By Lucy Parkinson, Senior Research Manager, LSN

In our recent explorations of the life science innovation landscape in various areas of the U.S., we’ve looked at how different regions shape up in terms of pipeline assets, key indication areas, and the kind of investors active in each region. One metric in which we saw substantial distinctions is where assets fall in the pipeline. Not every area with an abundance of preclinical assets also has a large amount of Phase III assets that may become marketed products in the near future.

The LSN Company Platform tracks over 30,000 life science companies globally.  From this data, we took a sample of the asset distribution in five states with substantial biotech pipelines: California, Massachusetts, New York, New Jersey, and Maryland (see Figure 1). This data reveals patterns that challenge key assumptions about what a regional biotech pipeline looks like.

It’s natural to assume that a state that generates many preclinical assets, perhaps from a base of universities and research hospitals, will see these assets gradually winnowed through the trial process, with a certain proportion failing to progress at each stage of development. What we find is somewhat different, with diverse pathways occurring across the range of biotech hubs. In California, Massachusetts, and Maryland, we see a major drop-off after the preclinical stage of development, perhaps due to assets failing in animal trials. We don’t see this in New York and New Jersey; these states have fewer preclinical assets than the other states sampled, but healthy late stage pipelines. It’s been noted that the New York area may be a difficult place to found a biotech start-up due to factors such as high expenses and a lack of lab space in the region. However, a more established biotech company that has developed or in-licensed clinical-stage assets might have gathered the resources to thrive in this area.

The states sampled all show either a similar number of Phase I and Phase II assets, or a markedly greater number of Phase II assets. Of course, many assets undergo combined Phase I/II trials (particularly in the cancer field, which is the largest area of life science innovation in the U.S.), testing both toxicity and efficacy in their first-in-human trials. We mark these assets as being in Phase II. California, Massachusetts, and New Jersey all show an uptick in Phase II. Many small companies look for a larger partner at the Phase II stage, and these three states are all host to large pharma companies.

Another way to consider the pipeline is to ask how many preclinical, Phase I, and Phase II assets there are in each state for every asset that reaches Phase III. While in New Jersey (as previously observed) we track more Phase III assets than early stage assets, the state is a true outlier in this regard. Massachusetts, with its deep bench of early stage biotech companies, has over four preclinical assets for every asset that reaches Phase III. Maryland has a very steep pipeline funnel, with almost nine preclinical assets for every Phase III asset.

From a look into the LSN Investor Platform, we find that investors are interested in companies at every stage of the pipeline. The following figure (Figure 2) shows investors interviewed by LSN who have stated an interest in therapeutics under development in the U.S.:

America’s many life science hubs have strikingly different profiles, and emerging regions without a large pharma presence might nevertheless sustain a thriving early stage biotech landscape. Early stage companies must work hard to find the investments that will keep their assets moving toward the marketplace. It’s notable that only two-thirds of investors interested in U.S. biotech companies are based within the country; the search for capital might extend globally, far from the local biotech hub where an asset began.

By Dennis Ford, Founder & CEO, LSN

Entrepreneurs in the life science space face a myriad of challenges on the commercialization journey including fundraising. While the current open IPO window has certainly shed positive light on the sector, early stage life science companies are still facing an uphill climb when it comes to fundraising. There is simply a limited amount of capital available to fund a burgeoning number of products, ideas, and solutions that can no longer be supported by government or academic sources. However, the supply and demand of capital is not the only hindrance to an early stage life science company; below are seven fundraising pitfalls that we hear about on a daily basis in our dialogues with investors and entrepreneurs.

1. Contributing to “White Noise”

An investor’s inbox is often bombarded with messages describing the latest and greatest opportunities; however, more often than not, these opportunities are outside of that investor’s wheelhouse.  You need to match your company to an investor’s current mandate. There are simply not enough hours in the day for an investor to read, let alone respond to, all of these messages, and as a result, many go unnoticed or do not receive an adequate review. While there are those investors who do not specify their investment interests, fundraisers in the entrepreneurial community can remedy this problem by taking the time to properly research and qualify the investors to whom they are reaching out.  Make sure when you go after an investor you know it is a fit for your company’s sector and stage of development.

2. Lacking A Clear, Concise Message

Having a clear and concise message can significantly improve your odds of standing out amid the “white noise.” When your opportunity can be understood quickly, investors can more easily identify whether it is something to which they should allocate more time for review. Unfortunately this is not something widely accepted by many scientist-entrepreneurs, who insist on sending reams of data prior to establishing any initial interest. This not only impedes their ability to initiate contact, but it also adds to the overall problem by clogging the communication. It’s imperative to develop an ongoing dialogue with investors that are a fit. It works and makes both parties more efficient.

3. Misunderstanding the Time, Effort, and Capital Required to Fundraise Successfully

At LSN we begin conversations with entrepreneurs with three basic questions: “Are you fundraising?” “Do you know how long it will take?” and “Do you know how much it will cost?” We do this to determine how savvy the entrepreneur is regarding raising capital. LSN staff need to gauge how well prepared a fundraising CEO is for what lies ahead. In our experience an average campaign can take anywhere from 9 to 18 months and can cost anywhere from $60,000 to $100,000, when you factor in expenses such as those associated with being on the road and the development of marketing collateral and a website, it adds up.  Understanding the time and cost commitment required is crucial in determining when you need to start your campaign. Additionally, if you are raising money to stay alive, as many in this space are, you want to make sure you have enough cash reserves to last until you can lock down an allocation.

4. The Myriad of Third Party Capital Raising Entities that Overpromise and Under Deliver

Many entrepreneurs who lack the time or skills necessary to run a campaign on their own hire third party groups or individuals to fundraise on their behalf. At LSN we have heard countless stories of groups that promise access to a vast global network of investors, which, in reality, often consists of just a few personal contacts along with a number of investors that may not be investing in companies that match your profile. These third parties don’t often take the time to maintain the list of investors on their networks to determine who is active and what they are really looking for. This “not-being-in-synch” often leads to “mercy meetings,” which ultimately go nowhere since they are based only on a favor and not on fit. The importance of an accurate, up-to-date list of targets cannot be underestimated when fundraising. Entrepreneurs that come to LSN also report a lack of transparency from these groups regarding who they are communicating with about the opportunity and what feedback they are receiving. When considering a third party for assistance with your fundraising, it is vital to receive a valid reference from a company in your space who has worked with them in the past. At LSN we keep track of everything on SalesForce.com and our clients can log in 24/7 and see which investors have been called, when they were contacted and which staff member is responsible for following up. Additionally, the client can read all the notes from the conversation and review any action items.

5. Not Having a Plan B

When going into due diligence and later stage conversations with potential investors or partners, countless entrepreneurs fall into the trap of becoming so confident in the likelihood of investment that they cease to continue reaching out to other groups. This path is dangerous for a number of reasons. First, despite every positive conversation, until the money is in the bank, there is always a significant chance that the investor will not make an allocation. If you put all your faith in one investor who leads you on for months while you halt other fundraising activities, you will lose valuable time in your campaign and may even have to start from scratch. Second, we have heard from investors that it can be fairly clear when the entrepreneur is not talking to other potential investors, which will have a negative impact on the leverage that the fundraising CEO has when negotiations begin.  Third, the majority of financing rounds taking place in the life science arena today are made by a syndicate of multiple investors. Even if the investor you are communicating with agrees to invest, to close out the round you will likely need others to join, and the formation of a syndicate can be expedited if you have been in constant dialogue with a number of investors.

6. Surface Thinking

When a person is in marketing mode, he is in dialogue with investors in order to facilitate a relationship that will result in a capital allocation.  Email canvassing, phone canvassing, WebEx presentations and road shows are all part of the dynamic. Sending an email to a bevy of targets in Asia or to Family Offices in North America without thinking about how to track the number of opens with an email report is counterproductive. To get more out of the email, you can use email campaign software to track this information.  By wiring the email with a few links that can be clicked upon to take the reader to your website, or to allow the reader to download a white paper, you can determine which investors are interested in your message and would be a good fit for your company.  Surface thinking is just sending the email without thinking deeply about how to get results out of the email campaign.  You need to get past the surface concept of an email; send it to a targeted list that can be monitored and reported on based on interest shown through opens and clicks. Targeted emails can help determine fit.

Phone canvasing isn’t just making a few phone calls and leaving some hasty message.  Like email, you need to get down past the surface of a phone call and keep your elevator pitch on the tip of your tongue.  You need to be precise and compelling.  You need to think of what you will do if no one picks up, and what to do if someone does pick up.  Being cavalier and frivolous in your investor canvassing creates white noise and doesn’t move you forward in your campaign.

7. Informed Content

When you do your research and know an investor is a fit for your sector and stage it makes sense to start to think about how you can create some content that highlights your firm and your product or service. HubSpot has preached this concept for a long time.  Basically, informed content is about showing your value by getting content into your market space that is timely and compelling.  Informed content acts as a beacon for your company. It draws and guides people to you.  LSN’s newsletter, Next Phase, goes out to 15,000 global readers on a weekly basis. There are a lot of innovators and investors that read this newsletter.  We try and offer up helpful and insightful content that sheds light on the life science investor universe.  We highlight investor trends, we carve up our investor data and present up to date metrics on who is investing in what, and we do deep dives into the 10 categories of investors that we track.  Our goal is to do anything we can do to help our innovators and or investors connect more easily and understand each other better.  As a result, we get a lot of responses flooding in over the transom every week.  This action leads to business relationships.

These are just a few of the issues that we see life science entrepreneurs struggle with when trying to raise capital. With capital in limited supply, it is crucial that you avert these mistakes at every step of your fundraising campaign. By better understanding potential pitfalls and setting up your campaign strategy to avoid them, you can greatly increase your chances for a successful fundraise at a fair valuation.

By Lucy Parkinson, Senior Research Manager, LSN

Two weeks ago, we took a dive into early stage life science assets in the Southwest region of the U.S. Today, we’ll take a look at what’s happening closer to our home, here in the global life science hub of the Northeast.

Using the LSN Company Platform, we are able to observe the wealth of innovation occurring in this region. We analyzed a sample of biotech and medtech innovators across nine Northeastern states: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. This sample drew from the pipelines of almost 400 life science companies, and included 1596 biotech assets in a range of developmental phases, from Preclinical through Phase III trials, as well as 154 medtech products in development. For 1435 of the biotech assets, we are able to track the primary indication area targeted by the product, as is shown in Figure 1. As in the Southwest, we saw significant pipelines in cancer, diseases of the nervous system, and infectious and parasitic diseases. With such a large sample, even less crowded indication fields such as blood and immune diseases and mental and behavioral disorders possess a significant number of pipeline assets.

We also found a great variety of medtech assets, as is shown in Figure 2. Diagnostic devices and delivery devices were the two most common technology types; this is in sharp contrast with the Southwest, where implantable devices and reusable instruments were the leading fields of medtech innovation.

Of the biotech assets, the greatest number are at the preclinical phase of development. However, Figure 3 shows that the drop-off before the IND is much less sharp than we saw in the Southwest.

There are fewer than 2 preclinical assets for every Phase I asset, and only 2.4 preclinical assets for every Phase III asset. This is likely because the local pharma strength leads to assets migrating to the region as they progress through the pipeline due to relocations, partnerships, or acquisitions.  One notable state within the sample is New Jersey (see Figure 4), where we find more Phase III assets than preclinical or Phase I assets.

As the Northeast is well-known for life science innovation, it’s unsurprising that we also find many local investors who are interested in early stage life science opportunities. Figure 5 shows the types of investors that LSN has identified in this region.

There are significant distinctions between life science investors in the Northeast and life science investors in the Southwest. Predictably, we see a greater corporate presence, with large pharma and medtech companies and their corporate venture funds together comprising 19% of active life science investors in the region. Only 23% of Northeast-based life science investors are venture capital firms, a clear sign that it’s important to look beyond this funding source if you’re seeking a Northeast-based investor.

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

If you are in the biotech arena looking for capital allocations from angel investors, this recap video is for you. The RESI 4 Biotech Angel Groups Panel features five investors from life science angel networks throughout the USA. In this panel, angels explained how they assess early-stage biotech opportunities and discussed the following topics:

• What attracts you to the biotech space as an angel investor?
• What are the headwinds that you see when you look at biotech companies?
• What’s the state of optimism regarding mergers and acquisition activity in the next 1-2 years?
• What do you look for in a biotech company that attracts you?
• How do you assess the potential that is locked in biotech companies before they generate revenue?

Watch the video to learn more.

By Michael Quigley, Director of Research, LSN

Scientist-entrepreneurs, often emerging from an insular academic environment, may not think about spending significant time and resources on their communications and marketing materials. Oftentimes these items are thought of only during the last moments of preparation for a fundraising campaign. “My technology speaks for itself, so it doesn’t need to be marketed” is the refrain we hear time and time again from entrepreneurs.

As science has protocols, so does fundraising, and adhering to the rules helps to move the process along. Understanding that it takes two to have a conversation and taking the time to find the best way to initiate that conversation is imperative. While all your data and publications are crucial to the success of your company, they are of no use to you if you cannot entice an investor to read and review them. Your brand and marketing materials are essential in capturing that initial interest. This newsletter has previously discussed the various marketing collateral required for fundraising, including your tagline, pitch deck, website, and introductory email; to effectively introduce yourself within the life science investment arena, it is essential that you keep your message and brand consistent across those mediums.

In its most refined state, your brand should be represented by a strong, simple logo accompanied by a cogent and lucid three- to six-word tagline by that is easily understood by people outside of your field. This logo and tagline should be present throughout all your marketing materials, including your business card, executive summary, pitch deck, website and anything else you are putting out into the marketplace. Stemming directly from your tagline should be an equally lucid three- to five-sentence elevator pitch that everyone at your company, from the bottom up, can clearly articulate. The elevator pitch provides a tactical and harmonious way for each person in your company to quickly communicate your core value proposition to whomever they may meet.

From the elevator pitch, you should develop a one- or two-page executive summary that elaborates your story and introduces your technology, the problem it is solving, and your management team. Your pitch deck should act as a visual representation of your executive summary, providing some additional metrics and graphics to further the understanding of your opportunity, and should consist of no more than 10 to 12 slides. Your website should effectively be a reorganization of your pitch deck in web format that also features links to additional supporting publications and relevant studies.

 

It is important to keep colors, visuals, and language clear and consistent throughout all of these materials in order to develop your brand. By maintaining consistency you keep the same message echoing through the industry, allowing anyone who would be interested in your space to get a fundamental understanding of your opportunity. These materials should be updated simultaneously as new significant data is gathered, partnerships are formed, or other significant changes in your business take place. You don’t want to waste an opportunity to highlight your most recent progress, or cause potential confusion among interested parties by circulating different materials.

A cogent, consistent core message becomes easily reproducible by anyone with whom you come into contact, which can drastically increase the number of relevant people who hear about and understand your opportunity. A developed and understandable brand can be vital in capturing the initial interest of an investor, and can help to eliminate the unnecessary conversations with incompatible parties that can suck up crucial time in a campaign. Being able to establish interest is critical in getting the investor to engage in due diligence, and will put you that much closer to achieving your fundraising goal.

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

For those who were not able to attend the fourth RESI Conference in January, LSN would like to bring the Healthcare IT Investors panel to you. In this panel, five investors explained their current investment mandates and shed light on the hot topics in the Healthcare IT field:

• What are the subsectors within healthcare IT that you are most interested in right now? Are there any you are “allergic” to?

• As you are looking at an investment in the space, what is unique to healthcare IT that you worry about and dig on the hardest as opposed to other investments in other sectors?

• As entrepreneurs are positioning their companies for investment, is there something like a particular a piece of information, data point or illustration that entrepreneurs can demonstrate that is particularly impressive, or able to distinguish themselves from the crowd?

• In general, where do you think the trend on valuations is going? Do you think about valuations in this space differently than in other spaces?

• Aside from Health IT pure plays are you seeing a trend where traditional biotech therapeutic, device or diagnostic companies are utilizing next generation IT or analytics to improve the efficacy or accuracy of their products. How do you view those opportunities as investors?

Watch the video to learn more.

By Michael Quigley, Director of Research, LSN

In honor of the 100th edition of the Next Phase newsletter, LSN would like to share five of the most popular articles to date. These articles provide a great snapshot of what this newsletter is all about: educating entrepreneurs and investors on the early stage life-science-investment landscape and providing tactical advice to entrepreneurs on how best to present their opportunity to the life science investment community. These articles all stem from our daily dialogues with both investors and entrepreneurs from around the world; this experience allows us to act as an information portal between these two groups.

Without further ado, here are the top five articles.

1. 11 Tips for Creating a Successful Pitch Deck

By Shaoyu Chang, Senior Research Analyst

“Coming from a scientific background, I thought I knew well enough about using slides and making presentations, whether in laboratory journal clubs or at hundred-attendee conferences. However, as I start to help fellow scientists on their fundraising campaigns, it has become apparent to me that academia and business speak very different languages.”

2. LSN Published in Nature Bioentrepreneur: “Beyond Venture Capital”

By Dennis Ford, CEO, LSN, and Barbara Nelsen, Founder, Nelsen Biomedical

“LSN is officially announcing the release of  ‘Beyond Venture Capital’ in the January 8, 2014, edition of Nature Bioentrepreneur! This piece, appearing in the current issue of Nature, is an in-depth analysis of the new life sciences fundraising environment, detailing what caused the paradigm shift in the investor landscape, who is active, and how fundraising executives should adapt. This is a must-read piece for anyone involved in the early stage life sciences arena, and an excellent primer for newcomers to the Redefining Early Stage Investments Conference.”

3. Formulating the Introductory Email to Potential Investors

By Michael Quigley, Director of Research

“Having personally scheduled and held several hundred interviews with life science investors over the past year, I have developed and refined a formula for getting ‘in the door’ with an introductory email. As anyone who has embarked on a fundraising campaign knows, initiating the dialogue is often the hardest part of the process. Few introductory emails ever get opened, and even fewer earn a reply at all. However, there are a few concepts and tactics that can increase your efficacy substantially when it comes to initiating a dialogue and locking in that first meeting. This article will share some insights from my personal experience that may be helpful in your email outreach.”

4. Pharma-Licensing Deal Trends in 2014

By Lucy Parkinson, Senior Research Manager

“LSN gathers data on early stage life science companies and investors worldwide, but we also track global licensing activity and trends through the LSN Deal Platform. We analyzed 20 pharma deals that were publicly announced from January through April and spotted three trends that offer a glimpse of what the industry may expect from pharma-licensing activity in 2014.”

5. 10 Steps to a Life Science Fundraising Campaign

By Dennis Ford, CEO

“Executing a successful fundraising campaign in the life sciences space requires organization, professionalism, determination, a great technology, and an outstanding team. LSN has worked with hundreds of companies in this capacity—companies that are at all stages of development, in regions around the world, and pursuing various types of technology. We’ve been watching as the latest process for fundraising has surfaced, and I wanted to share what we see as the ten steps.”

We hope you have enjoyed Next Phase so far and found useful information in this newsletter. We look forward to continuing to provide you with tactical advice and forward-looking information on the early stage life-science-investment landscape in the months to come.