Next Phase Newsletter

By Max Klietmann, VP of Research, LSN

LSN has been covering the impact of personalized medicine as it becomes increasingly feasible for implementation in a variety of clinical areas. This convergence of big data, genomics, proteomics, and bioinformatics is fundamentally reshaping the treatment paradigm. One particularly interesting effect of the proliferation of these technologies is the way it is impacting early stage research and development. The trend that the industry is leaning towards is the development of therapeutics designed for highly specific patient groups with a particular make-up of factors correlated to treatment efficacy. Essentially, drug developers are creating niche products in anticipation of an age of niche treatments and a totally different competitive landscape.

In the wake of healthcare reform, the question of treatment efficacy has become a critical factor in determining the future success of a product (considering the tightening of reimbursement guidelines). However, the ability to determine the factors related to positive outcomes on the genetic level allows for the development of more effective treatments for specific patient subgroups.

Many emerging biotechs have recognized this reality, and are thus beginning to focus more in effective treatments for small populations, leveraging the power of genomics technology, which is rapidly becoming more and more affordable. LSN closely tracks emerging biotech companies globally, and the trend is clear – it is becoming increasingly common to see emerging companies in the preclinical stage targeting so-called micro-indication areas, rather than blockbuster disease categories.

This strategy is also compelling for investors, who are able to now target major indication areas with a strategy similar to that of an orphan disease company. The result is more compelling trial data, a higher likelihood of approval, and diminished risk. Essentially, the trend is becoming one of smaller, more secure plays rather than the macro plays of past decades. It means a more stable industry, more predictable returns for investors, and better care for patients. However, it also means that fit is more critical than ever when finding the right partners in terms of investors and suppliers, as the industry as a whole becomes more granular and targeted.

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By Max Klietmann, VP of Research, LSN

The life sciences arena has been aware of the substantial market opportunity that the developing world represents when it comes to delivering diagnosis and therapy. This segment of the population suffers largely from preventable and/or easily treated diseases that could represent massive opportunity for pharmaceutical and device companies to improve outcomes and increase revenue streams. However, the challenge has been – and continues to be – getting treatment to patients in remote, impoverished, and underdeveloped areas. However, recent developments in the diagnostic device space are beginning to address these logistical issues, and delivering product to patients in these markets is becoming a reality. This is being driven by rapidly decreasing costs of disgnostic technologies, investor demand for larger addressable patient populations, and lower regulatory thresholds for diagnostics.

One of the biggest problems facing emerging markets is an inability to effectively diagnose patients. Considering that most disease-related deaths in the third world stem from preventable and easily-treated conditions, diagnostics are one of the easiest ways to address public health issues. Governments in China and Russia, for example, have been actively supporting initiatives to bring affordable diagnostics and treatments to remote and/or underserved regions for exactly this reason.

Hand-held and portable low-cost diagnostic devices, genomic sequencing and proteomic profiling are all being developed by a number of companies for developing nations. These are designed to be simple, robust, and user-friendly. Historically, this technology was enormously expensive, and cost prohibitive, even in developed markets. However, as the cost of genomic sequencing and proteomics has declined, new opportunities have made themselves apparent. However, delivering this technology to, for example, remote villages in Africa, presents its own challenges (e.g. harsh climate, high temperatures, contamination risk). Thus, much of the technology being proliferated for this purpose is technology initially designed for battlefield use that can now be scaled for larger markets with similar requirements to field-deployed medical units. Combine this opportunity with the fact that regulatory requirements to enter many developing countries have a much lower threshold than developed markets, and you have a very attractive investment prospect.

Investors are increasingly becoming aware of this as well. As pressure from investors has pushed many companies to seek larger addressable populations, emerging markets present a compelling opportunity to find these patients. Medical technology companies developing in vitro diagnostic devices are in a unique position to easily target this opportunity (relative to therapeutic companies, who in most cases have higher regulatory thresholds and a significantly more costly R&D process).

In-vitro diagnostic device companies should consider the option of using this type of market approach when courting investors. The opportunity to rapidly proliferate product to a market with a serious need and low regulatory barriers is a compelling target for a strategic buyer down the road. “Grooming for exit” in a market that offers a buyer a turnkey market entry option is one way to stay ahead of the curve and take advantage of macro trends in the life sciences arena.

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By Dennis Ford, CEO, LSN

I wanted to discuss the general vetting process for scientists, whether it be vetting scientists to present at a conference or selecting scientists that are developing early stage products to invest in. LSN’s staff attend a lot of life science conferences, and we are always interested in the types of companies asked to showcase their technologies at these events. This is always interesting to see, because sometimes spectacular technologies are presented by poor presenters, and in other cases, less interesting technology can be made to appear groundbreaking by the right speaker. Considering that LSN is organizing an Early Stage Life Science Investor Conference September 16th, I wanted to explore the concept of “vetting” presenting companies more deeply, as we select companies to present at our event.

The process of vetting potential investment opportunities is an interesting topic, especially in the case of early stage biotech firms because there is really no formulaic way to vet scientists other than the obvious data gained through trials – but the issue is for early stage biotech firms robust data simply isn’t there yet. I would like to point out that the VC community has had some very smart minds “formally vetting” science for a long time, but as we all know, the results have not been the greatest. The question is simply, why? If VCs can’t pick them, then who can?

Investing in life sciences almost reflects the nature of the field itself – trial by experimentation. An investor cannot simply evaluate a potential investment based on a firm reaching a few key performance milestones. There are also many science research publications that track the leading edge science and cover the latest and greatest strides forward in the space, but being highlighted in such publications rarely has a direct correlation to success in the market.

A lot of times, it really isn’t the fundamental science or underlying technology, but rather the person(s) driving the endeavor that determine success or failure. My take is that it all comes down to the inventor/entrepreneur and their own personal quest to move the science and technology forward. This is why so many investors end up investing in a management team rather than in the specific technology that the scientist is developing. This however leads to another challenge – if early stage life science venture success is a function of science (which can be objectively validated) and people (an aspect that is impossible to quantify on a start-up scale), then who can evaluate the true quality of an investment?

I will posit that if you had 100 leading scientist entrepreneurs, all with great science and inner drive, that only 20 of these scientists (applying the 80/20 rule) are capable of learning what they need to learn to do the rest of the work that would get their science to the market. The extra work I am referring to here is taking that giant step of learning rudimentary sales and marketing skills that enable an entrepreneur to go outbound and seek out the capital needed to move down the pipe, and realizing that you need to spend money to make money. I talk to gifted scientists on a weekly basis, and there is no doubt that their hearts and minds are in the right place. However, it is only a minority of these scientists that are so possessed that they will virtually learn anything and do whatever it takes to get their science to market.

Scientists that know what they need to do to succeed realize they need to get their messaging down so that it can be understood, and understand that they need to learn rudimentary marketing skills. In my mind, if they budget the funds, make the commitment to do the marketing, attempt to create the web presence and buy a database to enable them to go after investors and partners, then they are committed and aware, and thus vetted enough to deserve a chance to pitch to investors.

LSN is putting on an early stage investor conference in Boston September 16th, and LSN is soliciting presenters from a dozen or so of the top private and academic incubators in the U.S., as well as European and Asian scientists looking for early stage funding. We vet by word of mouth from our early stage science and business development partners, from our own in house science team reviewing responses from our newsletter’s request for innovation, our early stage investor network, and from our own LSN client base.

However, at the end of the day, it is the investor who needs to do the vetting, and ensure that the person on the other side of the term sheet has what it takes to succeed. We will have some great and interesting technology at the conference, and will also have some early stage investors that most entrepreneurs are not aware of. I understand that there is a vast difference between academic and private, and where the two intersect is where we are focusing the event.

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