By Michael Quigley, Research Manager, LSN

Big data has not gone unnoticed among early stage life science investors. The intersection of software and biology is one that the LSN research team has noticed to be an area of increased investor focus in recent months. The technologies in this space include devices or tools that are able to record and/or transmit biological data as well as software systems that are able to analyze sets of biological data for further use. Basically, this is the convergence of mobile technology, cloud data infrastructure, and next generation medical devices.

LSN tracks 244 investors active this space, and has secured over 100 mandates to invest in this sector over the last 10 months. Examples of technologies in this space include implantable or wearable devices that are able to generate and wirelessly transmit live information on the patient, or genomics platforms that are able to diagnose disease long before any symptoms are shown. These are just a few of the possibilities of those technologies, and applications for their use include increasing the efficiency of drug discovery and lead optimization, increasing the effectiveness of personalized medicine, increasing efficacy in clinical trials and ultimately significantly lowering the cost of healthcare all the way from drug discovery to critical care.

One class of investor that has taken particular interest in this space is the corporate venture capital arms of large healthcare providers. This is due to these devices’ ability to greatly lower the point of care cost by getting doctors and nurses accurate information on a patient’s health sooner, saving valuable time in emergency situations. Another interesting investor group with high interest here is investors and companies that historically have been more involved in the software and IT sectors, and see this as an opportunity to engage in the life sciences sector without straying too far from technologies they already understand.

This is a time of opportunities for companies in the space, as many of these sources of capital are just beginning to focus their energies on this sector. It means more capital, more opportunities to secure funding, and hopefully more products making it to market sooner. Stay tuned as LSN tracks upcoming developments in this space.

By Dennis Ford, Founder & CEO, LSN

Does it make sense for a life science fundraising executive in Europe to look internationally for early-stage funding? Should U.S. based firms look at investors in Europe and Asia?  As the folk singer Bob Dylan sang “the times they are a changing” and the answer is yes!

To someone looking to fund a life science startup ten years ago, the funding possibilities would have been primarily local.  Government programs and angel networks are almost invariably regionally-focused, as are many VCs (particularly within the long tail of smaller VC funds that used to provide capital to life science start-ups, many of which have now closed their doors).  However, the new investors on the stage today are typically much broader in scope.  Large pharma companies and global PE companies that used to focus on mid to late-stage opportunities are now looking to capture the value of emerging technologies; from the opposite direction, medical foundations that used to support only basic biology research are now focusing on getting new breakthroughs out of the lab and into the marketplace, and while some foundations are regionally based, many are looking for advancements in their field globally.  Family offices, too, are most often interested in opportunities worldwide.

To an entrepreneur unaware of how the world has changed around him, regional investment can become a self-fulfilling prophecy; the entrepreneur will focus their fundraising campaign on the traditional, mostly regional sources, and never reach out to the new global investors that might be very interested in the opportunity.

LSN Research in collaboration with Venture Valuation, Biotechgate Database has examined the geographical scope of the investors who take part in early-stage life science deals.  We looked at the trove of financial data available via the BTG Company Platform, and took a sample of small financing rounds ($10m or less) raised by companies developing a preclinical or Phase I therapeutic product.  From this sample, we aggregated a list of all the lead and co-investors who had participated in these deals, and then we took a more detailed look at each of these investors and assessed the range of their activities.  To keep things simple, we categorized the scope of each investor’s allocations as

1)    Global, anywhere on the planet where companies are a fit for investor.

2)    Continental, North America, Europe or Asia.

3)    Regionally, focused on small discrete geographies like Massachusetts, California, or specific countries in Europe.

Sample 1: From Biotechgate Company Database

 Lead and Co-investors that have Allocated <$10 Million to Pre-clinical or Phase I

As you can see, about 25% of the investors that are active in these early stage deals reported in BTG financing rounds database are global investors. To further support this, we also pulled data from investors in the LSN Investor Database who are willing to allocate under to $10 million in a single round into Pre-clinical and Phase I stage therapeutics companies.

Sample 2: From LSN Investor Database

Investor that are willing to Allocate under $10 Million and are looking at Pre-Clinical and Phase I

About half of the investors who take part in early-stage funding rounds are regional or continental players.  Government organizations dominate the regional category, and most angel networks are regional in scope, as are many VCs.  It’s worth noting that the BTG data is historical, and we can expect regional-based investment to be a shrinking category in the immediate future, as recent cutbacks to both US and European government funding in the name of austerity and sequestration will reduce the role of regional government in life science financing.

The other half of the investors in our sample are looking for opportunities more broadly, whether that be across a whole continent (such as pan-European investors and firms that look all over North America for opportunities) or worldwide.  Global investors include many big pharma firms and their corporate VCs, who naturally look worldwide to fulfill their strategic needs.  While some foundations are focused on regional development, many are eager to support important work in their fields of interest no matter where it’s taking place.  We also found that most of the family offices in our sample are global in scope, as are some VC and PE firms.  Wherever your life science company is located, you can look to these investors as sources of funding.

Early Stage life science investment is in transition.  This means that there is a clashing of the old ways and methodologies and the generally accepted status quo. The investor available categories have morphed as new players fill the void left by the early stage VC investors.  The challenge today is to get everybody up to speed on who’s who in the market place and educate the players on how to find the best fit for their capital needs. Below are 4 points to keep in mind when developing a fundraising strategy.

1)    Life Science fundraisers are in two camps.  One camp still hangs on to out-of-date strategy that the investor market process and protocol is as follows friends and family, angels, government grants, followed by VC’s.   This might have been true 5 years ago but is no longer relevant as new players have entered the arena and VCs have waned due to lack of funds and unproven track records.  The new process looks more like this: friends, family, angels, funding portals, government grants, followed by parsing the new investor landscape and determining who is a best fit for a fundraiser.  These new investors including single and multi-family offices, venture philanthropy, patient groups, corporate development, private equity, hedge funds, pensions and foundations.

2)    While many believe that emerging life science companies cannot canvass and get allocations from global investors and that their market place is limited to only regional investors, this is simply not true; each investor type has its own modus operandi, and while some might be local, such as angel networks or regional VCs, a corporate venture fund, foundation or a patient group may have no such requirement and will invest globally.  The profile and strategy of the life science investor determines their investment sphere.  The new investors on the stage today are typically global in scope.  Large global pharma companies that used to focus on late-stage opportunities are now looking to capture the value of emerging technologies; from the opposite direction, medical foundations that used to support only basic biology research are now focusing on getting new breakthroughs out of the lab and into the marketplace, and while some foundations are regionally based, many are looking for advancements in their field globally.  Family offices, too, are most often interested in opportunities worldwide.

3)    Investors are moving upstream and this creates a trend that in turn moves other investors to join in. Previously only certain investor types made early-stage investments, but now traditionally mid to late players are getting involved early and this then creates a pull on the rest of the investor base.  This makes early stage a topic of consideration for all the mid to late stage investor categories. Investors are demonstrating that in order to remain competitive you need to form early alliances and partnerships with emerging companies, or you will miss out.

4)    It has been well documented that VCs in general have underperformed in the early stage life science space and therefore have not been able to garner investors into their funds, forcing a tactical regrouping of their early stage strategies.

Global Investors Making Early-Stage Deals in Europe

As LSN’s mandate data makes clear, many life science investors are looking for opportunities all over the world.  Recent history bears this truth out; financing rounds for European biotech companies often feature investors whose activities are global in scope.  Here’s a few representative examples of investors from outside Europe who have participated in small, early-stage European biotech and medtech financing rounds within the last 3 years.

Broadview Ventures is a family office based in Boston that invests in early-stage cardiovascular and neurovascular breakthroughs worldwide.  The firm’s recent global investments include Finland-based Laurantis Pharma and Israel-based Vascular Graft Solutions Inc.

Industrial Bank of Taiwan Management Corporation manages a Boston-based life science venture fund that has made investments worldwide.  The firm’s portfolio includes Netherlands-based To-BBB.

New Leaf Venture Partners is a venture capital firm with offices in New York City and San Mateo.  New Leaf is primarily focused on the US but has nevertheless made several recent investments in Europe, including investing in Karus Therapeutics in 2012.

The Michael J Fox Foundation is based in New York City and provides research grants of up to $2.5m to biotech companies in the Parkinson’s disease field.  Since 2010 the foundation has offered grants to at least three European companies – Hermo Pharma Oy, AFFiRiS AG, and Sapiens Steering Brain Stimulation GmbH.

SV Life Sciences is based in Boston and has additional offices in San Francisco and London.  The firm has made several investments in Europe, including investments in seed rounds for companies such as Autifony Therapeutics, Vantia Therapeutics, and Bicycle Therapeutics.

And finally, many global pharmaceutical companies based outside Europe invest in early-stage biotech and medtech opportunities within Europe, including Merck, Johnson & Johnson, Astellas, Mitsubishi Tanabe, AbbVie, Takeda, and Baxter International.  These companies invest in Europe both via strategic in-licensing and acquisitions and also via their corporate venture capital funds.

 

By Lucy Parkinson, Research Manager, LSN

Another quarter, another round of number-crunching in the venture capital space, and as Q1 2014 has come to an end the message is quite clear; VC deals continue to trend away from early stage opportunities.  According to Pitchbook, who tracks venture activity in all industries, 1348 companies raised $15.4 billion from VCs in Q1 2014; in Q1 2013, 1856 companies raised $11 billion from VCs.  That’s 500 fewer companies getting VC funding, while the median deal size has doubled from $2 million to $4 million.

This trend is magnified in the life science sector, which represents 14% of VC deals.  According to PWC, this trend became clear at the end of 2013, at which point life science venture investment decreased by 15% year over year, while deal volume declined by 2% over the same period. Compared with the previous quarter, investment declined by 26%. Developing a single therapeutic product might cost a company $1b before the product can bring in so much as a dime of revenue, and that is largely incongruent with the shorter exit timelines that VC’s are seeking.  At LSN, we often encounter very early-stage life science startups running on NIH grants and hoping to step out into the world as their grant funding dwindles and be instantly supported by a big-name VC firm.  The Q1 figures send a clear message that it is unlikely to happen. However, this is clearly a major opportunity for investors filling the VC void (virtual pharma, venture philanthropy, family offices and the like).

Are there any upsides in the data?  Potentially two:  Firstly, VC funding for healthcare IT companies is booming, with Q1 venture investments up 78% over 2013.  It’s a new field with a lot of risk lying between early investments and eventual success; most of the funding flooding into the sector is being allocated in seed and Series A rounds, and some experts are concerned that this bubble might burst due to companies failing to hit the targets required to secure Series B funding.  Secondly, this trend is making room for more early stage investors from other categories who now have the opportunity to invest in emerging assets.

So what does this mean for entrepreneurs in life sciences?  Simply put, the data shows that things are still in a period of major transition, and the state of investment.  It is critical for entrepreneurs to have insight into where the capital is flowing to successfully navigate the changing landscape. It’s never been more important to have your ear on the ground regarding funding, or to work with a fundraising partner who does.  There’s dozens of new funds out there that might be a fit for your company, and there’s also increasingly many funding possibilities outside of accepting a venture capital investment.  Here at LSN we’re keeping an eye on the space, and we’ll keep you abreast of new trends as they happen.

Source:

http://www.healthtechcapital.com/blog/anne_degheest/wsj_beware_of_health_it_bubble_not_enough_actual_business_plans/#.U0QUg1dEVE0

By Jack Fuller, Business Development, LSN

LSN  regularly hosts a fundraising bootcamp at the for life science entrepreneurs at incubators, universities conferences, and other venues globally. The purpose of this bootcamp series is to provide a tactical overview on how to manage an effective outbound fundraising campaign for early stage life sciences companies.

The main points of focus in the workshop are:

·         positioning, branding and marketing collateral

·         Creating a global target list

·         Launching a campaign

·         Creating a dialogue with potential investors

Below is an abbreviated version of the presentation which provides an overview of the essential components of fundraising in this challenging environment. This is a great reference guide for entrepreneurs seeking to embark on an outbound campaign and serves as a primer for the scientist-turned-executive.

Download: How to Organize Your Outbound Fundraising Infrastructure

By Lucy Parkinson, Research Manager, LSN

Why have rare diseases and orphan drug development attracted so much investor interest?  That’s one question we sought to answer at the Redefining Early Stage Investments Conference on Monday 24th March.

Our orphan and rare disease panelists – Michael Draper of Sanofi, Deb Geraghty of Cydan Development, Debra Miller of CureDuchenne Ventures, and Jean-Marc Quach of The Alpha-1 Project, with David Sendak of Accelerate Brain Cancer Cure moderating the panel – collectively represent the breadth of interests in the space.  For rare diseases, a diversity of parties can come together to achieve a result far greater than what any one group could achieve alone.  There’s the potential for small biotechs to make huge scientific advances, and for patient groups to maximise the impact of the funding they provide.  While these investors talked about the challenges of the space – such as limited markets, the difficulty of finding sufficient clinical trial participants, and concerns for the safety of child patients who may be dependent on medications for the rest of their lives – all expressed a lot of hope for patients suffering from rare diseases.

So what does the rare disease space offer to investors?

Highly engaged patients, said Deb Geraughty of orphan drug accelerator Cydan Development Inc.  In a rare disease field, a well-organized patient group can supply developers with a network of scientific expertise and patients who will do what they can to bring cures to market – such as donating funds and taking part in clinical trials.

Clear targets, said Jean-Marc Quach of the Alpha-1 Project.  A drug that homes in on the starting point of a biological process (such as inflammation) might find its most direct path to market in a rare disease space.  The eventual market for these technologies may be far bigger than the rare indication; Michael Draper of Sanofi pointed out that orphan drug designation can serve as a gateway to validate a technology which could later be repurposed for use in much larger markets.  This path shows promise for neuroprotective agents, for example, and provides a great opportunity for big pharma to engage with breakthrough discoveries.

For nonprofits, the equation is different but the result is the same.  Jean-Marc said, “We funded tons of basic research to uncover new knowledge, but the logical next step is to take matters in our own hands and push the cure.”

And as Debra Miller said, if a patient group is supporting a for-profit company, it only makes sense to take an equity stake and be sure of seeing some return on investment that can be used to continue funding new research.  “All nonprofits should take a look at this.”

So how do you get orphan drug status for your asset?  According to Deb, “Apply as early as possible, with the data to support it.”  And the investment dollars are out there. “[Investors] want to be educated in how to make money by investing in rare diseases,” she told us. The key as an entrepreneur is communicating clearly, directly, and making your opportunity obviously compelling.

 

By Dennis Ford, Founder & CEO, LSN

Life Science Nation was featured in the Nicole Fisher’s Forbes article  “Reinventing Investment: The Funding Landscape Of Life Science Shifts For Good” on Monday! This article offers some great insights on LSN’s mission in the early stage life science investment space, and how the Redefining Early Stage Investments Conference is filling the funding gap left by venture capital. I encourage you to take a look and welcome your feedback!

By Michael Quigley, Research Manager, LSN

As a research manager at LSN, I spend my time researching, calling and interviewing life science investors from around the globe to find out where the money is, and where investors are planning to direct their funding. It’s an ongoing learning experience, and it has given me the opportunity to identify some interesting patterns. Here are few things I’ve learned along the way:

New Investors Are Surfacing to Fill the Void Left by Venture Capital

Due to a shift in the investor landscape, new entities are emerging to fund science that has been left behind by the VCs. Having spoken with many of these new investors it becomes apparent that being new is one of their greatest hurdles. They do not have the draw of big pharma or top 10 VC names that every industry blog article seems to reiterate as if those few sources was all there was to the life science investment landscape. These investors are more under the radar and as a result are looking for targeted deal flow.  From service providers going direct to new virtual pharmas looking to in-license assets and nurse them through the clinic, to foundations and family funds, these investors want to hear about potential opportunities and tend to be much more responsive than their more institutional counterparts. Additionally these investors tend to be much more targeted in terms of types and stages of companies that they are looking to invest in, so is it important to determine who they are, and where their focus lies.

Investors Want Companies to Be Open to Pivoting

Having asked many investors what they look for in potential investments, one quality sought by many is flexibility or the ability to pivot. Many biotech entrepreneurs are overly headstrong in what their target indication is or what they envision for their company’s future. In many cases it may be advantageous to target an alternate indication with a less stringent regulatory pathway first, begin generating revenue, then look to repurpose the product to the original indication. This is applicable both for therapeutics and devices, and is a function of the industry as it currently stands. Investors of all types are interested in time to market and the difficulty of the regulatory pathway so if pivoting your product’s focus to begin generating revenue sooner is a possibility, investors are going to be more attracted to companies that realize this and take the lower hanging fruit before going big.  Across the globe, regulatory agencies define the life science marketplace and you are better off trying to work in alignment with them when possible rather than swimming against the tide.

The one commonality between all of these issues is change. Following old roadmaps for investing and fundraising in biotech can be a fatal mistake. The industry is maturing through natural selection and only those investors and companies that are able to adapt to the changing environment will be able to stay alive and prosper.