Tag Archives: Investors

Blending R&D with Market Research Helps Consumer Acceptance

20 Feb

By Tom Crosby, Marketing Manager, LSN

Being the first to market with a new product is beneficial for several reasons: it positions your firm an innovator, makes rapid market penetration possible, and gives your brand an advantage in developing a positive image. However, this can be a potentially precarious situation as well, because speed to market is a function of the overall quality of research, development, and testing that goes into your product. The companies that are adroit and forward-thinking in all phases of development are the market winners.

While all biotech firms are subject to the timelines of clinical trials, the fact remains that the longer it takes for you to get your product to the public, the more market share your competition may eat up. This is true for the whole life science sector; whether you work for a pharmaceutical company developing a new drug, a medical technology firm bringing an innovative device to market, or a service provider with next generation technology platform. Simultaneously, taking time and care to ensure successful completion of trials with a market-beating product is critical to long term success. As in life, paradox exists, but never should be a barrier.

Even if your firm has the potential to successfully beat competitors to market, there are many other pitfalls associated with the launch of a new product. One of these is the high cost of the R&D and testing phases. Regardless of how innovative your product is, if capital is managed inefficiently during the rocky road towards market, your firm (and in turn the product) is doomed to fail. Then there is failure of design. If, during the research phase, your firm has neglected to fully examine a stragtegic approach to trials. A common misstep in toxicology for example, is passing trials based on low-efficacy dosages, sabotaging future success.

One way that R&D departments in life science firms reduce the risk of developing a certain product is by using the information available from third party data providers. If your firm can gather an accurate sense of its competition in the market, from the very beginning of the ideas phase, your team will be ahead of the game. This is because without some idea of the state of your marketplace, you may overestimate or underestimate the uniqueness of your product.  While this may seem like an obvious situation to avoid, what we see every day in our research of the marketplace tells a different story – that there are literally thousands of emerging biotech companies, some with little to no visibility on a global scale. For this reason, database services take the guesswork out of devising successful strategies around product development. Furthermore, by having in-depth details on the firms working with the same conditions, your organization gains all sorts of advantages, from how to distinguish yourself from rest of the marketplace, to how to best position your product when it finally does hit market readiness.

Another method for reducing product risk that is coming into favor in life science market research is the idea of using focus groups. Focus groups have been widely employed in other areas of business, but the idea is relatively new to the life science space. This is largely due to the fact that it is very difficult to incentivize a live meeting with a group of scientists in such a way that your firm can make it worth their while. However, with the increasing speed and ubiquity of telepresence providers, life science firms can feasibly collect a quorum of scientists for useful, compelling market research. This is perhaps the very best way to reduce product risk when going to market; by hearing directly from the groups that will be putting your products to use, your firm is able to cater to their needs as early as the idea stage. Historically, smaller firms were priced out of this advanced type of research. However, with the tools available today, virtually any biotech is able to compete on the market, regardless of size.

While speed to market is extremely important, with a little bit of foresight, a firm can source research and development with certainty at a cost that was not feasible until fairly recently. If done correctly, using these methods in conjunction with others, it is even possible to minimize risk while streamlining your product’s time to the marketplace.

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Hot Life Science Investor Mandate 1: Venture Arm of Large Organization to Invest in at Least Two New Firms in 2013 – February 20, 2013

20 Feb

The venture arm of a larger organization based in the Western US is currently looking for new companies in the life science space to invest in, and anticipates on investing in at least two new firms this year. The firm has an evergreen structure, meaning that funds come directly from its parent organization, and can be deployed as needed. The arm was allotted around $5 million in 2013 for new investments, and typically makes equity investments ranging from $500,000 to $3 million.

The firm is currently looking for companies in the biotech therapeutics space, and are especially interested in companies that are developing therapeutics that treat diseases that fall within the realm of neuromuscular diseases, of which there about 40.

They will invest in firms anywhere in the world, but primarily only in pre-revenue companies. That being said, they have no criteria in terms of revenue or EBITDA. The firm will invest in companies that have products ranging from proof of concept in phase I to phase III.

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Hot Life Science Investor Mandate 2: VC Fund Ready to Invest in Medtech Space in Coming Months – February 20, 2013

20 Feb

A venture capital firm based in the Midwestern US with $254 million in total assets under management is currently looking for new opportunities in the life sciences space. While the firm has no set timeframe to make an allocation, they would invest in a company within the next few quarters if a compelling opportunity were uncovered. The firm typically writes equity checks in the $5-35 million equity range. They have raised four funds in the past.

The firm is currently most interested in the medtech space, and is specifically looking for companies developing medical devices. Specifically, they are looking for firms in the neurology, cardiology, pulmonology, hearing, and wound-care spaces. The firm also has a particular interest in companies developing disposable devices.

Their goal is to bridge the gap between venture capital and growth equity. With that being said, the firm will consider both pre-revenue firms, and firms that are cash-flow-positive with products on the market. For companies that have devices already on the market, the firm looks for revenue in the range of $20-30 per annum. For companies that are pre-revenue, the firm will only invest in phase II or later.

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Hot Life Science Investor Mandate 3: PE Group with Available Dry Powder Seeks CROs – February 20, 2013

20 Feb

A private equity group with offices in the US and Canada recently closed its 3rd fund at around $300 million, and is seeking new life science firms to invest in. The group currently has over $500 million in total assets under management. Although they have no set timeframe to make allocations, they do have a good amount of dry powder on hand, and would make an allocation within the next couple of quarters if a compelling opportunity were identified. They typically write equity checks ranging from $10 million to $30 million.

Currently, the group is most interested in the medtech and biotech R&D services space. Within the medtech space, the firm is very opportunistic, and will look at companies that are developing any kind of device. Within the biotech R&D services space, the firm is particularly seeking partnerships with contract research organizations (CROs).

The group executes recapitalization, growth equity, and buyout transactions. They are currently only looking for companies that have products on the market within the medtech space, and in the biotech R&D sector, they prefer companies that are cash-flow positive. With that being said, the firm is looking for firms whose EBITDA exceeds $4 million.

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Hot Life Science Investor Mandate 2: Large Family Office Looking for Opportunities in Medtech Subsectors – January 22, 2013

22 Jan

A family office located in the Western US with around $100 million in assets is looking for a compelling opportunity for allocation within the next 6-9 months. The office invested in more than five deals in 2012, typically between $1-5 million per firm.

The foundation is most interested in medical devices, and will look at firms within the full gamut of medtech subsectors. Typically, the office allocates to firms that have at least one product on the market. They have no strict criteria in terms of a firm’s EBITDA or revenue, but require that any firm in which they invest has goals to lower the cost of healthcare.

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Hot Life Science Investor Mandate 3: Generalist PE Fund Interested in CRO’s, CMO’s – January 22, 2013

22 Jan

A private equity fund located in the Central US with roughly $1 billion under management intends to make allocations in the tens of millions on a case-by-case basis over the first half of 2013. The firm is generalist and invests across sectors, but has a specific interest in life sciences & medical technologies. Within this space, the firm is opportunistic in almost every aspect, but does require that an issuer be EBITDA-positive. This means that a firm must have at least one product on the market generating revenue to be of interest. Though the firm has looked at and invested in therapeutics and medtech companies historically, a primary interest currently is service providers such as CROs and CMOs.

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Top Value Drivers in the Life Sciences Industry

17 Dec

A look at key elements that will help differentiate your company from the competition.

By Dr. Susanne Acklin, September 2011*

Introduction

It is generally agreed among valuation experts that management, market potential, technology, products and services are among the top value drivers for a life sciences company. In this article, we will take a closer look at key issues within these topics that, in our experience, are often overlooked and, when thoughtfully addressed, can help to distinguish a company from its competition in the eyes of an investor or potential development partner.

Top Value Drivers

Management

Many investors have learned from experience that a company with good technology and bad management is likely to fail, while a company with good management still has a chance to succeed despite technology challenges. When we value a company, we see the management team as the “insurance policy”, the executive arm that will ensure that a given development strategy is effectively implemented in a real life business environment, that challenges will be met and that hurdles will be overcome. As such, in our view, identifying and addressing the following key issues can favorably distinguish a company.

Key Issue: Management is wearing too many “hats”:

In a small to midsize company, it is often the case that a small management team covers a large area of responsibilities. We see, for example, companies where the CEO also covers the role of Chief Scientific Officer, Chief Financial Officer or Business Development officer, and, as a result, one or several of these functions that are critical to a company’s governance and growth, gets less than adequate attention. While such resource issues often cannot be immediately remedied, a clearly outlined hiring strategy as well as the temporary enlistment of qualified members of the board and/or third party advisors to cover management gaps, can help to avoid raising “orange flags” in the eyes of an investor. In addition, although this is not always possible due to logistic and tax reasons, instating a management and employee stock option plan can give an added sense of stability and help demonstrate that a company is serious about attracting and retaining key talent in the future.

Key Issue: There are “gaps” in expertise:

Gaps in expertise in critical fields including regulatory affairs, manufacturing and intellectual property, while often unavoidable in startup and even in midsize companies, can, if left unaddressed, lead to missed product development milestones, increased development costs and ultimately to a decrease in product and company value. While it often does not make sense to fill such expertise gaps with full time, in house personnel at an early development stage, it is never too early to identify and retain qualified external advisors to help put together the initial elements of registration, manufacturing and intellectual property strategies. Often such proactive behavior can save a company thousands of dollars and go a long way to lending credibility and substance to a given corporate or product development plan and associated future projected earnings.

Technology, Products and Services:

A technology platform, products and/or services often represent a high-growth company’s main assets and as such form the foundation of future projected earnings. Most technology companies excel at understanding their technology and its potential, they often have already  demonstrated proof of concept for their lead product(s) and now are looking for financing to help with further development steps. The challenge often lies in moving from initial proof of concept stage to focusing on and executing solid development strategies for lead products. Here are some of the critical issues that we tend to see inadequately addressed.

Key Issue: Intellectual Property (IP) Protection:

While the majority of technology companies have filed initial patent applications to protect their platform and lead products, questions of prior art and freedom to operate are often unanswered. Regional IP and marketing strategies are not always aligned, and the importance of having a reliable process in place to capture and protect existing “know-how” and identify future patentable inventions, is sometimes underestimated. The old adage of “you can’t sell what you don’t own” comes to mind, and demonstrating that a company has a solid intellectual property strategy that goes further than an initial patent filing can be a key competitive advantage in the search for funding.

Key Issue: Regulatory Affairs:

While the importance of regulatory requirements as they relate to clinical product development is generally recognized, some companies with products in pre-clinical development underestimate just how much time and money a well thought out registration strategy, even at this early stage, can save. In addition, it is nearly impossible to accurately estimate the development costs and timeline for a product without having put together a registration strategy and, as a result, projected earnings and cash flows may be inaccurate. Looking at the registration path for already marketed products in similar indications can give invaluable insight as to what type of data regulators will expect for a drug that is still in development. Regulatory affairs is all about understanding the rules and how to adapt them to a specific product by applying a well thought out scientific rationale. An experienced, external regulatory affairs advisor with expertise in registering products in target markets can be worth his/her weight in gold, and initiating regular discussions with such an advisor early on provides added insurance that a company is on the correct path, especially at a time where there are seemingly many possible avenues open.

Key Issue: Manufacturing:

It is said that “the devil is in the details” and we find that this is certainly true when it comes to manufacturing. This is especially a topic for biotechnology companies who are in advanced preclinical development; a point in time where initiating discussions with a contract manufacturer who is qualified to produce a technical batch and who will work out initial scale up issues, can save a lot of time, headaches and money. A company that can demonstrate that it has a plan to address questions of stability and quality control (including efficacy testing for clinical trials material prior to batch release) will have a much easier time with regulatory authorities, investors or development partners.

Market Potential:

Most development companies have a good understanding of the general target markets for their products. In some cases, however, management can be too optimistic when it comes to estimating market penetration and the number of patients that may benefit from a given product.

Key Issue: Overestimating the Market Potential:

An honest look at the efficacy and safety proof of concept available for a given product, paired with a realistic assessment of the competition, goes a long way in correctly estimating the product’s ultimate position and success within a given market sub-segment. When it comes to assessing the competition, it is important to consider not only products that are currently on the market, but also those products that will be approved by the time your product is ready for market entry. In addition, issues such as cost of production and product pricing as well as reimbursement by insurers and hospital formularies are potentially critical to a product’s market success and need to be addressed. Needless to say, they present yet another excellent opportunity to set a company apart from the competition with a relatively small amount of effort.

Conclusion

We hope we have provided you with a few helpful hints on how you can distinguish your company in the eyes of investors and development partners. If you would like to hear more about the “Venture Valuation” approach to high growth company valuation, you can find additional information on our company website at http://www.venturevaluation.com. In addition, the customized, onsite workshop, that we conduct as part of each company valuation we offer, can be an invaluable tool to help identifying hidden assets and value drivers specific to your company. During the valuation process where you work directly with our experts, you can develop value-based management strategies aimed at highlighting strengths and addressing weaknesses prior to approaching the investor or partnering circuit.

Dr. Acklin is Senior Advisor & VP Life Sciences at Venture Valuation and has over 15 years of experience in the global pharmaceutical and biotechnology industry. She holds a Ph.D. in Neurophysiology/Neuropharmacology from the Biocenter of the University of Basel, Switzerland and completed post doctoral studies in medical sciences at the University of Toronto, Canada. Her professional background includes executive roles at Axentis Pharma (Chief Operating Officer); Viron Therapeutics (Senior VP Product Development), the University of Western Ontario (Associate Director, Business Development and Technology Transfer); and Eli Lilly and Company (Manager Regulatory Affairs and Clinical Research).

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