Next Phase Newsletter

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

As the pharmaceutical industry is cutting back on R&D, more and more big corporations in the field are searching externally for innovative technologies to replenish their pipelines. For biotech start-ups, partnership with these big players not only offers a source of funding, but also helps them tap into a broader knowledge base of therapeutic sector expertise, drug development, regulatory submission, and commercialization.

Experienced, serial biotech entrepreneurs are well-versed in leveraging big pharma to create value for their ventures; however, many first-time entrepreneurs do not understand how to position themselves and communicate effectively with this segment, therefore they miss out on the opportunity to cultivate big pharma relationships.

• “My company has to be impeccable before I can show it to big pharma.”

Often fundraisers hesitate to reach out to big pharma because a technical detail is under development, a certain test is not completed, or the technology is simply “not ready.” As my colleague Michael Quigley has advised[1], outreach should begin as early as a consistent branding and messaging package can be prepared, despite the fact that some data may be pending. The aim with this outreach should be to introduce your company and establish a relationship, rather than to make a direct solicitation for funds.

“Initiating dialogue with big pharma early gives you many advantages,” said a former director of external research at a major pharmaceutical corporation in a recent interview. “You will have a better understanding of what pharma wants and where their interests are. You will also gain insight on where your company stands within the competitive landscape.” With this information, an entrepreneur has a better chance of conducting the right studies that will create value for the company.

• “If I am in conversation with one big pharma company, I should focus on that relationship. If they find out that I am speaking to other pharma groups, it may sour our relationship.”

Engaging in a dialogue with a big pharma company is a great milestone. However, upon reaching this point, many entrepreneurs wrap themselves in a false sense of security and stop contacting other potential partners. Compared with traditional VC funds, big pharmaceutical corporations generally take longer to review and reach a decision regarding investment, especially when it comes to preclinical assets. A company may risk running out of cash if their only dialogue does not reach fruition within a critical timeframe.

What is a comfortable number of big pharma groups to talk to simultaneously? “Somewhere between four to twelve,” said a veteran venture capitalist and MIT professor. Entrepreneurs should not worry about irritating potential pharma partners. Big pharma corporations know each other, and collaboration between them is common. Therefore, entrepreneurs should disclose to potential pharma partners that they are in conversation with other parties. Interest from other big pharma companies lends credit to an asset and offers the entrepreneur an opportunity to demonstrate their ability to maintain confidentiality in a professional manner. In some cases, a healthy sense of competition can lead to higher valuation and even a bigger deal size as big pharma corporations try to outbid each other on a hot technology.

• “If a pharma does not invest in me, they are not interested. I should look elsewhere.”

You are advised to always do your homework first: figure out what a big pharma partner is looking for, how your technology can complement their existing pipeline, and how to get introduced to the key person who might be interested in your technology.

However, entrepreneurs must remember that making a connection with big pharma does not result from a “hit-or-miss” shot, but from a dialogue, which is an ongoing dance. Many decision makers at pharmaceutical corporations are scientists themselves who are genuinely interested in new technologies. However, they are also worried about risks when making an investment decision. If they think you are too risky for investment now, they can lay out the steps you need to take to make yourself investable in the eyes of the firm.

More and more frequently, big pharma corporations are choosing to enter some form of collaboration with early stage companies on high risk, preclinical technologies. “Instead of licensing, big pharma enters service-based agreements with a small biotech to test their technology by using big pharma’s facility, such as disease models or animal labs, at no cost,” said the former pharmaceutical corporation director interviewed. “In exchange, the biotech shares data with its pharma partner.” Such collaboration serves as an opportunity for a small biotech to gain early validation data and open doors to further cooperation in the future.

In 2014, big pharma struck 559 licensing deals, with an average total deal size of $280 million.[2] The same year also saw $234 billion in merger and acquisition (M&A) activity in the pharmaceutical sector.[3] For many entrepreneurs, collaboration with the right big pharma partners can provide invaluable access to technical guidance, market intelligence, and funding. You must be mindful as you proceed in your outreach, but it is never too early to start!

[1] Michael Quigley. “Four Reasons Why It Is Never Too Early to Build Relationships with Investors.” Next Phase: Life Science Nation Blog. Accessed from https://blog.lifesciencenation.com/2015/03/26/four-reasons-why-it-is-never-too-early-to-build-relationships-with-investors/

[2] The Boston Consulting Group. “2014 Biopharmaceutical Partnering Survey.” Page 6. Accessed from http://www.slideshare.net/TheBostonConsultingGroup/2014-biopharmaceutical-partnering-survey

[3] Steve Sapletal. “After A Blockbuster 2014, What Will 2015 Hold For Pharmaceutical M&A?” Benzinga. Accessed from http://www.benzinga.com/general/education/15/02/5220037/after-a-blockbuster-2014-what-will-2015-hold-for-pharmaceutical-m-a#ixzz3Y1AG7dNI

By Michael Quigley, Director of Research, LSN

As family offices have been increasing their exposure to direct private investments, the ability to contact these groups is benefitting fundraising entrepreneurs in a number of industries, including the life sciences. LSN’s research team has been building and maintaining dialogues with these groups for nearly three years and in doing so we have identified five strong channels for finding family offices.

1. Web/LinkedIn Search

Having recently discussed how the LSN Research Team uses advanced search techniques to uncover investors, I won’t go into too much detail here. Suffice it to say, many family offices, particularly those that are highly active in the life science space, have a significant web presence and can be identified by using Boolean Operators to target both Google and LinkedIn searches. As these groups have established these communication channels with the intent to be found, they also tend to be more open to outreach and the discussion of new opportunities.

2. Legal Firms

Family offices usually have legal representation that is often outsourced to a legal firm. These groups can provide a solid, trusted reference for young companies. If you have a relationship with a lawyer or legal firm, it is definitely worthwhile to ask if they are currently working with any family offices or high-net-worth clients interested in direct transactions in your space. Being referred by these groups can help your company bypass the fear that a family office might have of being scammed or duped.

3. Foundations

Family offices often contribute a portion of their assets to philanthropic organizations, including disease foundations, which can often foster introductions. Many foundations list major contributors on their websites and in press releases so that is a great place to start your research. These family offices often have direct ties with the disease the foundation is working with making them more likely to have interest in your opportunity. Being introduced through the foundation may be especially helpful if the organization has significant scientific expertise in the disease area and is able to validate your opportunity to the family office.

4. Academic Institutions:

Family offices, also often with a philanthropic motive, make significant contributions to academic institutions and frequently serve on the schools board. These Institutions often list board member and significant donors on their website, so those can both be great places to look. Additionally contacting the school or their tech transfer office can also lead you up the stream to who is funding them (pending they are willing to tell you). Family offices funding Academic Institutions do so in many cases to leave a lasting legacy and have a positive impact in the world, this desire to make impact can make them good targets for funding life science companies looking to impact healthcare.

5. Conferences

There exist a number of family office conferences that take place all around the globe. However, if you plan on going to a general family office conference without a direct investment focus, there will only be a small fraction of those in attendance that will be interested in your opportunity. Not all family offices go direct and not all of those that do invest in the life sciences. Also, many planners of these events are loose in their application of the label “family office,” so, if possible, it is important to conduct some due diligence on the attendees before signing up. In our experience a company has a greater chance of finding a fit with a family office when they attend a conference focused on an area that is connected with their technology.

These five channels have been valuable resources for LSN Research in the past and have led to a number of the relationships we currently have with family offices. However, as with any potential investor pool, you should not spend your time trying to contact and follow up with every family office you can find. While these groups can be more flexible with their investments and their level of risk tolerance than more traditional capital sources, not all of them are making direct investments into life science companies. You should be sure to research previous deals a family office has been involved with, perhaps by speaking with a mutual third party; this will let you know whether reaching out would make sense. If you are able to target them properly, family offices represent a significant source of financing for life science companies.

By Lucy Parkinson, Senior Research Manager, LSN

When LSN began the Redefining Early Stage Investments conference series, one of our primary goals was to hear from new voices in the life science sector that were rarely heard at other events.  Family Offices now represent an important source of capital in the life science field, and LSN has contacted numerous family offices that are seeking dealflow in the medical technology field.  In January, RESI hosted a panel devoted to Medtech Family Offices for the first time; as this panel was hugely popular, RESI @ TMCx will once again feature a panel of speakers from the medtech family office world.

Moderated by Colin Widen, CEO, Boston Innovation Capital this panel will feature:

• Alejandra Paredones, CEO & Founder, BSI Capital
• Bryan Grulke, Principal, Volcano Capital
• Clay Heighten, Founding Partner, Green Park and Golf Ventures
• Jonathan Jonas, Partner, JVC Investment Partners

These investors will explain to the audience why they seek direct investments in medical technology, how their investment process works, and what they look for in an early-stage medtech opportunity.  If you’re developing a medtech product and want to hear how family offices engage with your sector, join us at RESI @ TMCx.

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

Mimi Liu, Research Analyst, LSN 

As the world’s second largest pharmaceutical market with an estimated annual growth rate of 10%–13% through 2018[1], China continues to attract growth-seeking life science companies and investors from across the globe. What are the opportunities and challenges in entering in this market? This article provides an in-depth view by dissecting information gleaned from LSN’s company platform and the interviews we have conducted with investors based in Greater China.

The growth of China’s pharmaceutical market is driven by a large and aging population, increased access to healthcare, and nationwide policy reform. Over the past five years, the generic drug market has been growing steadily, while branded drugs have gained greater protection, due to the improvement of regulations and laws by the China Food and Drug Administration. Market demand has shifted from antibiotics to specialized drugs, with many therapeutics companies starting to focus on oncology, cardiovascular conditions, blood diseases, and supplements.[2]

We examined a sample of 553 innovative companies located in Mainland China, Taiwan, and Hong Kong that are developing biopharmaceutical assets from the preclinical through phase 2 trial phases (see Figure 1). Neoplasm and “lifestyle diseases,” including metabolic and cardiovascular diseases, have attracted the most number of biopharmaceutical innovators. These therapeutic indications are of high demand domestically with the potential of expansion into overseas markets. A significant number of innovative companies are working on infectious diseases that are endemic to the region, such as hepatitis, tuberculosis, and HIV. However, there seem to be fewer innovations in diseases of the nervous, digestive, and respiratory systems, despite their high health burden.

Figure 1 | Source: LSN Company Platform, Data as of April 15, 2015

The development of China’s biotechnology sector is fueled by R&D centers set up by big pharmaceutical companies as well as the recruitment of Chinese expatriate talents, or “Haigui.” State-backed bioclusters are emerging in Beijing, Shanghai, Jiangsu, Shenzhen, Hong Kong, and Taiwan. Over half of the innovators in the region are developing therapeutics, including small molecules, antibodies, proteins, peptides, and nucleic acid drugs, as shown in Figure 2. There is also a significant interest in generics and biosimilars that addresses the strong demand for high-quality, low-cost products for the vast population.

Figure 2 | Source: LSN Company Platform, Data as of April 15, 2015

Medical device sales in China reached US$32 billion in 2013, making the country the second-largest market in the world[3]. Domestic manufacturers traditionally dominate the hospital equipment market, including medical carts, operation room and ICU equipment, and autoclave sterilizers. Devices for surgical, orthopedic, and dental use are also an arena saturated with locally based companies. According to BMI Espicom, China still has a high demand for imports, especially in the diagnostic imaging sector[4]. With the rise of cross-border partnership with international device manufacturers such as Johnson & Johnson, original equipment manufacturing (OEM) and original design manufacturing (ODM) have become important business units for medical technology companies in the region.

“Medical technology has been part of China’s national development strategy with increasing importance,” said Dr. Fan Yubo, president of the Chinese Society of Biomedical Engineering, at a recent medical device industry summit. “China’s upcoming 13th Five-Year Plan will focus on digitalized diagnostics, tissue repair and regenerative materials, molecular diagnostic tools and reagents, artificial organs and life support equipment, and health monitoring devices.”[5]

Let us take a look at the life science investment landscape in the region. To date, the LSN research team has spoken to over 50 life science investors who are based in Mainland China, Hong Kong, and Taiwan. While large pharmaceutical companies and venture capital funds are traditionally major players in this field, we have seen a growing trend of private equity funds, state-backed funds, and family offices showing an interest in life science investments, as shown in Figure 3.

Figure 3 | Source: LSN Investor Platform, Data as of April 15, 2015

We found that the investors who exclusively focus on China or Asia are typically interested in companies in clinical phase 2 or later of their development pipeline. On the other hand, about two-thirds of Greater China-based investors would like to look at new opportunities across the globe, with a specific focus on North America and Western Europe. These investors are generally stage agnostic, and many have a mandate to introduce cutting-edge technology back to the Chinese market.

During our conversations with those investors, the majority showed high interest in diabetes, cardiovascular, cancer, respiratory, digestive system, and nutrition fields, which are of great significance to the region. For example, China bears the highest burden of diabetics in the world, with an estimated 100 million people living with the disease[6]. One in five adults in China suffers from cardiovascular disease, which accounts for 40% of all deaths[7]. Moreover, the incidence of lung cancer in China has grown exponentially since the 1970s, due to smoking and air pollution. The disease is now the number-one cancer killer in the country, with over 487,000 new victims in 2010[8].

China represents immense opportunities for development of novel therapeutics and medical devices due to factors such as rapid market growth, the concentration of an educated workforce, and improving intellectual property protection and regulatory environment. In the medtech sector, state-led initiatives have identified high-end digitalized diagnostics, imaging devices, molecular diagnostic tools, and health monitoring devices as key strategic fields of development. Disease areas of the nervous, digestive, and respiratory systems present with high disease burden and relatively fewer innovations. Innovative biotech and medtech entrepreneurs should be able to find plenty of potential investors, as well as cross-border cooperation in R&D and manufacturing.

[1] IMS Institute. “Global Outlook for Medicine Through 2018”. Page 20. Web. 2014. Accessed from http://static.correofarmaceutico.com/docs/2014/12/01/informe_ims.pdf

[2] Feng Chao. “Future Trends in China’s Pharmaceutical Industry and Case Studies” (in Chinese). Web. 2013. Accessed from http://blog.sina.com.cn/s/blog_5d30c7960101pqxk.html

[3] Steven Elsinga. “Market Overview: The Medical Device Industry in China”. China Briefing. 2014. Accessed from http://www.china-briefing.com/news/2014/12/03/market-overview-medical-devices-china.html

[4] Jamie Hartford. “The Medical Device Market in China”. Medical Device and Diagnostic Industry Website. 2013. Accessed from http://www.mddionline.com/article/medical-device-market-china

[5] Chinese Society of Biomedical Engineering. “Fan Yubo: Initial View on the Medical Device Strategies in the Thirteenth Five-Year Plan”. Chinese Society of Biomedical Engineering Website. 2015. Accessed from http://www.csbme.org/csbme/ch/showNewsDetail.asp?nsId=231

[6] Veronica Hackethal. “Diabetes Is a Major Public-Health Crisis in China”. Medscape. 2014.

[7] Editorial. “Cardiovascular Disease in China:Why Should We Care.” Journal of Asian Health. 2015. Accessed from http://journalofasianhealth.com/cardiovascular-disease-in-china-why-should-we-care/

[8] Chen W, Zheng R, Zeng H, and Zhang S. “The Epidemiology of Lung Cancer in China”. Journal of Cancer Biology and Research. 2014. Accessed from http://www.jscimedcentral.com/CancerBiology/cancerbiology-spid-lung-cancer-china-1043.pdf

By Michael Quigley, Director of Research, LSN

Last week we used the LSN Company Database, which covers over 30,000 life science companies across the globe, to see what kinds of emerging therapeutics assets were being developed in European countries. This week we again utilized the database, this time to take a look at the emerging medical devices coming out of Europe, and we were able to identify over 400 products in development (see Figure 1). These devices all have yet to reach market approval and, as such, can likely indicate where the most innovation is currently taking place.

Figure 1 | Source: LSN Company Platform, Data as of April 15, 2015

In analyzing the data for the companies that we track, we found that reusable instruments, active implantable devices, and electromechanical medical devices are the most prevalent subsectors of in-development medical devices in Europe. By looking at the same cross section of medical devices in the U.S., we can observe how the innovation landscape compares across the pond (see Figure 2).

Figure 2 | Source: LSN Company Platform, Data as of April 15, 2015

In the U.S., active implantable devices are the definitive leader by number of products in development; however, the rest of the landscape looks fairly similar to that of Europe. This similarity might indicate a global trend in terms of where the most innovation is occurring in the medical device space. In the coming years, it will be very interesting to see how these charts correlate with the types of medical devices that reach market approval in both of these geographies.

It is also worth noting where in Europe these new devices are being developed (see Figure 3).

Figure 3 | Source: LSN Company Platform, Data as of April 15, 2015

Just as it led in our European-based therapeutics report last week, the United Kingdom is home to the largest number of in-development devices, although in the medical device space, it appears that there is a more even distribution of early stage technology across Europe than there is in the therapeutics sector. This is likely because the medical device sector is more nimble than therapeutics, which requires more capital, infrastructure, and existing expertise to support development of products. Medical device innovation is not limited to “innovation hubs” where all innovation follows the existing resources. While many local governments in Europe and around the world are pushing to develop themselves into one of these hubs, it takes a significant amount of time and resources to be able to attract and support innovation.

Finally, we can see the types of investors who are interested in early stage medical device development in this part of the world (see Figure 4).

Figure 4 | Source: LSN Investor Platform, Data as of April 15, 2015

Just as with our previous dissections of investor types, we notice a breadth of different investor classes with interest in this stage, sector, and geography. Venture capital again represents the most significant investor category; however, it is only just over one-third of the total capital pool. This is why it is vital to cast a wide net when fundraising. It not only will increase your odds of getting the capital you need, but also will allow you to hear valuable feedback from various viewpoints regarding your opportunity, ultimately helping you find the most strategically valuable investment partners.

By Natasha Eldridge, Marketing Manager, Life Science Nation

As cost concerns in healthcare rise and medical device technology advances, LSN has encountered a large number of investors who take an interest in the convergence of medical devices and software. Many investors are interested in the potential of this new wave of connected medical and diagnostic devices, which will collect and transmit biological data in order to monitor chronic conditions and warn of complications before they occur.  The Internet of Medtech has the potential to change how healthcare is delivered, with data bridging the gap between providers and patients.

At RESI @ TMCx, LSN has introduced a new panel session devoted to investment in this rapidly developing field of innovation.  Moderated by Michael Greeley, General Partner, Foundation Medical Partners, the audience will hear from:

• Alexander Suh, Founding Managing Director, California Technology Ventures
• Lucian Iancovici, Investment Manager, Qualcomm Ventures
• Matt Otterstatter, Partner, Vilicus Ventures
• Nancy Green, Global Lead – Healthcare Vertical, Verizon Healthcare

The five investors will share their approach to the Internet of Medtech, discussing important fundraising issues such as: How can you demonstrate that your connected device has the potential to provide clinical benefits?  What areas of healthcare are most in need of connected device innovation?  How should an Internet of Medtech entrepreneur build a market for their new device?

By Dennis Ford, Founder & CEO, LSN

BOSTON – April 9, 2015 – Johnson and Johnson Innovation, JLABS (JLABS) is collaborating with Life Science Nation’s RESI @ TMCx, June 8th, Houston conference.  JLABS is a co-sponsor and will be hosting a Sunday evening cocktail reception on June 7th to kick off the RESI @ TMCx event on the 8th.

“The JLABS event will provide a great venue for scientist-entrepreneurs and investors to get some additional networking time,” said Dennis Ford, CEO, Life Science Nation.

Senior representatives from JLABS also will be participating in RESI’s panels and workshops as well as the RESI investor partnering forum.

“JLABS has a close relationship with the Texas Medical Center (TMC) and will be opening an incubator at the TMC Innovation Insitute, called JLABS @TMC, in early 2016. JLABS @TMC is dedicated to the early stage life science arena, so collaborating with Life Science Nation and TMCx for this event makes a lot of sense,” said Chelsea Hewitt, Director of Marketing for JLABS.

The Redefining Early Stage Investments conference also takes place in Boston in September and in San Francisco in January.  Now with RESI @ TMCx on June 8th, fundraising CEOs have a venue to meet early stage investors that are a fit for their sector and stage every 4 months, providing a great ROI for cost conscious CEO’s.

About Johnson & Johnson Innovation, JLABS

JLABS, part of Johnson & Johnson Innovation LLC, provides the tools and resources needed to help life science startups thrive. Residents have access to turnkey, state-of-the-art infrastructure as well as year-round commercialization curriculum and networking events, onsite team for operations and business services, all with no-strings attached. JLABS links regional entrepreneurs with the full breadth of Johnson & Johnson Innovation, including opportunities to discuss funding, access third-party services, attend educational events and meet with R&D experts from our medical device technology, consumer healthcare product and Janssen pharmaceutical teams. The new JLABS @Texas Medical Center (JLABS @TMC) incubator will be located within Texas Medical Center’s new Innovation Institute at the TMCx facility, located at 2450 Holcombe Boulevard, Houston, TX. The 30,000-square foot JLABS facility will accommodate up to 50 life science startups. JLABS @TMC will also follow the same no-strings attached approach currently in operation at the California and Boston-based JLABS facilities.

###