Next Phase Newsletter

By Dennis Ford, CEO, LSN

LSN has been tracking the emergence of new investor categories in the life sciences arena, as well as the trends surrounding the activity of existing investor categories. The basic underpinnings of LSN’s view of the capital markets surrounding life sciences has been that the VC’s lack of funding (although that trend may be reversing) has left a void that is being filled by other emerging categories of investors. Among these emerging sources of capital are hedge funds and private equity, which are largely misunderstood by life science entrepreneurs, especially when it comes to early stage activity. This article will help readers who are seeking to raise capital understand how these investor types can be productive sources of investment. These three categories of investors have begun to blur the lines around their traditional definitions, and it is becoming increasingly important that biotech and medtech CEOs understand these investor groups.

Hedge funds are traditionally thought of as players active only in public markets. However, as fund managers have come under increased pressure to generate alpha (outsized returns), many managers have turned to more VC- and PE-like strategies, and have gotten more creative when it comes to making allocations. For example, some hedge fund managers maintain a portion of investable funds for private direct investment. This can either be in the form of one-off “side pocket” investments on an opportunistic basis, or as an integrated piece of an investment special situation strategy. There are a number of hedge funds that have begun to make this sort of “crossover investment” in the life sciences arena, and a quick glance at the list of investors in some of the largest private placements in recent history make that clear.

Private equity is also challenging the historical map – PE is traditionally thought of as the restructurers of larger, post-revenue companies. However, this is changing, especially in the life sciences space. Biotech and medtech opportunities have a highly compelling potential for returns, and PE firms have a higher tolerance for the long time horizon to commercialization. Many firms have therefore begun implementing strategies to aggregate assets and shepherd them through the pipeline. This portfolio of assets can then be passed to a large strategic partner as a one-stop solution to a pipeline gap, where a full portfolio of drugs is worth more than the sum of its parts.

To distill it down to a single idea: The lines are blurring between VC, PE, and hedge funds from a life science entrepreneur’s perspective, especially when the hedge funds admit and commit to the need to take a long term approach to the investment. To add to the topsy-turvy nature of the future life science investment, a deal might even have a combination of some – or even all – of these three entities in it. All of these players have begun orienting themselves (at least in part) towards early stage direct investments. This is good news, because these players have large capital reserves, and can bring a significant amount of investible cash back into the early stage marketplace. However, as these lines begin to blur, it is more important than ever for an entrepreneur to understand the landscape and exactly where to go when it comes to raising capital to move products and services forward.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

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.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

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.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

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.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital