Next Phase Newsletter

By Dennis Ford, Founder & CEO, LSN

By Lucy Parkinson, Senior Research Manager, LSN

In January, RESI came to San Francisco for the JP Morgan Healthcare Conference week.  LSN was thrilled that so many of you were able to join us there on January 13th; over 500 attendees registered for RESI –  our largest crowd to date.  RESI 4 provided four all-day content tracks outlined in the RESI 4 Program Guide. Even attendees may have missed out on some of the excitement; our video recap below can fill you in on the full scope of the event.

This audience provided a vibrant mix of life science industry executives. Figure 1 shows what type of firm each attendee represented:

Figure 1 | Data as of January 13, 2015

The most striking fact about this breakdown is that the investors outnumbered the attendees from biotech and medtech startups.  The pre-existing relationships with investors and strategics developed by LSN Research and Business Development staff garnered over 200 investor registrations at RESI 4.  These investors were keen to book meetings with entrepreneurs and assess their innovative technologies; almost 60% of the meetings booked on the RESI Partnering system were between investors and entrepreneurs.  Here’s a closer look at who took meetings with whom at RESI 4:

Figure 2 | Source: RESI Partnering Platform, Data as of January 13, 2015

Interestingly, investors booking meetings with fellow investors was the third most common meeting type.  This continues a trend we’ve noticed at previous RESI events: investors are interested in meeting with each other to discuss potential syndication or strategic opportunities, or possibilities for future collaboration.  RESI is a stellar venue to facilitate these meetings, given how many investors are present; RESI also offers investors the opportunity to use the RESI partnering platform to hone in on investors with common strategic interests in terms of indication area or stage of development focus.

RESI provides two core experiences; the opportunity to hear investors outline their mandates and methods of investment at RESI’s panels, and the opportunity to hold partnering meetings with fellow attendees.  By gathering so many luminaries in the early-stage life science world together under one roof, RESI creates an atmosphere that leads to a huge number of ad hoc meetings – more than we could count.  Whether it’s after a panel, at the reception, or in the exhibition hall viewing the RESI Innovation Challenge, LSN witnessed attendees engaging with each other in a highly productive environment throughout the day.  With more investors than early-stage entrepreneurs present, RESI 4 provided life science startups with an excellent opportunity to network with early-stage investors who are relevant to their fundraising campaigns.

RESI continues to innovate, with a new array of panels including a track devoted to medical technology investment.  LSN looks forward to bringing RESI to new venues in the future, and to returning to San Francisco in 2016.

By Michael Quigley, Director of Research, LSN

For nearly 3 years the LSN research team has been identifying, profiling and interviewing early stage life science investors from around the globe. Throughout this time we have developed and honed a process for the identification and validation of investors in order to understand and qualify their investment interests. I recently held a “Researching Global Investors” workshop at our RESI 4 conference to shed light onto this process and share the tools and resources that we use, so that the entrepreneurs in the audience can take advantage of them as well. This article mirrors the workshop to further spread the message to our readership.

Tools for Identification:

Understanding where to look to find potential investors can seem like a daunting task given the vastness of the internet; however, by understanding the tools at your disposal, you can dramatically increase the effectiveness and efficiency of your research. Google search is often underutilized by those unaware of its capabilities. The chart below shows some basic “boolean” operators that can dramatically increase the precision of your searches.

These functions can be entered into the Google’s search bar to make your searches are more targeted and fruitful. For example, by entering  (intitle:biotech AND “Invest” AND “Early Stage” –public) into Google, you can search the web for sites and articles that have “biotech” in the title, include the terms “early stage” and “Invest”, and do not include the word “public”. Boolean functions should be utilized in whatever way makes the most sense for your campaign; this could include looking for terms surrounding your indication, stage of development, geographic exposure, or other factors that define your opportunity. By executing a number these searches and diving through a few pages of results you are sure to come up with a size-able number of potential investors.

Another often underutilized tool is LinkedIn. Similar to Google, LinkedIn search is also compatible with boolean operators, so using these in the search can again improve effectiveness. LinkedIn also offers an Advanced People Search feature that includes keywords, company name, industry and location among other details, as seen below. An additional benefit of using LinkedIn is that investors and others who are active LinkedIn users with complete profiles are often more open to being approached with opportunities. As LinkedIn is a professional networking site, these individuals tend to be more open to new contacts, and may even be actively looking to expanding their networks and uncover new opportunities.

Additional sources for new investor leads include life science investor conferences, and the websites of companies similar to your own. Investor conferences often list attending investors on their webpages, so even if you cannot attend an event, these can be great sources for identifying active investors. Much like investor leads found on LinkedIn, investors found on conference lists tend to be actively looking for new opportunities; this is generally their motivation for attending the conference. Now, visiting similar companies’ websites to find investors may seem like a stretch; however, many companies list their investors on their website, and if they are in a similar space and stage as your opportunity it is highly likely that those investors are a great fit. Also, many companies list their board of directors on their webpage as well; oftentimes members of the board are investors, as investors generally look to take a board seat following investment.

Validation:

Once you have identified a number of potential investors using the aforementioned methods, you must validate that these investors are a good fit for you opportunity. There are several variables you should consider, the first of which is determining if the investor is currently allocating. When attempting to determine if an investor is currently allocating you want to look for the most recent new investments that investor has made. These can be found either on the webpage of the investor or through using Google searches to find press releases or media articles relating to the investor’s recent deals. The more recently the investor has made a new investment, the more likely that they are still currently investing. Another means of identifying investor activity is to look at the most recent fund vintage. Funds generally have a 10 year lifecycle from closing until they need to return capital to their limited partners. As such, if your company requires 3-5 years to reach a potential exit, you will want to identify funds that have closed no more than 5 years ago. Funds generally reserve capital for follow-on investments, so it is highly likely that funds greater than 5 years old are no longer making new investments at all. They are instead reserving the fund’s remaining capital to support current portfolio companies.

Other variables that require validation include the investor’s preferred stage of development, industry sector, indication areas and geography. While many investors also list these criteria on their webpage, others are more reticent. For investors who do not list their criteria on their web page, the best place to look to find it would be in the firm’s previous investments. Have they invested in medical devices, or in therapeutics? Do they only invest locally, or will they look at opportunities globally? Do they invest in series A rounds, or are they only investing in later stage companies? Many of these questions can be answered by taking a look at previous investments the investor has made. Information on these previous investments is often available in press releases that can be found through searching the web.

The type of investor you are researching can also be a telling sign of the stage of investment they are looking for. The chart below provides a visual representation of the different stages of therapeutic development that different classes of investors are generally interested in.

Having a validated list of potential investors is extremely valuable, and this process is usable by virtually any fundraising entrepreneur in the life science industry. The fact that investor and company fit is an extremely important precursor variable into building a successful relationship that could lead to an an allocation. is the reason why this process is valuable, and is a fact that LSN’s Research and Business Development staff have seen the value of fit proven in the marketplace time and time again. Through this process outlined above, the research team at LSN has been able to identify thousands of life science investors and our number of investor profiles is still growing.

If you wish to see the presentation slides, click here.

By Michael Quigley, Director of Research, LSN

In tracking life science investors worldwide, LSN’s research team has noticed that there are a growing number of Asia-based investors seeking global opportunities as well as investments in the U.S. and Asia. (See Figure 1.)

Figure 1 | Source: LSN Investor Platform, Data as of February 4, 2015

Also worth noting is the number of Asian countries where these investors are based. (See Figure 2.) Although the majority of Asia-based investors are in China, more than half hail from other countries in the region.

Figure 2 | Source: LSN Investor Platform, Data as of February 4, 2015

Factors Affecting the Trend

Having spoken with more than 50 Asia-based investor groups, we’ve pinpointed a number of factors that are contributing to this trend.

A recurring theme is the lack of advanced infrastructure and practical expertise required to develop technologies in Asian countries. And while “many of the Chinese scientists who came out and studied in the U.S. have gone back to their home country and started their own businesses there,”¹ this doesn’t seem to be satisfying Asia-based investors’ appetite for innovation.

Other factors include the booming growth of private wealth that many Asian countries have experienced over the past few years.² This growth in wealth, coupled with the notoriously uncertain regulatory environment (particularly in China), has led many Asia-based investors to seek a more stable investment environment abroad. Diversification and the potentially high-yield returns this sector can generate also is attractive to these newly wealthy investors.

Arguably the most influential factor that we have heard in our discussions, however, is investor interest in early stage and commercial-stage technologies that are capable of addressing healthcare challenges across Asia as well as in specific local markets.  With growing populations and advancing life expectancy in these regions, the demand for medical devices and therapeutics is expected to increase dramatically—particularly in indications such as diabetes and cardiovascular disease. In fact, the vast majority of investors we have spoken with either require or strongly prefer companies that are planning to or capable of entering their local markets. Also, many of these investors have strong local ties to manufacturing and distribution channels, so they can add significant value to companies entering these markets.

Takeaways for Fundraising Executives

It is apparent that life science companies actively fundraising around the globe should take a serious look at Asian markets for capital. The wealth, population, and average age of individuals are all expected to continue rising in many of these countries. Therefore, the opportunity for life science companies to secure capital is likely to rise as well. Given the cultural differences and distance, starting conversations with these investors as early as possible is key, as the time to close a deal can be elongated by these and other hurdles.

If you are interested in learning more about the investor landscape in Asia and the investors we track, feel free to contact us at mandates@lifesciencenation.com.

1. “Philip Ma: from Scientist to Businessman,” China Daily, January 23, 2015.
2. “China Now Has the Second-Most Millionaires in the World,” Time, June 10, 2014.

By Lucy Parkinson, Senior Research Manager, LSN

Previous articles have provided overviews of innovation and investors in the cardiovascular, oncology, and neurology sectors. Infectious disease is also a major field of innovation; LSN researchers track 567 clinical-stage therapeutics globally that are targeting an infectious or parasitic disease.

Perhaps the most striking distinction of the infectious disease space, compared with sectors we’ve examined previously, is its breadth. The nature of the infectious disease field is one of constant change and local variation, with researchers focused on a multiplying array of threats throughout the world.

In fact, if we take a look at the specific diseases targeted by these innovations, the largest single category is “other.” This stands in contrast to fields where innovation is primarily focused on a few major unmet needs, such as Alzheimer’s in neurology. That said, some infectious diseases, such as HIV and hepatitis C, do have thriving pipelines. (See Figure 1.)

Figure 1 | Source: LSN Company Platform, Data as of February 4, 2015

The assets covered by Figure 1 range from those that have only recently entered clinical trials to products close to achieving market approval. Of these assets, the greatest number are currently in Phase II. (See Figure 2.)

Figure 2 | Source: LSN Company Platform, Data as of February 4, 2015

Infectious disease innovations are coming from a number of countries. The U.S. leads the world in infectious disease assets, however, the UK, France, and the Asia-Pacific region also have strength in this field. (See Figure 3.)

Figure 3 | Source: LSN Company Platform, Data as of February 4, 2015

LSN researchers have interviewed more than 300 investors who are interested in this field, and many are interested in companies worldwide. (See Figure 4.)

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

Similarly, we see investors of every type that LSN classifies as active in the infectious disease field. (See Figure 5.)

Figure 5 | Source: LSN Investor Platform, Data as of February 4, 2015

As you can see, there’s no shortage of investors looking into the infectious disease field.  Venture capital and private equity funds are interested in the potential return on investment from infectious disease cures; recent blockbuster drugs in the hepatitis C field have demonstrated how much profit can be made from tackling infection.  Many government organizations fund infectious disease technologies due to an interest in bio-security and public health.  We also discovered last week that infectious disease is one of the top ten areas for venture philanthropy foundations that fund start-up companies; many major global health charities are interested in working with start-ups in this field.

Infectious disease research focuses on fighting urgent and widespread needs, and we find that many investors are willing to take on the challenges of this field.

By Nono Hu, Senior Manager, Branding & Messaging, LSN

This week, LSN published the RESI 4 Medical Device Strategics Panel video featuring five investment experts from top tier, global, medical device companies. The panel was designed to educate entrepreneurs on what kinds of innovative technologies these giants are looking for, and how to reach out to a strategic medtech investor about your innovative device technology. In this panel, several valuable questions were answered by the panelists, including: What distinctions are there between VC and strategic investing? How early in development process do you get involved with early stage companies? How do companies approach you, and can you provide examples of early-stage deals you’ve made recently? How should entrepreneurs find out what technologies you are interested in?

Check out the 45 minute video to learn more!

Moderator: Paul Grand, Managing Director, RCT Ventures

Panelists:

• Albert Lauritano, Director, Strategic Technology Partnerships, Becton Dickinson
• Conrad Wang, Senior Director, Corporate Development, Medtronic
• Evan Norton, Divisional Vice President, Venture Investments, Abbott Ventures
• Greg Fleming, Investment Director, Air Liquide-ALIAD

LSN researchers recently decided to take a deep dive into interviews we have held with venture philanthropy groups from around the world to see what the future likely has in store. After analyzing data gathered over the past three years from more than 150 investors, we uncovered a few notable trends.

Diseases of the nervous system is the indication area with the greatest amount of interest from venture philanthropy investors. (See Figure 1.) This is likely a result of the notoriously high risk in this sector, stemming from a lack of accurate animal models that can serve as a viable gauge for human efficacy and safety. This heightened uncertainty drives many venture capital and other financially motivated investors away from the sector entirely, leaving a gap that venture philanthropy organizations hope to fill. Additionally, there are a massive number of unmet needs in the space, particularly with respect to diseases such as Alzheimer’s, the prevalence of which is increasing as the overall age of the population increases.

Figure 1 | Source: LSN Investor Platform, Data as of January 27, 2015

Oncology comes in second in terms of interest from venture philanthropy investors. Their interest is driven in part by the massive and growing need for improved treatment options in this indication area, particularly in orphan forms of cancer, some of which have foundations with venture arms that invest specifically in that field.

In third place, we have endocrine, nutritional, and metabolic disorders, driven by the number of diabetes-focused venture-philanthropy groups. And in fourth place, we have congenital deformities and chromosomal defects, also largely driven by foundations looking to fund companies targeting orphan diseases such as Duchenne muscular dystrophy, whose underlying cause can be tracked to genetic mutations.

Early Investments

The largest percentage of venture philanthropy groups are looking to invest at the earliest phases of product development. (See Figures 2 and 3.) Other investors, and investors as a group, usually look for companies in Phase I of development for therapeutics and in the clinical stage for devices. However, because the primary motive of venture philanthropy investors is to improving patient care, they focus their efforts on the stages where capital is most lacking and innovation most prevalent.

Figure 2 | Source: LSN Investor Platform, Data as of January 27, 2015

Figure 3 | Source: LSN Investor Platform, Data as of January 27, 2015

Oftentimes, venture philanthropy investors view their allocations as a catalyst: an investment to help companies get the level of data required to become attractive to other institutional investors. Very few of these firms have the capital available to fund product development completely through commercialization; however, the capital they can provide in conjunction with their expertise and connections (to both providers and patients within the target area) makes these investors an invaluable resource to early stage companies.

Significant Allocations and Equity Positions

Another interesting metric to consider in the venture philanthropy landscape is the size and types of funding from these groups. (See Figure 4.) With nearly 50% of all venture philanthropy investors LSN has spoken with looking to make allocations of $1 million or more, it becomes clear that these groups are providing significant funding. Historically, these types of organizations have focused on financing academic and industry research through smaller grants and other forms of nondilutive funding. However, after years and years of their previously funded technologies not making it to the bedsides of patients, many have taken the challenge of funding research to a larger scale to deliver a more significant impact on patient care.

Figure 4 | Source: LSN Investor Platform, Data as of January 27, 2015

The foundations that have begun to dive into this realm of venture philanthropy do not look to provide purely nondilutive funding, however. More than 75% of the venture philanthropy investors we have interviewed that are providing $1 million or more are looking to take an equity position in the companies they allocate to. Granted, they are likely going to offer more favorable terms than a financially motivated investor; however, they are looking for equity. The model we have seen most frequently is one of an evergreen fund structure, where the firm invests in companies, takes an equity position, and any return that comes from those investments is then recycled back into the fund, allowing the group to further advance the standard of care in their indication.

Venture philanthropy is definitely of growing significance in the early stage of the life science investment ecosystem. As these groups evolve and new models for advancing care become utilized, it is highly valuable as a fundraising entrepreneur to be aware of all the players relevant to your technology.  Given that they are capable of providing expertise, patients, invaluable connections, and, more recently, significant amounts of capital, companies that form strategic relationships with relevant philanthropic groups can undoubtedly be served well in most aspects of development.

NextPhase has published numerous articles on venture philanthropy funding. You can find them on our website here and here.