Thursday, 23 February 2012

Future View of VC investing in Pharma / Biotech Innovation: MVM Life Science Partners LLP

Networked Pharma – Finance (NWkRx F1)

I recently spoke with Hugo Harrod, partner of MVM Life Science Partners LLP (, one of the established biotech VC investors, about the current state of investing into and sourcing innovation / novel drugs within the Pharma / Biotech sector.

Below is a summary of our discussion.  The take-home messages are;
  • Future demand side (market) fundamentals for therapies are strong.
  • Successful VCs need to invest in non-traditional approaches to drive returns. These will encompass personalised medicines, novel biologics, medical devices, healthcare IT and creatively de-risked pharma programmes.
  • Replicating big pharma drug discovery is a difficult model for venture capital.
  • There is a shrinking pool of traditional venture capital but limited funding is also available from other sources. Some of these sources are less focused on financial return but VCs bring the discipline to grow value.

Future view for Pharma /Biotech Sector?

In general, the future for the industry is positive because of the need to innovate to improve the efficiency of healthcare;
  • Shrinking healthcare resources in the West will force adoption of innovative cost-saving technologies (eg Cheetah Medical’s fluid management technology and Accuvein’s vein location device).
  • The rise of the emerging markets is particularly relevant to biotech. This is because people throughout the world are increasingly suffering from Western diseases and demand the same products. These products are protected by global (and widely upheld) IP rights. Suddenly biotech is looking at markets of 3bn people versus 600m in the traditional USA + Europe+ Japan Pharma geographic reach.  

What is the future of VC Investment in biotech?

The old model of funding novel targets from discovery through to clinical proof of principle (PoP, phase 2a) has driven mixed returns for VCs. In retrospect this is not surprising given the success rate in drug development over the last few years. In part this is because the easier to treat diseases have now been addressed and there is generic competition, so that we are left with more challenging indications e.g. cancer, Alzheimer’s.

So what is the future for VCs that address this sector?  The sector will be slimmed down, with survivors adapted to survive; looking at non-traditional creative approaches in which pharma is less strong (eg BioVex’s oncolytic viruses). We are going to see innovation come from some unlikely sources. For example, medical device based approaches are appearing in previous bastions of pharmaceutical therapy such as renal denervation in hypertension and deep brain stimulation in Parkinson’s. 

Innovation / discovery Funding in the Future

The supply of venture capital is shrinking, and Big Pharma is downsizing, outsourcing innovation, and reducing discovery funding. 

So, where is all this drug innovation and the funding for it going to come from?
Some of the slack will be picked up by non-traditional ventures investors, such as corporate VCs and disease-focused charities. Governments have had a poor track record of stimulating discovery but they could do a better job through tax incentives and other tools that incentivize investors.

What is clear is that product demand in emerging markets and cost-cutting imperatives in established ones will create terrific opportunities for new technology. Those VCs that survive will thrive in the new world order.


Networked PharmaBuilding Innovative Networks in Drug Discovery & Development

BioSpring Ltd is a member of Networked Pharma, a not for profit organisation dedicated to assisting development of a new paradigm for drug discover & development

A series of workshops are being run during 2012, leading to an international congress in early 2013, which will bring together all stake-holders (Corporate Pharmas, SMEs, CROs, Universities, VCs, CVCs, Research Councils, Charities, Regulators & Government bodies etc.) to formulate the new business model(s) for the future success of the industry.

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