By Dennis Ford, CEO, LSN

The Redefining Early Stage Investments conference presents a powerful opportunity to start to create new networking opportunities with a group of investors that are probably not on your radar screen. Timing is everything. Luck is being in the right place at the right time, and knowing what to do when you get there. As a few readers may note, I have been proselytizing on how the life science investor landscape is changing, and that the real issue for life science fundraising executives is how to map the new landscape. Never daunted by a challenge, my team and I decided to do something about the dearth of compelling life science investor conferences, and host our own.

The RESI conference is poised to be one of the most important events in the life sciences space this coming fall. As I’ve discussed previously, this event is groundbreaking in that it is focused on redefining the investor landscape in early stage life sciences, and making the right connections to move the industry forward. As all of us in the industry are aware, the life science investor landscape has changed; venture capital has largely consolidated and dried up, but there is a plethora of new entities entering the space with capital to allocate.

LSN tracks these new players, and we will have a strong representation of 8 new categories of investors – senior decision-makers from some of the largest pharmaceutical & device companies, patient groups, philanthropic organizations, investment banks, and family offices will all be joining the action on September 16th. LSN fully expects 100+ of these investors to show up, and more than 60 have already confirmed. We will also be joined by next-generation technology transfer, licensing and funding experts, and there will be a free fund-raising boot camp.

I have been told by a few conference vendors they are surprised and impressed by what LSN has been able to accomplish so far. This is due mostly to our presenter and panelist line up; LSN has been able to round up under one roof a who’s who of the early stage investors and start-ups, and we still have six weeks to go until the show. I urge all biotech and medtech readers to take a look at the program, and take some time out to reeducate yourself regarding the new landscape unfolding in the life science investor arena.

On the other hand, all the sponsors, exhibitors and attendees I have talked to are interested for two reasons: one, they need access to new life science start-ups, and two, no one has mapped the new investors, and actually got them all in one venue. The RESI conference presents a powerful opportunity to start to create new networking opportunities with a group of investors that are probably not on your radar screen. I have been going to investor conferences for the past year all over the world, and the turnout is usually a few VCs with varying amounts of dry powder (capital). This conference will not only be different, but it will be ground-breaking.

By Danielle Silva, Director of Research, Life Science Nation

At LSN, I have the pleasure of regularly speaking with entrepreneurs about their startups. One topic that always comes up during these discussions is the subject of fundraising – especially for early stage firms. What often surprises me is that many of these entrepreneurs have the mentality that they do not need to be in dialogue with investors if they are not looking to raise additional capital. Many of these entrepreneurs question why they would “waste” their time going to networking events or conferences if they are not trying to attract investors; instead, they believe their time is better spent further developing their product. Speaking with investors even when you’re not looking to attract capital needs to be part of your business development plan, and is just as valuable as taking time to develop your product.

Picture this scenario: you’re an early stage company that is developing a therapeutic that just received $15 million for their series A financing round (let’s say the $15 million came from three different VCs). So you’re thinking that you have enough capital to, say, get you through the next four years. There’s no need to speak with investors for now, right?

Don’t be so sure – the deal may stipulate that you do not receive all of this money upfront; maybe you only receive capital once you’ve hit certain milestones, let’s say your first milestone you need to achieve a year after the date you signed the term sheet. If, for instance, you only got a small percentage of this capital upfront, the economy slows down, and two of the VCs that invested in you go under because all of their LPs withdrew their capital, the remaining VC may be unable to cover the rest of the money that should have been allocated to your firm. Now your firm is left with way less cash than you thought you would be working with.

Now this is obviously a dramatic example, but the point here is that you never know what the future holds. One of your investors may go under, but a more likely scenario is that you go to a current investor in your firm expecting them to provide you with some additional capital to get you through, and they just don’t have the ability to deliver. Not being able to get supplementary capital from existing investors – or worse, being unable to even get the money promised to you by investors – are two examples of situations your firm could be in where you would certainly be kicking yourself for not keeping dialogue with outside investors.

Another reason to reach out to new investors – especially through networking events and conferences – is to gain feedback on your product or business. If you start a dialogue with an investor asking for feedback on your business, it can be a great way to start a relationship with an investor, and can be a mutually beneficial way to share and learn. You can learn a lot about the general market from speaking with investors, and maybe even get some additional insight on your competitors. Starting a dialogue in this manner can also lead to a relationship with the investor, which could translate into an investment down the road.

So whether you’re a startup who has just raised money, or even a later stage firm who has just received a large injection of capital, speaking and networking with investors needs to be a priority. Your firm needs to have the mentality that you are always fundraising in order to stay in constant dialogue with investors. In short, if you are a firm who has just raised money, the next time an investor calls, or you have the chance to go to an investor networking event or a conference, just say yes.

By Max Klietmann, VP of Research, LSN

I recently had the opportunity to speak with a CRO business development executive who wanted to know more about the emerging investor categories outside of venture capital that LSN tracks. I asked if his firm was seeking financing, and he told me that they weren’t; like many others in his field, rather, the CRO was seeking strategic sources of future business for his firm. Many service providers in the life sciences are increasingly becoming aware of the critical importance of including investors as a key group in their business development activities on an ongoing basis.

Historically, a few major CROs maintained relationships with the big life science venture firms as a source of business by way of portfolio companies. However, in recent history, as many of the established VCs have ceased to invest early (where it’s easy for a CRO to establish a position with a biotech), this source of business has dried up. Savvy CROs have recognized that in order to maintain a competitive edge, they need to seek out the new categories of investors that have emerged to fill this gap. Strategic partnerships with hedge funds, family offices, foundations, and venture philanthropy groups can all be highly productive sources of CRO deal flow. These organizations all recognize strong CRO partners as a means to help portfolio companies and grant recipients be more capital-efficient by getting product to market faster, so why aren’t CRO’s across the board taking advantage of this opportunity?

Basically, it comes down to a question of finding the right partners and building a relationship. In an industry that is defined by fit, it is critical for service providers to know who is actively investing in companies reflecting their area of expertise. LSN is specialized in sourcing these emerging opportunities, and increasingly, CROs are showing an interest in tracking this information. Forging alliances with the right investors early is the straightest route to sustained future business, and identifying those entities will define the winners (and losers) in the CRO space in the future.

 

By Michael Quigley, Research Analyst, LSN

It is no secret that more and more hospitals in the US and across the globe are beginning to store their patient records electronically: One of the biggest drivers of this trend in the US is the HITECH Act of 2009, which allocated nearly $30 billion to increase the use of electronic health record systems (EHR), primarily though incentive programs. Currently, under this act, hospitals that have not implemented the most basic form of EHR by July 1st, 2014, will face monetary fines that will increase over time. Furthermore, some institutions – such as the Patient-Centered Outcomes Research Institute (PCORI) – are working to develop a national, patient-centered network for clinical research that will work on improving both the quantity and quality of patient provided data.

This increase of electronic patient data is great news for companies in the health industry for a variety of reasons, but especially when applied to clinical trials: Currently, screening for clinical trials (as well as the trials themselves) often omit numerous significant factors of a participant’s health profile. With this data becoming readily available and standardized, companies will be able to dilate their inclusion criteria for candidates in their trials based on a myriad of different variables, including age, weight, race, gender, lifestyle, and perhaps most importantly, genomic data. By understanding these variables, research organizations will be able to more effectively understand how their products effects different patient types, while avoiding screening patients for trials that they do not want.

Take cancer, for example, most patients are over the age of 65 and have some sort of chronic health condition. However, in clinical testing conditions, most candidates around the age of 50 are pre-selected to only have cancer. What ends up happening is that you develop a product that will be used on a market that it has not been sufficiently tested on. Having more easily available patient data could greatly reduce this dilemma and enhance the potential benefit of personalized medicine. Also once clinical trials are completed, as it currently stands, the connection between the research organization and the patient comes to an end. But with the continued uploading of patient data, whenever they visit a doctor, more long-term effects could be evaluated as well. (1)

As more data is continually made available, the resulting increase in the efficiency of clinical trials is great news for established and emerging companies, as it may chop away at the daunting $1b number that is often associated with getting a drug on the market. This data doesn’t just have the potential to lower the cost of trials; it also gives companies greater visibility as to potential reasons for why their product did or didn’t work, and what they could alter to make it more effective, thus increasing the effectiveness of drug production process on an even larger scale. So what does it mean for the industry at large? CRO’s in the trial space should adapt and find an edge in this arena to compete for the myriad of trials due to come from emerging biotech firms. Investors should re-evalute their investment timelines due to potential shortening of time to market, and emerging biotechs should focus on more niche opportunities for treating specific subpopulations within indications.

1. Mearian, Lucas. “How Big Data Will save Your Life.” Computerworld. Computerworld, 25 Apr. 2013. Web. 11 July 2013.

By Jack Fuller, Business Development, LSN

LSN has written extensively about the repurposing of drugs, virtual pharmaceutical companies, and the benefits of developing products that have a well-defined pharmacological profile. This trend continues with basic research at established companies often gets squeezed out by small, short-term projects, which promise an incremental improvement or a patent extension. Conversely, it is the goal of every emerging biotech and medtech company to develop the next great technological innovation and secure the capital financing to bring the product to commercialization. This sentiment was recently summed up by a panelist on emerging trends in neurological diseases: “the investment follows the scientific breakthrough,” he said. This got me thinking about the ways in which investors qualify potential opportunities for investment; while the quality of science is a major factor, many fundraisers neglect or downplay other factors that can easily make or break a deal.

LSN often engages both investors and capital seekers, and has seen several trends and common mistakes when talking to investors. This is by no means a complete list or a guide to fundraising, but rather some key observations and comments. Each type of investor and each individual presents a different challenge and requires a high level of finesse, tact, and persistence.

The life science investor landscape has fragmented in the last five years, but often times even experienced fund raisers are stuck trying to raise capital the same way they did before 2008. If you are reading this, you might recognize that updating your fundraising strategy and understanding the current investor landscape is one of the most important and certainly the first step in raising capital today. It does not matter how experienced a fundraiser you are, everyone needs to understand the current investment landscape and how it is changing.

If you are fundraising for a company, you are actively engaged in an outbound marketing campaign. Congratulations! Every PhD, MD, MBA, and individual in your company must know the message you are sending to investors. This should be reflected the information you release to the public, as well as in what you tell investors. When was the last time you updated your website? An investor will look at a company’s website and will make an instant, if sometimes unconscious, decision as the legitimacy of the company and management. The message of a company must be clear, concise, and uniform among all public and private forms of communication with an investor.

Investors can go from interested to apathetic over the course of a single sentence. This can take several forms; the most common we have seen is the tendency to stray from the primary asset under discussion, trying to oversell an asset, or anything that would put into question the dedication of the management team. Many times, people will be working on multiple projects, assets, or even companies. Similarly, a product may have several possible applications beyond the focused indication currently in development. Bringing attention to either of these can immediately sour an investor, as they want the undivided attention and focus of all aspects of the management team. Investors need to know the technology is breakthrough, and the team behind the product is utterly and completely dedicated to its success.

The points highlighted above are only a small cross section of the total package required to run a successful fundraising campaign. Most people in the fundraising process are acutely aware that an investment will never happen if the science is not well-presented. Unfortunately, many people neglect some of the basic marketing and presentation aspects that can just as quickly sink a prospective deal. However, these pitfalls are easily avoidable with a little bit of foresight in the form of a legitimate, calculated marketing effort.

By Max Klietmann, VP of Research, LSN

LSN is a major proponent of the importance of finding exact fits. In an industry that is becoming more complex, granular, and specialized, finding exact matches is key to success – whether it is a matter of finding prospective clients, investment targets, strategic partners, or investors. LSN discussed this recently in the context of niche specification among CROs, and how it is more critical than ever to be able to source highly qualified leads.

In light of this, LSN is delighted to announce a new feature in the LSN Companies database: Search by therapeutic sub-sectors has been implemented, allowing users to search for specific indications. For example, searching for specific cancer indications such as gastric cancer, leukemia,  pancreatic cancer, and 45 other sub-indications of cancer is now possible.  This search feature has been implemented for all indications for “Companies” and “Products.”

What makes this so powerful is that it allows users to enhance their search granularity even more, shortening the time required to qualify leads, and to make outbound campaigns even more effective. LSN continues to watch industry trends and incorporate client suggestions into its platforms. In doing so, LSN products are a direct reflection of what the industry needs today and will require going forward to effectively meet and exceed its goals. Stay tuned for more announcements coming soon!

By Max Klietmann, VP of Research, LSN

We are all aware that the IPO market has been less than stellar in recent history. This lack of exit opportunities has been particularly troubling for companies in the life sciences space due to the long time to market and considerable regulatory risk associated with drug development. Logically, M&A exits via strategic buyers has become the predominant exit route for many emerging biotech and medtech companies. M&A is of course not a new phenomeneon, however there is a significant trend in how these deals are being structured. Increasingly, M&A activity in the industry has been characterized by “acquisition via earn-out.”

Earn-outs are essentially pre-defined payments based on specific milestones. As an example, a strategic buyer would buy out an early-stage company (or asset) at phase IIa for a relatively small amount. Then, as the asset hits specific milestones (typically regulatory milestones), payments are triggered. One can think of it almost as a risk-adjusted buyout over time.

The advantage to this deal structure of course is that strategic buyers can afford to engage in more buyouts without putting too much capital at risk in the event of a failed trial. This is good for entrepreneurs and corporate buyers alike, who can diversify their bets on a myriad of assets.

This has overwhelmingly become the model for buyouts in recent time, and will likely become the standard. Moreover, the proportion of money in the upfront payment-versus-milestone payments is shifting as well. This means that entrepreneurs in the space seeking to exit via a strategic partner are likely to see an uptick in exit opportunities via this type of deal model. In turn, patients will see more drugs make it to market, and investors will see a significantly less volatile industry. All-in-all, this is a trend that is bound to solidify its position as an industry standard.