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Capital Requirements for a Successful Outbound Fundraising Campaign

22 Mar

By Tom Crosby, Marketing Manager, LSN

To have a successful fundraising campaign, it is important to create effective marketing mate­rials from the very beginning. Not only does this process require a lot of time, but you must also make a financial commitment up front if you want to see the best results.

What conclusion can investors make when they see unprofessional marketing materials coming their way from a life science firm looking to secure capital? First and foremost is that the firm in question doesn’t take their outward image seriously. This can be a telling sign of internal operations, and is often all that is needed to turn a serious investor away.

It can seem like a good idea to put you marketing materials together in-house. After all, who knows more about your company than your staff? However, there is much to consider before trying to brand your firm by yourself. Most importantly is that unless you have gone out and specifically hired a marketing professional with design experience, your team will be taking valuable time away from performing the job functions that they are trained in, and therefore, are the best at. Design is a practiced skill with developed theory and technique behind it. Many people take its nuances for granted, and this is the genesis for poor design of marketing materials.

If, on the other hand, you make an initial investment in your marketing materials by hiring a professional firm with design expertise, the message you are sending to prospec­tive investors is that their time is important to you, and that you value their ability to discern professionalism from amateurism. This lets them know that you are making your best attempt to cover all your bases in terms of making your firm’s message clear and concise.

While it is an option to place your investment in hiring an in-house marketing professional, the more realistic move is to outsource the work to a professional marketing firm. Although the overhead will be higher initially, the results will be worth it. It is easy to tell when professional firms have created marketing materials. Not only do they stand out as more visually appealing, but they read differently, and evoke a different feeling in the audience. Furthermore, they make an investor’s job easier, because they are created with their interest in mind.

So what does it cost to have a marketing company create high-quality materials with content that matters – content that reflects your firm in the most positive way possible, and gives you the best chance at securing valuable capital?

Prices will vary based on the type of your company, its complexity, your strategies and audience, and other factors. Your branding requirements will also affect the cost. However, a quality firm can pro­vide a quote for each individual item. Typically, firms quot­ing at the low end use templates, and create very little original content, leaving that part up to you. Estimates on the higher end usually include custom content, and thereby, custom graphic design.

Through his years of this type of market research, Life Science Nation CEO Dennis Ford has estimated that the cost of branding, messaging, & website creation for a regional outbound marketing campaign should cost somewhere between $40 – $60,000. For a global campaign, this range increases to $80-$100,000. Unfortunately, this type of financial commitment makes everything more difficult for those entrepreneurs who are just scraping by, but the fact remains that their competitors are figuring out that to make money, you have to spend money.

A life science firm should expect to have this type of capital ready to deploy in order to run a successful campaign. Of course, these figures are ball park estimates and you can do it for less by trying to finesse the collateral. But at the end of the day, it has to get done, and is simply the cost of doing business.

If you get your branding, messaging and marketing presence sorted out, and make it a priority, you will have quick turnaround with a high-quality product. Prioritize what is important – which is getting in front of investors and pitching your ideas, technology, and products.

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Personalized Medicine Trend Spurs Investments in Diagnostics

14 Mar

By Danielle Silva, Director of Research, LSN

There has been a great deal of buzz surrounding the topic of personalized medicine in the life science sector recently. Personalized medicine attempts to forecast a patient’s likelihood of being afflicted with certain diseases through genetic testing, and offers cures that are tailored to their specific needs. Thus, diagnostics and therapeutics are moving towards personalization based on an individual’s phenotypic and genetic makeup.

As a result of the Human Genome Project (HGP), which was completed in 2003, DNA sequencing has become much more accurate, and the cost of sequencing a single genome is dramatically lower than it was in the past due to advances made in the area of sequencing instrumentation (it’s estimated that the price is getting down to around $1,000 per genome)[1]. One of the uses for this lower-cost DNA sequencing technology is the development of individualized biomarkers. The development of these biomarkers, however, is just the beginning of the story; to truly develop a well-rounded therapy involves the use of a diagnostic as well, which is why investors have been drawn to investing in firms developing diagnostics as of late.

Overexpressed proteins (or genetic markers) are unique traits that are often associated with a specific disease. These are known as biomarkers. Creating a therapeutic that targets an individual biomarker can create a favorable result in terms of patient outcome. The biomarker, however, needs to first be located in order for the therapeutic to truly fall under the umbrella of a personalized medicine. The agent that locates the specific biomarker is therefore known as a companion diagnostic. The advantage of using such an agent is that it is easy to identify whether or not a given patient can benefit from the use of a certain therapeutic.

Because of the importance of companion diagnostics in the personalized medicine space, interest from investors in firms developing diagnostics has surged accordingly. From 2011 to 2012, the number of reported financing rounds in the Life Science Nation Financing Rounds database increased from 11 to 31. This represents an increase of nearly 182%. In January of this year, Cambridge, Massachusetts-based Foundation Medicine received $13.5 million in Series B expansion equity, adding to the $42.5 million they had received just four months prior in their initial Series B round. The firm focuses specifically on conducting cancer genomic analysis to match patients with a targeted therapy and clinical trial. In the area of cancer, the development of companion diagnostics is arguably the most advanced. This is a large reason why cancer diagnostics have been a particularly attractive area for life science investors.

In a recent conversation with a large corporate venture capital fund that typically invests in 5-10 firms per year, the firm expressed a particular interest in therapeutics with companion diagnostics. Advances in genome sequencing are predicted to continue, and if the cost of sequencing a single genome falls below $1,000 it is possible that insurance companies may even begin to start to cover some of the costs of this service. Consequently, LSN predicts that investor interest in the area of personalized medicine and diagnostics will continue to gain steam.

[1] http://articles.philly.com/2013-03-06/news/37503360_1_genetic-tests-caplan-expectant-parents

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Indication Diversification: Big Pharma’s New R&D Driver

14 Mar

By Max Klietmann, VP of Research, LSN
 
I’ve written previously about how big pharma is changing in terms of targeting emerging biotech companies for acquisition, rather than investing in in-house R&D, but there are also profound changes taking place in terms of what indications are most attractive, and how to strategically approach the replacement of blockbusters that are about to fall off the patent cliff.
 
Big pharmaceutical and biotech companies were historically synonymous with blockbuster drugs: therapeutics targeting an indication afflicting a large patient population, such as cardiovascular disease or diabetes, drawing billions of dollars into the company while enjoying the price premiums afforded by robust patent protection. However, the impending patent cliff, which is the rapidly approaching inflection point at which many blockbusters will lose patent protection, means that these revenue streams will soon vanish and be replaced by cheaper generics. This translates to billions in sales lost to generic competitors. Worse yet, pharmaceutical companies are scrambling to find replacements for these revenue streams, and despite great effort and expenditure, there are few candidates with the potential to fill the gaps. Moreover, competition is highly aggressive for blockbuster indications, making it very easy to lose significant sums in R&D. However, strategically oriented pharmas understand this conundrum, and when it comes to blockbuster indications, the big pharma business model is evolving too.

Rather than sinking astronomical sums into major indications, the focus is beginning to shift towards a diversified portfolio of niche therapeutics targeting less common indications. This doesn’t necessarily mean orphan drugs (which have always had a clear advantage on the regulatory front), but simply those disease areas that were previously less attractive, e.g. pancreatic cancer or kidney cancer. This way, there is diminished completion for market position upon commercialization.

One large pharmaceutical plans to take this strategy one step further by focusing on therapeutics that target biological disease pathways, rather than specific indications, so that a drug can be re-purposed for a variety of indications further down the road. Multi-purpose drugs are by no means new to the space; plenty of scientists have argued that their pre-clinical compound is a panacea (many of these folks never get much further than this stage, as this “scattered” approach is often unattractive to investors who value a targeted and focused drive to market.) But multi-purpose drugs historically were repurposed due to favorable side-effects discovered by accident. What is happening today is very different; for the first time, pharmaceutical companies are strategically targeting drug candidates with the potential to treat several indications simultaneously. Specifically targeting these drugs creates the opportunity to develop a novel type of blockbuster via a multi-indication revenue stream approach whereby a single drug can become a multi-billion dollar product across a variety of smaller disease markets. However, it is important to remember the regulatory issues associated with multiple FDA trials for various indications.
           
These trends will be important for both early stage investors and life science CEOs moving forward on a track to partner with large pharmaceutical companies down the road. The most attractive indications of the future are not necessarily the largest single markets, and keeping a watchful eye on secondary disease areas will help to create a strategic approach to drug commercialization.

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Sourcing New Science

14 Mar

By Dennis Ford, CEO, LSN

The two groups that everyone wants information on are academic scientists, and the private emerging biotechs & medtecs – scientists who have gone commercial. These two constituents make up the source where all the new science and technology is stemming from, but for several reasons, they remain difficult to consistently identify and map. However, the innovation currently occurring in the university labs and the fledgling private startups is where the next generation of life-saving drugs, devices, treatments and cures are coming from. More to the point, the rate of this innovation is accelerating as the knowledge that enables new discovery becomes increasingly available.

This is where the interest in innovators in academia and the emerging private sector comes from. The problem, however, is that no entity has effectively and efficiently linked it all together. Furthermore, there is a plethora of academic assets that are waiting to be discovered and brought to the light of day. Many entrepreneurial players in the industry – both large and small – would like to know what information is available, but the data assets of life science academia have not yet been aggregated in one central place. These assets are the scientists who are working on the research, and the technology that has been discovered and is in different forms of development, waiting to be licensed out of academic institutions.

There are two major opportunities that need to be addressed in the life science market. The first is the aggregation of both academic and private research & development under one user-friendly, affordable application. The reason is obvious in that as the life science business world starts to head towards the source, they need an easy way to find who they are looking for. The answer is a platform that solves the “finding” issue in such a way that encompasses both academic and private emerging biotech. The chart below represents the three life science source silos that represent the core data that the life science industry is searching for.

The second opportunity revolves around how academic scientists typically surface at and utilize forums and publications to connect-the-dots. While emerging biotech’s go to general themed conferences and utilize the side bar partnering sessions that are a big part of a life science B2B DNA. A great deal of the market place has been programmed to do partnering through conference attendance and partner showcases which typically is an adjunct side event. When it has been done as a pure partnering play it turns out to be so broad in the B2B concept that it is a virtual industry free for all. The truth is that there really isn’t a dedicated emerging biotech/investor partnering conference that has blown it out of the water yet, and therefore, a great opportunity exists to be that vendor.

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CRO Trends in 2013

6 Mar

By Alejandro Zamorano, VP of Business Development, LSN

A clinical research organization (CRO) is an organization that provides support to the pharmaceutical, biotechnology, and medical device industries in the form of research services outsourced on a contract basis. These services can include assay development, preclinical research, clinical research, clinical trial management, and commercialization services. CROs have grown massively over the past 10 years due to their ability to specialize; allowing clients to streamline operations far beyond what could ever be accomplished internally. These firms tend to be highly capital efficient, and play the space strategically. A CROs survival is hinged on moving with industry changes. Below are the top behavior trends among CROs for 2013 as we continue to see strong growth in this often ignored sector:

Strategic Alliances

2013 will be the year of strategic alliances for the CRO industry. Big pharma is already picking sides, signing multiyear agreements with the industry’s big players. By forming partnerships, big pharma is able to negotiate prices and take advantage of key personnel within the company. In addition, big pharma can consolidate its operations and streamline communications, easing the burden of managing multiple service providers.

Investors

CROs have begun to take equity positions in lieu of cash for services rendered, especially among small and emerging clients. We will continue to see this trend grow as CROs move more heavily into the small and emerging biotech space due to competition and the potential opportunity to foster a long-term relationship. In addition to this, these specialized organizations can (and will) leverage their in-house expertise to invest in particular assets. This trend is also being facilitated by the fact that CROs want to diversify their exposure from a specific service class, and want to participate in the upside potential with unique clients. As an entrepreneur getting a discount off of preclinical work, Phase I or Phase II study is huge relief. In addition, this is appealing for the entrepreneur as it aligns the interest of the entrepreneur and the CRO. Finally, CROs tend take modest equity stakes depending on the work rendered and the phase of the lead asset, which is often more attractive than what entrepreneurs can yield in the market.

Emerging Markets
CROs will continue to expand their operations in China and India to take advantage of the cheap labor force, a more lenient regulatory environment, rapidly accelerating R&D, and advantageous tax treatments. It’s not just US and European-based companies relocating operations to these markets; over the past 5 years, native companies in these emerging markets have begun to make a splash. Often competing on price, these native operations have begun to put pressure on the market, decreasing gross margins across the board.

Globalization

With growing the therapeutic market in the emerging markets, countries are now requiring that native populations are included in clinical trials. As a result, clinical trial organizations have significantly grown in countries such as Brazil, Russian, Japan, China, and South Korea. As of 2011, around 53% of clinical trials were performed in the US, 24% in Europe, and 23% in the rest of the world. Looking forward we can expect the market share especially amongst the BRIC’s (Brazil, Russia, India and China) to grow. Analysts for example project the pharmaceutical market in China will reach $200 billion by 2020, making it the second largest in the world.

Developing Biosimilars

Large CROs are starting to team up with CMOs as they realize that by combining their economies of scale in the area of biologics, they have a perfect partnership to start developing bio-similars. Small biotechs have realized that developing biosimilars is harder than most would have expected. More importantly traditional generic developers are not equipped to handle the next generation of biosimilars. This has provided a perfect opportunity for CRO’s to fill in the gap.

 

http://www.fiercebiotech.com/story/rd-trends-spur-cro-business/2011-08-05

http://www.contractpharma.com/issues/2011-05/view_features/cro-industry-update-2011-04-29-10-53-51/

http://www.niceinsight.com/ni_it.php

http://www.contractpharma.com/issues/2012-06/view_features/cro-outlook-opportunities

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What Investors Look for During the Due Diligence Process

6 Mar

By Danielle Silva, Director of Research, Life Science Nation

For life science investors, conducting thorough due diligence on potential investments is critical, especially because many investors in the sector invest in pre-revenue companies that do not have sturdy financial positions from which to court investors. There are many misconceptions that life science firms have about what will make or break an investor’s decision to provide capital. It is extremely important for life science firms to understand what factors will come into play during the due diligence process, and what they will need to demonstrate to a potential investor. It is also key to have a checklist of all the due diligence materials that they will need to have readily available to provide to investors.

Investors in life science companies have become increasingly cognizant of intellectual property (IP) issues, which often times are addressed during the due diligence process. If IP issues are ignored, it can ultimately decrease an investor’s return on investment (ROI), and cause legal issues for them in the future. Thus, potential investors will expect that startups be very transparent about their IP portfolio and will expect companies to disclose all information regarding the IP, including if the IP is protected (for instance if the firm has patents), what products or services are covered by the IP, if there are potential competing technologies, as well as regulatory and legal implications that could potentially affect the IP. Investors may also expect to be provided a number of documents pertaining to the IP during the due diligence process.

Often times, emerging firms will believe that if they are backed by a well-known incubator, the due diligence process will be less exhaustive than for startups which do not have this kind of relationship. If anything, investors will expect firms that work with an incubator to be even more polished than startups that do not have a relationship with this kind of firm, because incubators often provide startups with many resources to help them create a solid infrastructure.

Although business incubators are known to be selective in terms of the firms they work with, they typically do not conduct deep due diligence themselves (they typically just want to ensure that a firm will not be a liability in the long term). Thus, investors will still need to conduct deep research on the firm themselves, and speak with references that are not associated with the firm’s incubator. Working with an incubator, however, is still beneficial for startups, and may illustrate to a potential investor that the firm has a unique product or idea and that they’re putting in some extra effort grow the company and get a solid infrastructure in place.

Another myth that many entrepreneurs believe is that if their firm is registered as a Delaware corporation (DE corp) it will shorten the due diligence process. Although registering a firm as a Delaware corporation will certainly add legitimacy to a company (around half on the Fortune 500 list are registered as DE corporations), it unquestionably will not convince an investor to immediately give a firm their stamp of approval and make an investment. Firms can easily and inexpensively register as a DE corporation online (sometimes for as little as a several hundred dollars), so investors may be wary about a firm’s validity even if they do obtain this registration. Registering as a DE firm, however, is beneficial to small firms and should be taken into consideration because Delaware does have very favorable business laws. Thus having a DE corp registration will not make or break an investor’s decision, but it may help a firm demonstrate to an investor that the management team does have a level of business acumen.

Many life science firms recognize that they must spend a good deal of time and resources putting together their marketing materials and focusing on branding their firm to attract potential investors. Many firms, however, do not realize that in order to complete a deal with a potential investor, they must also have their due diligence materials in order. Accordingly, it is vital to put just as much time and effort into drafting due diligence materials as it is to spend valuable resources on putting together marketing materials.

Investors will expect that entrepreneurs will provide a number of documents during the due diligence process, regardless of how young the firm is. This will generally include all of the companies financials (including future forecasts), lists of employees, investors, and advisors (including legal representation), stock purchase agreements (as well as stock option and agreements and plans), articles of incorporation and by-laws, product plans, as well as a business plan and investor deck (if not already provided to the investor previously). This is not an exhaustive list of all the due diligence materials that investors may ask for, but these are the most common documents that investors will ask that a company provide.

The most important thing to keep in mind during the due diligence process (although quite obvious) is that honesty is always the best policy. If certain numbers are provided to an investor over the phone by a company during their initial correspondence and these figures do not match up when an investor is going through a firm’s financials during the due diligence process this will be a huge red flag for the investor. Thus it is imperative for entrepreneurs to be open and honest with investors from the get go, and to be as transparent with investors as possible. This will not only ensure that an investor is comfortable during the due diligence process, but will also help the firm develop an open and solid relationship from the very beginning. Thus, the more transparent and candid life science firms are during the due diligence process, and the more willing they are to provide the necessary documents to investors, the smoother the due diligence process will be for both the life science firm and the investor.

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Life Science Investor Sands are Shifting and New Landscape is Forming

6 Mar

By Dennis Ford, CEO, LSN

As you know, I think that most of the industry is navigating the fundraising process from an out-of-date map in terms of who to go after for capital. The sands are shifting, and the new landscape is starting to take shape. The primary mission of LSN is to create the new accurate map.

I recently conducted an informal survey about what is needed in general to help the cause of fundraising. The people I interviewed all stated that biggest gap lies in connecting early stage firms with investors, and an “early stage” focused conference was needed.

“There is a big need to create an early-stage JP Morgan like event… with better content, focused on early stage only.” – CEO / scientist

“Something more focused than the partnering conferences… the problem with the big partnering conferences is that it’s a free-for-all, cross-industry meeting… closer to a “mosh pit” than organized for a specific purpose.” – CEO, emerging biotech

“What’s needed is basically assembling early and mid-stage investors who can write checks to scientists who need the capital. I understand it takes time which is why they should convene these meetings regularly.” – academic scientist #1

“What we need is a boot camp for partnering! A conference that offers a basic, rudimentary skillset explaining the ins and outs of raising money… a how to… a survival guide” – academic scientist #2

“Ongoing regular quarterly events where investors and emerging scientists can create dialogue facilitate relationships which eventually result in capital inflows.” – life science marketer

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