of the investor classes when searching for new opportunities and the medical device space is no exception. 81% of the corporate venture investors LSN’s research team has spoken with are looking globally, a significant increase over all other types of investors where LSN has found that closer to 50% are looking globally. When fundraising it is crucial that you consider strategic partners located all over the world as they are not only able to provide capital, but also they can often provide distribution and manufacturing in foreign markets.

Figure 2 | Source: LSN Investor Platform | Data as of October 7, 2015

The most common subsectors that these firms are looking to invest in, Electro Mechanical Medical Devices and Diagnostic/Monitoring Devices is driven by a number of factors. The first being that a number of these corporate venture investors are subsidiaries of large tech companies looking to leverage their expertise in software into the medical fields and software enabled devices is one area they see a lot of opportunity in. Other trends factoring into this increased level of interest include the “Internet of Things” spreading into the medical industry, more efficiently connecting patients to healthcare providers through these devices. There’s also a new demand for devices able to communicate easily with EMR to more easily meet the US government’s EMR requirements.

Figure 3 | Source: LSN Investor Platform | Data as of October 7, 2015

The majority of these firms are looking for pre-commercial stage technologies. Prior to commercialization is when the most risk is present in any investment and these strategic players are willing to bear that risk while many venture capital firms appear to be staying clear of it.

As an entrepreneur in the medical device field, not looking to large strategic players as a source for capital is by and large a huge mistake. Not only are these firms looking early, and globally but they also have deep pockets which can be a massive benefit if you require follow on funding. In addition to raising capital from one of these firms, you are often aligning yourself early with an exit partner.