By Lucy Parkinson, Research Analyst

It’s been three months since the decision came down on Association for Molecular Pathology v Myriad Genetics, the Supreme Court case that determined that naturally occurring genes cannot be patented. As one could have predicted, this subject was heavily discussed among investor panels and company presentations. The ruling reflects a paradigm shift, and from watching biotech presentations at the Redefining Early Stage Investments Conference, it was evident that the result of this case has had a significant effect on the business plans of companies, especially in the genomics space.

The decision has produced winners and losers. Myriad Genetics, the main player in the supreme court case can look forward to much more competition; formerly, the company had a 75% monopoly on tests for genes that predispose women to ovarian and breast cancer. (1) Since the decision came down, Myriad’s shares have fallen from $32.50 to $25.23 today. (2) Among other companies, there are fewer clean-cut winners and losers, but there was some consensus among both investors and company CEOs on what the implications were for the industry. Here are a few of the primary points we heard about at RESI:

There has been an “IP re-shuffle.” Cash has been sunk on IP protection or on licensing DNA owned by others. These are asset investments that are now rendered valueless. This has important points of impact – mainly, established players in the market have lost their competitive advantage to more nimble emerging players (who are now attractive investment targets).

Secondly, this IP is no longer an expense for many companies that licensed gene IP in the past, meaning a massive improvement in cost-efficiency. This also means that companies can’t simply rest after patenting genetic IP, they need to maintain a competitive value position, which means more innovation and better drugs coming to market. At RESI CEOs were generally excited about the ruling, and investors were excited about the wealth of new opportunities that are now attractive propositions.

Strong product lines are reaping rewards. This is so often the case in life science; a solid pipeline wins out over one good asset. The Supreme Court’s decision means that companies have to do more than own a DNA IP asset.  The real value has migrated to innovative genomics technologies, and the pitch has changed accordingly. Rather than offering sole access to a gene test, companies now aim to offer faster, more accurate tests than their competitors. In presentations at RESI, speakers stressed the value of assets they’ve developed that are covered by IP protection, such as the sequencing algorithms that read RNA; those assets put these companies in a better position than competitors whose future revenues had relied on the IP value of DNA.

Some companies now have a better product. Companies that offer genetic tests can now broaden their product lines without having to worry about licensing individual genes, and this opportunity to build value should be a significant attraction for investors.

And going forward, the biggest winners will be patients, who can look forward to cheaper, better diagnostics unhindered by litigious DNA IP holders.

There is no doubt that this ruling will have a resounding industry impact and cause a profound shift in how investors view this area. Lower cost entrants into the marketplace are poised to garner significantly more interest from investors, but only if they have a sound strategy for maintaining a market position. Brace for impact!

1. Fidler, Ben. “RainDance Secures $20M, and a Believer in Myriad Genetics.” Xconomy RSS. Xconomy, 29 Apr. 2013. Web. 20 Sept. 2013.

2. http://www.marketwatch.com/investing/stock/mygn

By Max Klietmann, VP of Marketing, LSN

September marks the beginning of the life science industry conference season. Conferences can be a phenomenal way to generate customer leads, source investor prospects, and discover strategic partners. However, oftentimes these events are heavily underutilized from a marketer’s perspective, minimizing the potential value of participating.  This article is intended to serve as a primer, highlighting some strategies that will increase the value to be drawn from the conference and make these events worth your while.

Do your homework – It is never wise to go in blind – Weeks in advance, you should invest some time and energy in finding out exactly who is going to be attending the event and identifying your top targets. This will help you navigate networking sessions more effectively, and will help you cut through the noise.

Begin your networking before the conference – A well-executed outbound marketing campaign in the weeks leading up to the event will allow you to start a dialogue and “come in warm.” Follow up with your hottest prospects on the phone as well, so that they already know you when you see them at the event. This is especially true for partnering conferences, where your meetings are under time pressure. Having started a dialogue beforehand allows the meeting to start with “As we discussed last time…” rather than “Hello, allow me to introduce my firm…”

Stay organized – Collect as many business cards as possible and take diligent notes. Things will begin to blur in your mind around meeting 25, but being able to recall that your meeting partner’s kids just started second grade in your follow-up emails and calls will keep you personable and will help to build a relationship quickly. Make sure you have a quality CRM to get this information logged as soon as you are back in the office.

Follow-up – The end of the conference marks the beginning of the most important task – follow-up, follow-up, follow-up. No matter how well you did your legwork or how many meetings you scheduled, it is all for naught unless you invest in diligent follow-up. An excellent dialogue can go cold quickly if it isn’t maintained. The most important question to ask at the end of every conversation is “what’s the next step & how do we get there fastest?”

These guidelines should help you be more productive in your conferences this season, and increase the value-per-dollar of participating in these events. Remember, a one day conference requires three weeks of pre-planning and over a month of follow-up, so plan accordingly. Now get out there!

By Dennis Ford, CEO, LSN

LSN is counting down the last few days to our first investor conference, and I am delighted to report that it looks like it may be a great success. Attendance is 275 and climbing, over 25 sponsors/exhibitors, the who’s who of early stage investors under one roof, and the leading biotech and medtech innovators from around the globe. I always preach about the problem in Life Science is “which map are you using to navigate the changing landscape? The old outdated one or the new current accurate up-to-date-one. Please click the link below to see the new life science map that we have used to create the content for the conference.

Redefining Early Stage Investments Conference

I also thought it fitting to share with the LSN readership some musings about the trials, tribulations and lessons learned in composing this next-generation investor conference.

The Idea for the RESI conference was sparked by LSN’s experience attending the full global life science investor conference circuit, which frankly was universally disappointing. These conferences reflected an obsolete perspective of the industry, were defined by an outdated roadmap of the fundraising landscape, and (most frustratingly) didn’t have any investors! I mean imagine the shock: barely an investor to be found at an investor conference!

LSN is a research and data company that tracks life science investment, so we knew they were out there.  Specifically, LSN is specialized in tracking direct investment activity in the life sciences space as a neutral third party, and it was immediately apparent that the typical life science investor conference yielded minimal, if any, value. So earlier this year, being the guerilla marketers that we are, LSN embarked on a mission to deliver the message of the new investor landscape to the masses.

First, LSN tried to partner locally with some of the leading research universities in Boston. All agreed with the premise and called the idea a noble effort, but all we were able to achieve was some enthusiastic discussion. These organizations simply didn’t have the flexibility and impetus to create a what LSN deemed would be a “disruptive” conference around the new categories of investors in the life sciences. Next, LSN was invited to run some sessions surrounding the new investor landscape at a few of the side conferences revolving around JP Morgan’s San Francisco, event – the sessions had an impressive attendance and validated the demand for this type of tactical investor insight. It was at this point that LSN decided to launch into creating a full-force investor conference. After all, if you want it done right, you’ve got to do it yourself.

LSN approached a number of potential partners; regional bioclusters, life science information publishers, you name it – However, it was impossible to find any large players willing to risk endeavoring in a first-time conference focused on a concept that many industry incumbents just are not current with – no matter how real. So LSN began marketing the event on a grass-roots basis to customers, friends of the firm, and network connections until a certain level of momentum had been generated. That’s when the fire started to spread and really got the RESI conference started. The RESI conference has at this point generated a lot of industry buzz and that attention doubled anticipated attendance. The venue providers have had to adjust twice already to facilitate the approximately 300 investors and biotech/medtech CEOs confirmed forecast to attend.

The lesson learned here is that you need to be able to see what the industry needs and what the existing players aren’t providing. LSN saw that investor conferences don’t work today, because the traditional roadmap is no longer accurate. This gap is where the opportunity for disruption exists. RESI is poised to be the most disruptive event in early stage life sciences this year – a glance at the attendee list is an endorsement in itself. So what are you waiting for? Come join the revolution!

By Michael Quigley, Research Manager, LSN

The Medtech space has had a painfully slow start to 2013. With venture financing remaining scarce, a serious dip in FDA approvals, and the value of M&A activity at pace to be at a 10-year low, slow may be an understatement. Many of the larger companies in the space have been shedding segments of their business in order to specialize and become more efficient. The implementation of this slimming down will undoubtedly have a negative impact in the number of smaller device company acquisitions by Big Pharma. The drivers of this lackluster performance include the 2.3% medical device tax implemented in the beginning of 2013 by the JOBS act, heightened criteria used by the FDA to gain pre-market approval, downward pricing pressures on devices, and the underlying general economic uncertainty around the globe.

            While the FDA has long been attempting to increase its efficiency in getting good products on the market, I wouldn’t expect anything more than a slight relaxation of criteria for approval in the 2^nd half of 2013. As capital continues to pour overseas and the bottleneck in the FDA gets larger and larger, a more serious change in the approval process may be needed for American device manufacturers to compete. On the bright side, as time goes by, and more investors become accustomed to the impact that the medical device tax has on their potential investments, I see investment interest in all stages having at least a slight rebound in the near future.

What early stage companies need to do to succeed in this kind of capital-dry and regulation-burdened system is twofold. First is to make innovation and comparative advantage ingrained in the company’s brand. Investors aren’t interested in minor tweaks of existing technologies anymore because the FDA has raised the bar. For years, medtech companies have been able to realize large revenue streams from incremental innovation, but over the years, those returns have been diminishing. Whenever dealing with potential sources of funding, having the advantage that your product holds over the current market needs to be paramount.

Secondly, companies need to look to alternative sources of funding (as well as traditional ones) to develop a target list of potential investors. Building a list and establishing relationships and meetings with a myriad of potential partners is crucial in this type of investment environment, regardless of your company’s stage of development and level of innovation. Forming these bonds early and continuing to build on them going forward is seemingly the only way to get though the extremely capital-intensive process of getting a device on the market.

By Vishal Chinchwadkar, Research Analyst, LSN

Can a novel financing tool be the answer to cure some of mankind’s greatest medical challenges? Andrew W. Lo, a hedge fund manager and a finance professor at MIT, recently proposed a revolutionary idea to promote research for cancer. Mr. Lo has suggested the creation of a $30 billion “megafund” targeted at the singular goal of maximizing cancer therapy development. The concept aims to create a diversified portfolio in a single broad indication to mitigate risk by diversifying the fund’s portfolio. At the most basic level, it allows a single large investment entity to tolerate early stage risk by diversifying its allocations along the entire pipeline. This is critical in an indication that affects millions, but remains a major therapeutic challenge (largely due to funding gaps).

Private partnership structures, such as those used by venture capital funds, can’t justify the creation of a diversified portfolio because of the timeline associated with the full development cycle of a therapeutic. Thus they often focus on a specific development stage and hope to pass their investment off to another entity further down the line. The megafund structure is different in that it has enough capital to tolerate the broad diversification of capital across the entire therapeutic development landscape.

Even more interestingly, the megafund structure is organized in such a way that It could draw on capital (at least in part) via the public capital markets via securitization. Securitization is a common financing tool in which capital is obtained from a diverse group of investors by means of equity and debt in order to have claims in the biomedical research. It may seem naïve that so much capital could be raised in a generally poor economic climate, but given the low-interest rate environment, the timing may be ideal for issuing long-term debt.

The megafund concept signifies a paradigm shift in how capital could be allocated to major diseases in the future through a broad-based investor audience, but allocated by experts. Having a skilled management team in control of a portfolio, is a major factor. The public market capitalization of such a fund allows universal participation (like crowdfunding), but keeps experts in control of the vetting of technologies. Within a single portfolio, the open sharing of data, knowledge, and resources across hundreds of research projects can be of great benefit to scientists, investors, and society as a whole. Megafunds might just be the biggest shift in how companies are funded in the life sciences arena moving forward.

 

By Danielle Silva, Director of Research, LSN

Time after time, I’ve noticed that many brilliant scientists continue to deliver the wrong kind of pitch to investors. The most common blunder that life science entrepreneurs make when raising capital is delivering an overly technical presentation to potential investors. Although this is usually the most frequent mistake that scientists make, another common issue some entrepreneurs run into is misunderstanding who their audience is and actually not digging deeper into the technology. So now you’re probably thinking the solution is to have your presentation lay somewhere in between. The answer, however is not as simple as one might think. If you are a life science entrepreneur who is raising funds, the key to pitching to an investor is understanding who the investor is.

Pitching to Venture Philanthropy Firms/Family Offices

The first fallacy I mentioned (getting too technical during a presentation) often occurs when firms pitch to family offices and venture philanthropy firms. These investors are often times indication oriented, meaning that their specific mandate focuses on the disease that the technology is targeting, and these investors are typically agnostic in terms of the mode of delivery. Therefore, when pitching to these investor groups, life science entrepreneurs should stress the indication their product is targeting as well as any subindications that may be applicable. Since both of these groups focus on philanthropy as a part of their mandate, the entrepreneur should focus on the social return on investment.

Pitching to PE, VC, and Hedge Funds

Firms will also often focus too much on their technology when they are presenting to private equity groups, venture capital firms, and hedge funds. In terms of how in-depth you cover the science behind your product, your pitch to these firms should lay somewhere in between your pitch to family offices/venture philanthropy firms and big pharma – a happy medium if you will (I discuss the pitch to big pharma/corporate VCs in the next section).

These investors are very hands-on, so stressing that you have a great management team is more important to them than the science that goes behind your technology. Side note: for more on this topic see my article from last week’s issue What Qualities Investors Look for in Founding CEOs. Where this does not apply is when you are speaking to a venture partner at a venture capital firm, or an entrepreneur-in-residence at a private equity or venture capital firm. Individuals in these roles are typically industry veterans who are ex-CEOs or current executives of biotech firms themselves who often times hold PhDs. Thus if you are presenting to these individuals, it is appropriate and necessary to take a deeper dive into the technology than you normally would with other individuals at a VC firm, PE group, or hedge fund.

Pitching to Big Pharma/Corporate Venture Capital Firms

Scientists for the most part get it right when they are pitching to big pharma and corporate venture capital firms. These groups of investors are looking for a highly technical overview of the product that you are developing. What they want to see is an in-depth overview of the mode of delivery, and generally the indication is important as well but it is the former that is most important to stress. What some scientists do forget though is that it is still important to stress the management team in presentations to big pharma and corporate VCs as well, as these types of investors often work very closely with the companies they invest in.

At the end of the day, what is most important is to do your due diligence on an investor before giving your presentation. Find out who specifically at the firm you will be presenting to – and what their background is – before you start putting together your pitch. There is no one-size-fits all presentation that your firm can create to tailor to every audience, each investor is unique, and consequently, you should never delivery the exact same presentation twice.

By Dennis Ford, CEO, LSN

Recently, I have been interacting with a lot of startup incubators and accelerators, revolving around fund raising boot camps that LSN teaches for scientists.  Basically, LSN’s “Discovery to Distribution Boot Camp” stays away from the strategic and concentrates on the tactical aspects of commercializing and raising capital. The marketing task is all about doing the research and finding a list of investors that are a fit for your products or services. It’s really a marketing 101 exercise: the first step is LSN helps them identify all the companies on the planet that look like their firm. In marketing parlance, this is identifying and sizing the competitive landscape.

Why is this important? This exercise – when done properly – will not only include most of the look-alike companies, but also the look-alike-companies and their lead and co-investors that have invested in the past and present. This über list of investors is quite valuable, as we know that these investors will understand the company, the market and the product, service or technology. I refer to this list as the global target list, and the reason is that these investors are a fit.

The next aspect is finding even more investors that are a fit based on present mandates to invest in the future. These investors have dry powder (investable capital), and are looking to allocate. When done properly, LSN can help them aggregate a list of relevant investor targets in their orbit that have shown a distinct past, present or future investment interest. Sounds simple enough, but here is where the world of the scientist collides with the world of the generic sales and marketing.

Time and time again when we put on these boot camps, the inevitable questions arise. The list is great, but am I allowed to call these investors? I hear that if someone doesn’t refer you, investors won’t talk to you. Can you prove to me or give me a reference of someone that has actually called an investor cold? I want proof that getting a list of investors that are a fit is how entrepreneurs actually raise money. On and on, the skeptical scientists create a thousand reasons why getting a list of investors that are a fit for their particular market segment or indication won’t work, and how in the past it worked like this (the old, outdated map). Enter the sequel to the Valley of Death version 2.0: The Chasm of Skepticism.

I make no bones about who I am and where I come from; I am genetically a sales person. I have been selling for decades, I am a selling CEO, I am an entrepreneur with 8 startups under my belt. Of the 8 startups I have been involved with, I have been part of the executive management team, the CEO or the founder. I have been part of 2 IPO’s and 4 acquisitions, with 2 more in the wings (I hope). So please imagine my reaction having spent my life in sales, marketing and business development when I have to debate whether a person who is a startup entrepreneur is allowed to make an outbound phone call to a complete stranger to move his/her company along.

What is even more chilling is this ethos is passed around in the life science marketplace as some sort of rule. Entrepreneurs shun rules. Entrepreneurs break rules. Entrepreneurs don’t listen to the status quo out-of-date dictums, and they don’t use old antiquated maps! They create new ones they do whatever they have to do. They jettison their comfort zone. They embark on hideously uncomfortable journeys. They do whatever it takes and making a blind cold call to a complete strangers who are a known fits for their product or service isn’t even the ante into the game. So here is how to get across the chasm of skepticism: get a list of investors that are a fit for your firm, do an email introduction, and then call and set up an intro meeting, then rinse and repeat.