Category: Redefining Every Stage Investments (RESI)

The Redefining Every Stage Investments (RESI) Conference is an ongoing conference series that provides an international venue for life science companies across Biotech, Medtech, Diagnostics and Healthcare IT and to source investors from around the globe, create relationships, and eventually, secure funding.

New Investors Join the Fray – CROs Leveraging Service for Equity

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By Michael Quigley, Research Manager, LSN

mike-2Life Science Nation tracks the full spectrum of life science investors, and is always at the forefront of emerging investor trends. One increasingly popular investor model in the space revolves around service providers engaging in equity deals with clients. LSN touched upon this emerging trend back in March, describing how CROs have begun to take positions in cash-strapped companies in exchange for providing services. Now, many of these CROs are becoming more focused on getting directly involved in a sophisticated manner. New players are bringing both services and capital to the table with several service providers spinning out their own dedicated corporate venture capital division. That’s right – several CROs are, for the first time, opening corporate venture arms.

Having spoken with several of these investors personally, they are savvy, strategic, and capable: They tend to be extremely knowledgeable of the technologies and science they are investing in. Typically, they have established powerful networks with strategic partners in place. Most interestingly, since the service provider owns portions of the companies that they are working with, they are further incentivized to perform their services as efficiently as possible and with the highest probability of success. This increased alignment of interest makes these partnerships not only attractive to fundraising companies, but also to co-investors looking to allocate capital. In an industry that is inherently high-risk, a partner who is an expert in the scientific and regulatory hurdles your firm is going to face is a massive advantage.

As CROs focus more on cash-strapped early stage companies and look to make greater returns, this model could very well become more prevalent. After all, who better to vet technology than the firms that have been running trials for years?  The current shift in the financing environment has left an opportunity for firms with expertise in the development process and significant capital to make massive returns. The fallout is yet to be seen, but as a fundraising company, is it important to stay focused on this emerging trend.

 

Next Generation Philanthropy, and How to make it Happen

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By Max Klietmann, VP of Marketing, LSN

Earlier this week, I had the pleasure of attending The FasterCures Partnering for Cures conference in New York City. This excellent event is focused on accelerating science in order to improve patient outcomes across the board. In attendance were major thought leaders, investors, philanthropic organizations, and life science innovators from around the world. A broad spectrum of topics was covered, but a primary theme that resurfaced (both in panel discussions and in my conversations during the partnering and networking sessions) is the idea of revolutionizing philanthropic engagement in innovative science.

One of the principal issues at play is the fact that top tier academic research too rarely makes its way to patients’ bedsides and doesn’t have much impact beyond some publications. We are truly in the golden age of science – technologies with almost unfathomable potential to impact diseases are emerging at an incredible pace. However, there simply isn’t enough capital being deployed strategically in the right place at the right time to move the science forward.

I was able to speak to a broad range of endowments, foundations, family offices, patient groups and other philanthropic organizations at the event on this subject, and was able to glean some interesting ideas from these exchanges. A few of these entities have really begun to translate their urgency into action. Noble intentions drive philanthropic action, but the business model is being re-evaluated. At the end of the day, bringing more therapies to market is what changes lives. One of the ways to accomplish that is having a foundation or endowment that focuses on supporting product commercialization. Based on the discussions I had over the last few months, I believe there are two primary elements required to successfully create a next generation philanthropy:

Focus on measurable outcomes: The most important variable in ensuring the success of the next generation of philanthropic organizations is an understanding of the full process of therapeutic development, and a firm grasp of how to move a product to the next level. Each philanthropy needs to know its strengths, and what actions it should focus on to join the effort. These actions should be accurately measurable, and focused on outcomes rather than inputs. In other words, philanthropists need to be able to say “we moved so-and-so many compounds into phase I trials” not “we gave so-and-so much money to academic research.”

Skin in the game: No matter how badly a philanthropic organization wishes to do good, it is always a challenge to align the intentions of a non-profit with a commercial product. However, venture philanthropy is a potential solution to the problem. By taking an equity stake via an evergreen fund (or another direct investment structure), organizations can be better incentivized to focus on research that can be commercialized. This is a key element in avoiding the all-too-common tragedy of great science staying in academia as journal publication material, without ever actually helping patients.

Philanthropic organizations are beginning to understand that their true value is as a catalyst for innovation, and those that are most successful in the future are the ones that adapt. Philanthropic organizations now have a choice to make – Either continue to fund academic research via grants, or find a way to make an active commitment to moving that science down the pipeline and into patients’ hands.

Device Companies Set Their Sights on China

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By Danielle Silva, VP of Business Development, LSN

In recent time, many emerging life science companies have begun to turn towards emerging markets for both capital and potential distribution opportunities. China has been a central figure in the discussion, and rightfully so: the nation boasts a large amount of new wealth (prospective investors), a lack of domestic innovation and a rapidly growing middle class requiring better healthcare (demand), and a government with the capacity to selectively accelerate industries via central planning (infrastructure). Though China presents opportunities across the board, it has become particularly attractive to a growing number of medical device companies.

A primary reason for this is that the demand for devices in China will almost certainly outpace developed regions like the US and Europe in coming years. This is a reflection of the increasing incomes of the emergent middle class (who want quality care and can pay for it) and the stated intent of the Chinese government to improve access to care. More hospitals and more consumer demand for care translates into a huge opportunity for companies and investors alike.

More importantly, China’s health system is developing in sync with several major device innovations that could be solutions for major diseases in the Chinese market. One example is the high rate of diabetes in China intersecting the proliferation of home-use devices such as glucose monitoring systems and insulin patch pumps. For Chinese consumers, this translates to time and travel reduction (and potentially lower costs), while for the Chinese healthcare system it means reduced strain on hospitals, clinics, and doctors.

However, there are several items that entrepreneurs should consider aside from the obvious cultural and language gaps: one primary challenge for companies looking towards China is the protection of IP in a market that is notorious for a lack of legal enforcement around technology. A strategy to protect against IP theft must be in place to enter the Chinese marketplace. Another major issue is price. Companies will likely need to follow a low-cost strategy to effectively capture the large opportunity, and it is a question of making the economics work. This puts cost reduction-oriented devices at a major strategic advantage, and will likely make them the subject of a great deal of investor interest. At this point, the full potential of the Chinese market has yet to be recognized, but one thing is sure – the opportunity is huge.

Microbiome – A New Class of Therapy

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By Max Klietmann, VP of Marketing, LSN

There has been a lot of buzz in the translational research arena as of late on the subject of microbiome technology. This field is still emerging, but much of the data coming out of academic research shows that this could be one of the most disruptive developments in the life science space in recent time. The concept changes the way that we look at the human body – not as a single entity, but as a community of bacteria that reside in (for example) the bowels. With cheap genomic testing, it could soon become feasible to create custom diagnostics and therapies relevant to the specific bacterial populations within a patient.

This technology is being referred to as metagenomics – essentially, the mapping of a bacterial community’s collective genome within a single patient’s microbiome. The most obvious consequence of the commercialization of this technology is the massive expansion of potential target sites for therapeutics. I’ve anecdotally heard estimates that this could potentially double the potential therapeutic angles available for pharmaceutical compounds.

The implications are huge for many major disease areas. Of course there is immediate relevance to IBD and digestive ailments, but there is also the potential for hyper-targeted antibiotics which could redefine the treatment of infectious diseases, and in turn help to reduce the risk of MRSA and other antibiotic-resistant disease outbreaks. Type II diabetes and cancers are also indication areas that could benefit greatly from this new field.

This research is still in its early stages, and no one really knows exactly what is going to emerge. Is this be another fad, or could it be the next monoclonal antibody and revolutionize our industry? The fallout is yet to come, but there is no question that a lot of potential investors, pharma, and translational researchers are excited and interested in seeing what happens next.

Capital from the Crowd

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By Lucy Parkinson, Research Analyst, LSN

LSN has been diligently tracking the evolution of the crowdfunding story as the JOBS act passes through the regulatory gauntlet. On October 23rd, the SEC announced interim rules for Title III of the JOBS Act, which covers securities crowdfunding. In summary, the proposed rules are as follows:

  • A company may raise a maximum of $1 million via crowdfunding in any 12-month period.
  • An individual may invest a maximum 10 percent of annual income or net worth (income greater than $100,000 anually) or either $2,000 or 5 percent of annual income or net worth, whichever is greater (income less than $100,000 anually). This is a total annual limit for each individual investor.
  • Equity crowdfunding may only be conducted via a registered broker-dealer or registered “funding portal.”
  • Crowdfunding requires an SEC filing 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of more than $500,000.
  • Annual reports and possibly more frequent reports (depending on final SEC rulemaking) must be filed with the SEC by any company that completes a crowdfunding round.

So, emerging life science companies could stand to benefit from this new avenue of funding, but it’s shaping up to be both narrowly limited and highly regulated.

In addition to creating opportunities for millions of new potential investors, the new legislation has also introduced a new channel for this capital – the funding portal. Registered brokers will be able to act as funding portals, but we may see many new entities taking advantage of the new, less costly option of registering with FINRA as a funding portal. The new regulations state that a company can only crowdfund via one broker or funding portal each year, and as these portals tend to charge fundraising companies for use (typically by charging either a listing subscription or per-transaction fees) while letting investors use the sites for free, we should see intense competition between funding portals to sign companies up as users.  The portals will list investment opportunities and act as issuers of stock for liability purposes, but aren’t allowed to offer advice to investors about which companies to back, nor are they permitted to invest in the companies they list. (1)

Also, as mentioned above, the cap on fundraising is $1 million per year. That’s a hard limit. $1 million in new capital would be a boon to early-stage life science development looking to get of the ground, but in the highly capital intensive later stages, it’s unlikely to be a cure-all to fundraising challenges; a million dollars won’t pay for a Phase III trial. In addition, there is the regulatory/compliance challenge of dealing with potentially hundreds of new concerned investors who have to be provided with disclosures and regular financial statements regarding your firm.  This is a huge cost burden for a startup company to bear. And as crowdfunded equity can only be resold to accredited investors (an unaccredited crowdfunder can’t sell their stock to another unaccredited investor while the company remains privately held), these are likely to be long-term relationships unless the early stage crowdfunders are bought out by an institutional-type investor down the line.

The life science sector ought to fare better than most in the new world of crowdfunding; many people will want to invest in a cure for a disease that’s touched themselves or their families, and many more would like the opportunity to try out direct investing with a low barrier to entry and high potential returns.  But the reality of the life science industry means that many of these nascent cures will fail to reach the market, and we can’t know how new investors will react to these inevitable losses. This could be the start of a new era, but the proof will be in the pudding.

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(1) Crowdfunding Regulations Summary by Kevin Laws of AngelList

Introduction: Phone Canvassing Issue

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By Tom Crosby, Marketing Manager, LSN

Due to the degree of interest generated by last week’s Email Marketing Issue, LSN is continuing the discussion of outbound fundraising and marketing tactics for life science entrepreneurs. This issue is centered on the topic of phone canvassing, which can be a real challenge to execute effectively, even for seasoned life science fundraising executives.

As the investment landscape continues to change, the ways in which outreach is conducted has followed in step. The typical investor today is absolutely inundated with emails and phonecalls from life science CEOs hoping to secure a face-to-face meeting. For this reason, it takes a solid plan, laser-focus, and tenacity to orchestrate an effective phone canvassing effort.

So, if you’ve successfully got your email marketing materials set up, and your list of targets in line, keep reading for tips from LSN staff on the next step in the journey of fundraising – the ever-daunting followup call. Alternatively, you can click here to download LSN’s Phone Canvassing Workshop.

 

The Importance of Researching Potential Prospects

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By Danielle Silva, VP of Business Development, LSN

Many life science fundraisers believe that the first step in phone canvassing is simply picking up the phone. Although the “smile and dial” method may sometimes work, it is much more effective to adopt a more strategic approach to phone canvassing and take a minute to understand your target before reaching out. Before speaking with an investor, you need to get a better understanding of the type of investor you are speaking with and get some further background on their firm. Taking a look at their past life science portfolio companies or past investments is also important to do if this information is readily available on their website or through press releases. You also need to understand who you should speak to, and realize that this person’s role or job title may not be the same for every kind of investor.

A good approach to getting more information is by again simply looking at the company’s website. Going through press releases, or the news portion of the company’s site can also be helpful, as well as using websites such as LinkedIn to get a better understanding of the right person to reach out to, as well as understand the structure of the firm you are contacting. Sometimes, finding the correct contact at the firm can be as easy as simply asking an administrative assistant who the person in charge of deal sourcing is, or who handles life science investments.

However, there is one pitfall to asking the secretary who the correct contact is. Often times this will be a red flag to the administrative assistant because it tells them you are not familiar with their firm. If they believe that you are cold calling, they are more likely to send you straight to the person’s voicemail, or give you a general company mailbox to send an email to instead of putting you directly in contact with the person. Even though you may be able to call back and the administrative assistant may not remember that you called previously asking to point you to the right person, this approach can often times be a way in which fundraisers get stonewalled. This is why a life science fundraiser needs to do as much research as possible before picking up the phone and dialing.

Before you start calling, you should also know the individual’s title as well as what their role is in the due diligence process for life science investments. In some cases, you can easily figure out the person’s role from their title – but sometimes it is much less obvious – especially in the case of family offices. You should always check their website to see if there is a description of this person’s role. If there is none, see if they describe the position on LinkedIn; even checking the groups the person is a member in on LinkedIn can be useful.

After doing some research on the person you are trying to get in contact with, the next step is determining a time to reach out to this person. Catching the person at the right time of the day is key. Although this may seem obvious, you should first check what time zone they are in, or simply do a search on Google with “time in” then the name of the investor’s city preceding the aforementioned phrase. If you’re on the East Coast, you will have to try to call European investors early in the morning, unless calling the UK, who you may still be able to reach around 12 pm. If you’re on the East Coast, trying to call the West Coast then it’s easiest to reach out to these investors during the afternoon. If you’re on the East Coast trying to reach investors in Asia, then you may have to dedicate your evening to trying to reach these investors. If you’re based on the West Coast however, you should dedicate the end of your workday to reaching these investors.

Above all else, being successful at phone canvassing necessitates that the fundraiser stay focused on the task at hand and committed to sticking to all of the aforementioned processes necessary to prepare for the call. For this reason, all other tasks need to be put at bay when you are engaging in a phone canvassing campaign. When you stay focused and start to make call after call, your number of calls will start to increase to 20, 30, and maybe even 50 dials. The mantra of phone canvassing is that it is a numbers game; to be successful, getting to this level of focus is key.