Next Phase Newsletter

By Dr. Karin Bakker, Managing Director, PharmaPlus Consultancy, B.V.

LSN’s deals database is a powerful tool for investors and corporate strategic groups looking to follow key trends in the area of licensing and product/technology specific transactions. This week, LSN takes a deeper look at three popular parts of the space with compelling activity in 2011 and 2012: These are oncology-focused therapeutics, antibodies, and early-stage products. The tables below explain the latest shifts in the space.

Worldwide deals increase dramatically: For oncology deals done between 2011 and 2012, there was a nearly 20% rise in deals that had worldwide licensing rights.

This means that the licensee has exclusive rights to research, develop, manufacture & commercialize, regardless of territory. Of these deals, at least 41% in 2011, and at least 26% in 2012, were reported to pay double-digit royalties to the licensor (10% or more.) It is important to note that this number tends to fluctuate positively, because royalty figures are not necessarily publicly disclosed in licensing deals.

In at least 7% of the deals of 2011, and at least 15% of the deals in 2012, equity payments became publicly available in the database. In 50% of the deals with equity in 2011, the investor was a large pharmaceutical company. In 2012, this figure fell to 25%. This statistic highlights another trend – companies are licensing more to smaller private companies than to big pharma.

In terms of deals involving antibody-based therapeutics, there was a 2% rise (from 28% to 30%) between 2011 and 2012. It is important to note here that a majority of these are early stage deals – for example, deals with research alliances and companies in the preclinical stages.

In summary, there is an increase in licensing activity surrounding oncology, antibody-based therapeutics, and among earlier stage products. This shift represents a positive trend for those emerging biotechs targeting this major indication area, who are considering early stage licensing as an alternative route to capital or exit.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Dennis Ford, CEO, LSN

LSN has written extensively on several facets of the capital-raising process, from the various new types of investors active in the space, to the technologies most actively being targeted by investors. However, we have not yet delved into the actual timeline required to raise money. This is the big question, as most emerging life sciences companies exist in a life-or-death situation. A misconceived notion of the required timeline to capital is the kiss of death for many; this article seeks to correctly define this critical period in the life of a company.

First things first: all of your collateral must be in order – this includes getting the business plan written along with the necessary investor presentation documents (powerpoint, executive summary, and website – yes, your website is an investor presentation tool!). This is a multifaceted process, which goes far beyond just explaining the science. Adroit entrepreneurs will know that as they write their plan, they are also creating a brand and a message that they are delivering to a marketplace of investors, and hopefully beyond. When writing the plan, keep in mind that the document you are creating is for distribution, and that it will be compared and contrasted with other companies that are going after the same capital as you are. If you take the time to present the data and create compelling facts & forecasts around your plan, then you have a leg up. Technology, market sizing and financial forecasting are all important elements, but don’t forget the most important one: your plan is your identity as a company! It can take anywhere from 6-8 weeks to develop and write a business plan, and then a considerable amount of ongoing time to hone and edit it as you move through the fundraising process.

The next step is compiling a global target list of investors that are likely candidates. You need to do your research and outline all of the likely candidate investors. This includes researching past investments in products like yours, groups targeting your specific disease area, and other relevant criteria that are major components of your company. This is why it is so important to have a cohesive understanding of who you are before seeking out investors. You will also want to research & target investors that have declared that they have a current or future mandate for investment in products that are like yours. This can be easy if you decide to buy an up-to-date database of investors, such as LSN’s. Alternatively, it can be incredibly time consuming if you decide to do this by vetting a list of likely investor fits through Internet research. Essentially, this is a process that can take a few clicks of your mouse with a good database, or over a month (or more) if researched manually. Here you must remember that accurate, current information on investors and investor contacts is paramount. Nothing creates thrashing like out-of-date data.

Then it is off to the outbound marketing campaign, and actually contacting investors – creating dialogue that turns into a relationship and, eventually, nets you an allocation. Contacting investors is a tedious, time consuming, and difficult process. It takes incredible tenacity to work your investor list and stay on the mission. Most of the time you spend will be doing referred outreach, cold calls, follow up, and more follow up. Most meetings involve multiple incantations and various follow-ups. This is because, realistically, it takes 2-6 weeks to regroup between follow-ups. What’s more, repeated meetings with various stakeholders can take months. All in all, the process of creating dialogue and developing a relationship takes a serious commitment of time and effort.

This is why it is important to know and understand the cycles of a fundraising campaign. Fundraising used to be more product-centric, but now a big part of the investment is vetting and building a relationship with the executive teams. Fundraising is a numbers game, and if you do get an investor on your radar screen, and the interest is really there, it is a still at most a one-in-four chance of getting through the due diligence, and an even smaller chance of being selected and funded after that. The fact is you really have to find, develop, and maintain an investor target list that includes hundreds of investors that are a fit to go after. If you understand this process, you will understand why it takes a dedicated commitment to raise capital, and therefore, why it takes so much time.

The last step, which is similarly time consuming and expensive, is to get you and your lawyer negotiating and closing the capital allocation down, and getting the cash into your account. Although there are no hard rules on this process, here are some of the things I’ve observed:

• If you are fortunate enough to be in the right place at the right time with a compelling product or technology, you can raise your required capital in 3-6 months, but this represents a very small fraction of the players. Adding to this, angels, venture philanthropy, and patient investor groups can act swiftly, but they are a minority of investors. This is largely an issue of “passion versus risk” – meaning the venture philanthropy and patient groups move faster because of a sense of urgency in finding a cure.

• From my firsthand accounts with fundraising clients, somewhere between 6 and 12 months is a reasonable timeline to raise capital, assuming investor climate is suitable and proper campaign execution is present.

• The rest of the major categories of investors have firm “institutional” best practice investment processes. This means a stringent, time-consuming methodology and adhering to established protocols for the particular investment mandate. In other words, it takes time.

• 2008 and 2011 drastically elongated fundraising timelines (for obvious reasons) to 9-18 months. This is beginning to soften now, but things can still be tough.

• Investors are not going it alone anymore, so “herding” spells more time, as more players opt in.

• Entrepreneurs can plan on spending around 1,000 hours (or about 9 months), which is at the top of the bell curve in my estimate. The 6-9 month point is when you will have a good idea of your funding potential in terms of investor’s feedback and interest. If it’s not working out, something needs to change.

• A campaign is a living vehicle that needs to be honed and morphed as the investor reaction is calculated, which either enhances or delays your timeline.

• Finding the right investor fit is critical. If you don’t achieve this, you’re looking at churn, churn and more churn – which can be expected today.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Max Klietmann, VP of Research, LSN

As LSN has been tracking the shift in the investor landscape over the past year or so, an interesting trend has emerged among some boutique investment banks in the space. Traditionally, investment banks in the life science arena were more focused on institutional transactions, and buy-side & sell-side activity. However, as family offices have begun to play a more significant role in the space, some tactically-minded I-banks have reoriented their businesses to focus on serving these constituents.

This is not a trend among the bulge bracket banks for several reasons: first, there is too much separation between the investment banking and private wealth business areas. This lack of communication makes it hard to consistently source direct investment opportunities for family office clients with specific interests. Secondly, family offices want industry specialists to serve as navigators in the space – they are not merely looking for an investment advisor. Finally, the family offices tend to prefer the personal touch gained by working with a smaller, more flexible boutique partner – it is simply the nature of this investor group to look for long-term relationship potential.

The boutique banks that are doing this effectively are maintaining a custom-tailored approach – they are taking a family office’s interest in a specific disease area, and enhancing their search with institutional quality deal sourcing, a high level of industry & sector expertise, and high quality due diligence processes. This yields superior results for family offices that typically have a genuine desire to make allocations, but lack the technical insight to navigate the space on their own.

So what does this mean for the space? Beyond investment banks having a new prospective client base in the life sciences space, there are some other very interesting considerations to make: Entrepreneurs targeting capital should consider boutique, industry-specific investment banks as a source of potential investors. Family offices looking to enter the space should evaluate whether one of these entities might be the right partner with which to approach direct investment in life sciences. The sands are shifting, and those that adapt to these trends first will have the upper hand.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Dennis Ford, CEO, LSN

The single most important issue in the life sciences space today is that traditional sources of capital have slowed, creating a void, and fundraisers are left navigating using outdated maps & trying to play catch up. Anyone who has recently attempted to raise capital knows that this causes a lot of frustration and churn. Times have changed, and adjustments must be made. There is a distinct sentiment that the old funding models were broken to begin with (which I won’t belabor here), and the past investor segments aren’t going to return. The new landscape is substantially different, and new investor breeds are emerging across the space. Enter the Venture Philanthropist.

Venture philanthropists, or VPs, are extremely active investors and want to see results. However, this is not your typical exit-hunting venture firm; VPs mission is to speed up medical progress by eliminating the myriad of obstacles that researchers face, thereby hastening the delivery of breakthrough solutions to patients. Essentially, we’re talking about a mandate for medical progress and improved outcomes (hence philanthropy). VPs are impatient, and their goal is to accelerate the development of treatments and cures for the world’s most challenging diseases. There is a high degree of direct involvement as these investors are hands-on – they are more open, and therefore, flexible deal terms with multi-year allocation timelines can be negotiated. VPs know how to get things done, so expect milestones and carefully scrutinized metrics, along with action plans & organizational input.

VP firms provide funding for scientists and young life sciences companies in order to move along the development of therapies for certain diseases. Unlike traditional philanthropic organizations, venture philanthropists expect the companies and individuals they invest in to achieve certain milestones and focus on accountability. This isn’t just funding basic research; it’s driving products to patients as quickly and efficiently as possible.

These investors are becoming increasingly important, especially due to many scientists’ inability to translate discoveries into compelling market opportunities, and because of impending cuts in the NIH budget, which could cripple future therapy development. Venture philanthropy currently only represents less than 3% of the spending on medical R&D in the US, but this figure is expected to grow as the need for funding from scientists and early stage biotech firms continues.

There doesn’t seem to be a global source on exactly how many of these Venture Philanthropist entities exist, although preliminary research indicates around 150 and growing. Both North America and Europe have burgeoning grassroots groups that are starting to organize and recruit fellow family offices, using the ideology of expediting science for the good of the world.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Danielle Silva, Director of Research, LSN

There are a number of investor groups that are playing an increasingly significant role in the life sciences space as of late. One of the most compelling and motivated investors to enter the space are patient groups. These are indication-specific sources of capital that want to bring science forward in a distinct disease area. This includes a strong emphasis on carrying drugs across the “Valley of Death” to accelerate progress towards a cure. Patient groups essentially allow those afflicted by a disease to vote with their wallets to bring treatments to market, rather than seeking exit opportunities or financial returns.

At a basic level, patient groups are a collection of individuals who are afflicted by a disease that come together and mobilize to find cures for a certain affliction. In the past, patient groups often times partnered with foundations or venture philanthropists in order to make an investment or donation. One example of this is the Cystic Fibrosis foundation partnering with a number of patient groups and Aurora Biosciences [1]. However, we are now seeing more and more of these groups mobilizing others to make a strategic investment to more directly improve patient outcomes.

Patient groups are taking an innovative approach to investing in the life science space, and are becoming empowered, investing in promising companies & researchers. Patient groups will often times take a strategic approach to attempt to bring many parties together to push research along in a certain area. Generally, patient groups will try to bring together scientists that are researching different areas of the disease – usually, they will also try to find some of the best and most well known scientists in the space in order to gain further legitimacy. This is also helpful because it creates a collaborative environment amongst scientists who are researching the same disease area. Patient groups then establish their clinical network – which is a network of patients that can be utilized for clinical trials for companies that they invest in (essentially utilizing the members of the patient group that are afflicted by the disease). The final step for these patient groups is to bring biotechs / big pharma into the picture, who in turn help the scientists to commercialize their research.

Patient groups are also dynamic because they almost create an ecosystem within their particular disease focus. Generally, patient groups are huge advocates of sharing as much information as possible – and help researchers even outside of their network gain access to research and data more quickly and easily. Patient groups also help patients to educate themselves, and allow them to see the various options that are available to them that may not yet be FDA approved. Thus it is expected patient groups will start to become an increasingly major player in the life sciences space because of their collaborative nature, and gain the ability to bring together different groups to work towards a common goal.

[1] http://www.xconomy.com/national/2012/04/09/investing-in-biotech-isnt-just-for-the-investors-anymore/

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Michael Quigley, Research Analyst, LSN

LSN draws from the vast and talented pool of university & collegiate undergrads in Boston to recruit research analysts for its team. Michael Quigley is a Senior at Bentley University studying Economics and Finance.

It is no secret that the number of investments being made in the life sciences private sector is increasing at an extreme rate. At Life Science Nation, we’ve tracked over 4000 individual financing rounds in the space over the past few years. As is visible in the chart below, things are moving at quite a clip:

This may seem like great news for entrepreneurs looking to start up a life science company. With the number of investments increasing so rapidly, access to startup capital appears easy to come by. However, as anyone who has tried can tell you, this is absolutely not the case: Despite this increase in investment rounds, one trend that our data makes strikingly obvious is that the growth rate of seed and startup financing rounds is growing at a much slower pace.

This lack of growth is something that is, in part, a result of young life science companies inability to find the right fit in terms of funding partners. This problem is becoming more evident as competition for capital is increasing as traditional capital sources evaporate. Another factor contributing to this trend is that some investment firms, in particular venture capital, are looking more towards investments in the space with a shorter period to exit. They don’t want to hold a company for longer than they need to make a return on investment since the venture model no longer works well for early stage life sciences investment. The result is this “Valley of Death” we so often refer to, when discussing early stage fundraising.

When taking both of these factors into account, there is a portion of this industry that is being both undersold (due to lack of fundraising capabilities) and under-examined (due to the desire for faster ROI). As time progresses if this gap goes unfilled, there will be a pool of strategic players (Big Pharma) with painfully dry pipelines, and a shortage of prospects developed enough to in-license or buy up. Consider this a call to action: Life science entrepreneurs – throw out your old maps and start looking at new strategies and opportunities for finding sources of capital. Investors – evaluate emerging opportunities and take advantage of the upcoming demand explosion for developed assets. Change is upon us, and those players who will come out on top are those that adapt first.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Max Klietmann, VP of Research, LSN

Incubators have become an increasingly integral part of the life sciences landscape. They play a key role in the advancement of nascent technologies from an academic research stage to commercial potential. However, in my discussions with many emerging life science entrepreneurs, I’ve learned that there are a number of myths and misconceptions about what value incubators really provide. However, statistics consistently show that the value of adoption by a good incubator considerably decreases risk and time to market. This article seeks to explain exactly what incubators are, how they can help move your company forward, and what to look for when evaluating an incubator to partner with.

Incubators in the context of life sciences can be loosely defined as a shared laboratory space to facilitate the growth of early stage companies and technologies. They are often run by universities, state or regional economic development organizations, research institutions, large industry players, or some combination thereof. The most basic mission of these organizations is to increase the success rate of early-stage companies for a variety of reasons. These typically include identifying future customers, creating valuable jobs within a certain region, or to find early-stage technologies that could be future investment or partnering opportunities.

A good incubator committed to its constituents offers a number of powerful advantages – First and foremost, there is the advantage of sharing space and equipment, which means massive cost savings. This is a huge advantage in the current investment environment surrounding life sciences, as capital efficiency is becoming a primary focus of investment evaluation in a highly capital-intensive space. Second, a good incubator offers resources and fosters an ecosystem that can help emerging companies to quickly fill gaps, learn best practices, and develop a more informed strategy to reach the market. These benefits can take the form of pro bono legal or financial services provided by firms seeking out future clients, consultative services provided by the incubator itself, or simply being surrounded by other entrepreneurs. Finally, it puts your company in the context of a network that helps to build out a highly compelling team. Most life sciences entrepreneurs previously existed either in the context of academia or within a large biopharma. They may be brilliant scientists developing cutting-edge technologies, but they lack the business sense to fully comprehend that their asset is the basis of a business, not just a research publication. Incubators provide a network that can help entrepreneurs find the right people to fill this gap.

All of these sound nice, but will they actually increase your company’s probability of success? In short, yes – According to the National Business Incubation Association (NBIA), partnering with a hands-on incubator (not just rental lab space), doubles the likelihood that a company will still be operating five years later. This is because incubators exist to move companies forward and get them ready for their next round of funding. Considering that there has been roughly a 50% funding drop for early stage companies over the last two years, incubators clearly provide a huge advantage in this regard.

So how do you pick the right one? Fit is the most critical piece of the puzzle – It isn’t necessarily the most prestigious incubator that you should be focusing on. Look for those that provide services relevant to your firm, and ideally are specialized in helping companies similar to yours. Shop around – ask how long a typical member remains in incubation before moving to the next level, and make sure the organization is personally committed to your company’s success. Making this evaluation should be a carefully-planned and well thought-out decision. A solid relationship with a strong, hands-on incubator is one of the easiest ways to decrease risk surrounding your company. Heck, you may even learn a thing or two!

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital