Next Phase Newsletter

By Max Klietmann, VP of Research, LSN

The NIH has been faced with considerable difficulties as of late in terms of finding the required means to continue moving science forward at the early stage. However, the group recently announced a commitment of $12.7 million to a novel project – funding further research on assets that have been cast-off by big pharma in key indication areas that represent a significant unmet medical need (e.g. Alzheimers, Duchenne, etc.). The initiative has been fittingly named Discovering New Therapeutic Uses for Existing Molecules, and it may be a groundbreaking solution to several problems facing drug development today. These include reducing time to market, alleviating early stage investment risk, and creating even more incentive for research scientists to orient themselves towards commercialization of research.

Shortening time to market

The Discovering New Therapeutic Uses for Existing Molecules program’s single greatest benefit to the market is that it drastically reduces time to market. Rather than starting from scratch when developing compounds, researchers affiliated with the program are granted access to abandoned drug candidates owned by big pharmaceutical companies. These drugs may have been abandoned for a variety of reasons, and are now stagnant IP, sitting in a filing cabinet. This program puts them back to good use – One can think of it as subsidized out-licensing back to academia. The key is that these drug candidates have already undergone human safety trials. With this piece of the puzzle already taken care of, researchers have a much better shot of bringing them to market rapidly.

Investment risk reduction

Another big advantage to the program is that these assets have a reduced risk profile for investors seeking to capitalize on the opportunity. The NIH program will support the research for up to three years, allowing reasonable time to complete Phase IIa trials, at which point the projects will need to find other sources of financing. This gives investors an opportunity to invest in assets with a strong pedigree and minimal equity dilution risk, quite far down the pipeline.

So what does it all mean? At the most basic level, this pilot project represents a willingness on the part of the NIH to get creative. This program is very different from traditional research grants, and it shows that the agency is thinking within the context of the industry as a whole. This translates to a more attractive environment for investors, better deal terms for entrepreneurs, and more products making it to market. Keep your eyes on this program, as it will be a good indicator of how the NIH may be orienting itself on a larger scale moving forward.

1. “Discovering New Therapeutic Uses for Existing Molecules.” Discovering New Therapeutic Uses for Existing Molecules. NIH, n.d. Web. 20 June 2013.

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 Michael Quigley, Research Analyst, LSN

The Supreme Courts ruled last week that naturally occurring genes are no longer patentable. The case was brought to the Supreme Court by the American Civil Liberties Union against Myriad Genetics Inc. for their patents on the BRCA1 and BRCA2 genes (two genes strongly correlated with breast and ovarian cancer) on behalf of researchers, doctors and cancer patients. For many, this ruling was seen as long overdue, as the idea of owning something that nature produces on its own is counter-intuitive. However, prior to this ruling, various companies had patented approximately 20% of the human genome, some of which they held for as long as 30 years. (1)

The largest benefactors of this ruling include diagnostic services companies, who can now test patients for previously patented genes that have a known association with a disease or disorder. Patents will also benefit now that companies are no longer able to have monopolies on the tests for these genes; the prices of these tests for patients – which, for certain indications, can cost more than $3,000 and aren’t always covered by insurance – are already dropping dramatically. (2)

With a likely surge of patients getting tested for the presence of these genes, bioinformatics companies will see a boost in amounts usable patient data for their software programs. Combining that with the fact that screening and sequencing costs are dropping at a rate faster than Moore’s Law for molecules, as well as an increasing number of hospitals going digital with their data, many early-stage investors are looking at health informatics as a potential “megatrend” in the drug discovery and diagnostics space. (3) The idea that software and informatics could be a serious player in the development of novel advancement in this industry is not new. However, with this ruling in place, it seems to be a much more a viable theory.

The opposition to this ruling this stems in part from the fact that without the ability to patent genes, funding for companies that are actively searching for genes correlated to diseases will pull back farther than it already has. With companies unable to patent the genes they discover, these discoveries become much less profitable, and therefore, less attractive to investors. However, the ruling also states that synthetic genes (cDNA) that are derived from natural genes but made synthetically still can be patented. These synthetic genes are often honed versions of their natural counterparts, and are used frequently in therapeutics. The ruling that these synthetics can be patented will actually be an attribute for companies working with them in terms of gathering funding, as investors finally have closure in an issue previously clouded in uncertainty.

It seems obvious that something produced naturally should not be patentable. But if having patents exist encourages investors to fund and push the science forward, the decision becomes more ambiguous. In the end this decision will aid millions by providing them will more affordable medical tests, and further down the road, more personalized treatments as a result of the increased inflow of patient data.

1. Cutler, Kim-Mai. “Supreme Court Ruling On Gene Patenting May Be A Boon For Biotech Startups.” TechCrunch RSS. TechCrunch, 17 June 2013. Web. 19 June 2013.

2. Than, Ker. “7 Takeaways From Supreme Court’s Gene Patent Decision.” National Geographic. National Geographic Society, 14 June 2013. Web. 19 June 2013.

3. Cutler, Kim-Mai. “SV Angel Says Health Informatics Is One Of Its New “Megatrends”.” TechCrunch RSS. TechCrunch, 25 Apr. 2013. Web. 19 June 2013.

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, LSN

In the US, there are two states that are known for being hubs for life science firms: Massachusetts and California. For this reason, the two states have logically become capitals for investors in the sector; some of the most well known private equity, venture capital, and angel firms that invest solely in the biotech space are based in either Massachusetts or California. But what happens if your firm is based outside of these two states? Will it be more difficult for your company to raise capital? The answer depends largely on what investor groups your firm is targeting.

Angel groups, for instance, are associations made up of high net-worth individuals that pool their money together in order to make investments in early-stage companies. These groups tend to focus on regional investments. Typically, an angel group’s investment goal will be to help stimulate economic development in a particular region. While some groups may focus on other types of investment themes (for example, investing only in female-owned businesses), most of these firms are regionally focused.

Another reason angels are usually regionally focused is because they tend to have no budget outside of the capital they put aside for investments. These groups also have limited full time staff for the same reason. Because of this, it is very difficult for angel groups to visit companies that are outside of their state. Even if the group does visit a company that is located outside of their state, it would be hard for them to have a company in their portfolio that is located far from their headquarters. Furthermore, angel firms have limited deal flow, and often times will not actually source a good number of deals outside of their state.

Private equity firms and venture capital firms lean towards a more opportunistic approach compared to angels in terms of where firms are located. Both groups certainly have larger budgets, and thus partners are able to travel more to visit attractive investment targets. Many of these groups, however, are operationally focused. Accordingly, many of these firms will favor deals that are close to their company’s headquarters so they can check in on the company and make sure everything is running smoothly. Many venture capital firms now will even act as quasi-incubators, maintaining additional office space for their portfolio companies at their headquarters. This is not only to help their portfolio firms that cannot afford to pay high rent, but also allows investors the ability to offer office space that is close to their own company so they check in on the company more often than they normally would be able to.

So does this mean you have to relocate your firm to Massachusetts or California to be successful? Of course not. Although there are undoubtedly more life science investors in both Massachusetts and California, there are certainly a number of investors located outside of those areas. What firms should do is make a target list of all investors that are located within their general region that invest in life sciences firms. These will be the low-hanging fruit, which a firm raising capital should be reaching out to first to begin with. Also, if the company raising capital is located in an unfavorable area in terms of investor concentration, there is still no need to worry. If the product or service is compelling enough, most investors will be willing to literally step outside of their typical geographical investment mandate and start a dialogue with the company.

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