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The Changing Nature of investing in early Pharma / Biotech: Poll Result

Networked Pharma – Finance (NWkRx F7)

I ran the Linked In Poll below as a prelude to Thursday's Funds & Fundability workshop in London http://www.networkedpharma.com/funding,:

According to those that responded Open Innovation and Crowd-funding will have greatest impact on drug discovery,more than even Corporate VC investment, and perhaps most interesting VCs where seen as the least significant!

I await with anticipation the outcomes form the workshop itself! 

NB there will be some register on the day places available http://www.networkedpharma.com/funding

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkRx

Future View of VC investing in early Pharma / Biotech: The CVC Perspective

Networked Pharma – Finance (NWkRx F6)

 I recently spoke with one of the more active Corporate VCs (CVC) regarding the existence 

of the funding gap in early pharma discovery, the reasons for it, and what the future holds.

There is a funding gap in early drug discovery - but not an insurmountable one!

Previously the investment model in Europe for general VCs assumed funding to a proof of principle and then floatation on a public market or trade sale to Pharma company.  However as the public markets do not understand biotech (nor do generalist VCs) share prices are highly volatile and single poor trial results are catastrophic for share prices.  Hence appetite for biotechs became poor in early 2000’s, and so VCs could see no exit that way.  Also Big Pharma have stringent requirements for in licensing and often VCs were not able (insufficient funds) or unwilling (required cost of capital by their investors necessitates shorter timescales) to continue funding sufficiently to achieve the proof needed by Pharma.

Part of the problem was “naive money” ie from general VC’s inexperienced in the sector.  There is now a gap in early funding as the general VCs have pulled out of the sector, although some still have portfolio company legacies.

Being a “Biotech VC is completely different from other VCs, including Tech.”

So what of the specialist funds?  There are (in the interviewees view) a small group of “tier one” specialist biotech VCs that are, or will be, active:

·       VC:

Abbingworth, Imperial Innovations, Index, MVM, Phase4ventures (ex.Nomura), Sofinova, SVLS (Shroders).

·      Corporate VC (CVC) – those that are wholly or largely independent from Pharma HQ influence:

Lundbeck, Novartis, Novo, Pfizer, SR One.

These generally have longer timescales and larger pots of money for investment.  However at present most of the Biotech VC have either run out of money, or are at 5yr+ stage of 10 year fund and so have to keep funds for follow-on investment.  So few are investing (e.g. Sofinova & SVLS who both have ~7 years left on their funds, and Imperial with its longer term approach).  The rest are actively fundraising early stage funds.  Hence the gap is [at least in part] temporary, awaiting fundraisings. The CVCs are actively investing and moving to earlier stage opportunities.

Another issue has been that companies spin-out too soon, with small investment from small funds, Angels etc and then have to find more money to develop further.  The incumbent investors have insufficient funds and as the technology is still not sufficiently demonstrated, so

1.      Larger VCs are not interested or only so with terms which dilute the existing shareholders so much that they will not agree,

2.      Pharma is not yet interested in licensing, or a very poor set of terms is achieved, and/or

3.      Company has to switch to a much lower-value service model to survive.

None of which is a desirable situation for anyone.

The CVC would prefer companies to be incubated longer in universities “until they are really ready”, perhaps with a £50-100k “investment” from a CVC to enable some critical proof of concept work (with a gentlemen’s agreement for first chance to discuss next steps assuming success), and then spin out with major investment by party(ies) with deep enough pockets to see it through to exit (trade sale).

So what are they looking to invest in?   Something really new, which may be a service business, but more likely a game changing innovation that has potential to satisfy unmet medical need, is likely a new mode of action, and most certainly is not only approvable but also reimbursable!  The latter needs a step change in clinical outcomes.  So no longer improvements on existing drugs e.g. new delivery methods or me-toos, as Big Pharma will do this themselves.  Regarding reprofiling: there is still a short window of opportunity, but eventually Big Pharma will be doing this. 

What Big Pharma ultimately want to acquire is the game changing new drug, and so that is what the VCs want to invest in.  This will be high value, with a high hurdle rate, necessitating large investment.  The VC has to consider all risk, not just the technological (R&D) risk that is mainly considered- including ability to exit, and shareholder dynamics risk (sufficient funds, dilution etc).  Hence there will be fewer investments, of great amounts, with funds being more focussed. 

Imperial, MVM and SR One are all speaking at Networked Pharma’s Funds & Fundability workshop on June 28^th in London http://www.networkedpharma.com/funding, and will share the panel discussion with serial entrepreneurs Andy Richards and Julian Gilbert.

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkRx

Open Innovation in early Pharma: #2

Networked Pharma – Finance (NWkRx F5)

I recently spoke with Harry Wilson of Innocentive’s UK office about Open Innovation & Crowdsourcing in Pharma discovery.

Innocentive originally spun out from Lilly, and their UK office was obtained by acquiring Omnicomplete (itself a spinout of LBS).  They operate as a platform where “seekers” can post their R&D “Challenges”, and solvers post their responses. The seeker often stays anonymous and the responses are held confidentially. Solvers are selected on a basis of submitted plans, with the financial reward only being paid out if solvers meet the pre-defined criteria. In this way, seekers only pay for results, not research time.

Most of their work so far has been pharmaceutical, although they are now diversifying.  Seekers are companies, charities, and other organisation. 

There are three levels of challenge available to a seeker (with increasing price for the service), Brainstorm (self-service using their platform), Premium (which involves their experts) and a Grand Challenge which is “transformative” in the world and is phased with intermediate challenges. The latter involves therapy area experts, and is typified by the recently successfully completed $1m Prize4Life which sought to identify a biomarker for ALS (needed to reduce timescale and costs of clinical trials).  See their case study blog.

Recent developments are;

• Combining Crowsourcing with Crowdfunding, via the peer-to-peer philanthropy marketplace GlobalGiving, and the Rockefeller Foundation, to crowdsource solutions to problems facing vulnerable communities. Blog.
• Discussing with VCs the possibility of combining activities in “Prize Venturing”

Although neither of these are specifically pharmaceutical, they are interesting as new approaches worth considering.

Siobhan Gibney Gomis, Senior Director of Operations Grand Challenges, and Deputy Head of EMEA, InnoCentive, will be attending the Networked Pharma Funds & Fundability workshop on 28^th June in London http://www.networkedpharma.com/funding.

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkRx

Open Innovation in early Pharma: #1

Networked Pharma – Finance (NWkRx F4)

I recently spoke with Jordi Rafols of Innoget, regarding open innovation and the Innoget platform. We began by Jordi  distinguished OI from crowdsourcing as follows:

Crowdsourcing:

• Operates on a shared responses basis, with no confidentiality nor contractual agreements. Individuals post responses to a request and all can see all responses.
• Good for ideas generation, consumer insights, marketing innovation.

Open innovation:

• Operates on confidential response basis. Does not pool responses.

Innoget’s website http://www.innoget.com/ acts as a portal for open innovation, where technology requests or technology offerings can be posted, anonymously if desired, and responses are then made via the website.

Jordi will elaborate further on this approach and its application to pharma discovery during Networked Pharma’s Networked Pharma Funds & Fundability workshop at Holiday Inn, Regents Park, London, on 28^th June.

The workshop will examine who is funding, what they are funding and what makes a fundable investment, as well as the rise of open innovation & crowdsourcing. Jordi will be joined by speakers from biotech, VC, CVC, Pharma, CROs, BBSRC, the Wellcome Trust, TSB/KTN and others. For more information and to register see www.networkedpharma.com/funding.

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkRx

The Changing Nature of investing in early Pharma / Biotech: Serial Entrepreneurs' Perspective

Networked Pharma – Finance (NWkRx F3)

I spoke with Andy Richards earlier today (15^th June 2012) regarding the perceived funding gap for drug discovery.

Andy’s view is that although there is a gap, it is not as large as generally perceived.  There is much more money available, people interested in investing, and [equity] funding going on, than is generally thought.  It’s just that it is coming from alternative (non-VC) sources which are not recorded in the generally used statistics, such as High Net Worth individuals, CVCs, sovereign wealth funds and pension funds.

Also such investment is being used to grow assets/products for selling off, rather than to build big companies (a point also made by Julian Gilbert in a recent discussion). Consequently there is little infrastructure building or PR activities undertaken, and so such companies and investment deals are much less visible than in previous times!

Both Andy and Julian will elaborate on their perspectives during the Networked Pharma Funds & Fundability workshop at Holiday Inn, Regents Park, London, on 28^th June.

The workshop will examine who is funding, what they are funding and what makes a fundable investment, as well as the rise of open innovation & crowdsourcing. Andy & Julian will be joined by speakers from VC and CVC, Pharma, CROs, BBSRC, the Wellcome Trust, TSB/KTN and others. For more information and to register see www.networkedpharma.com/funding.

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkR
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Future View of VC investing in early Pharma / Biotech: Imperial Innovations

Networked Pharma – Finance (NWkRx F2)

I recently spoke with Nigel Pitchford,  Managing Director of Healthcare, for Imperial Innovations (www.imperialinnovations.co.uk), one of a new breed of early stage Biotech VC investors, regarding the future funding model and open innovation for Pharma innovation / Biotech start-ups.  Before joining Imperial in 2011, Nigel was a traditional venture capitalist in the biotech space, at 3i Cambridge and latterly DFJ Esprit.

Below is a summary of our discussion.  The take-home messages are;

• Early stage funding model for biotech’s needs to change
• “Patient Capital” (as in prepared to wait) is necessary for successful “biotech” investment.
• Tax incentives for investors and more translational funding are required.
• A new approach to translational project funding in universities is needed, that avoids excessive overheads or the need to spin-out.
• Open innovation is generally a good idea, and would be greatly facilitated by a new form of marketing exclusivity for first exploiters of products arising from such initiatives.

Funding models

Nigel agreed that the early funding model [for biotechs] needs to change. Without access to public markets VCs are left with the dilemma of funding biotech companies for longer and with ever increasing amounts of capital, hopefully towards a trade sale exit. This continued funding model is directly at odds with what most of their Limited Partners want to see – creating a problem for VCs themselves when it comes to both fundraising, and then later in deploying that capital.  

There is a fundamental mismatch, of both timescales and quantity of money needed, between the needs of early stage biotech’s to discover and develop drugs and so build a company to a reasonable business/valuation; and the requirements of  the VC’s Limited Partners. Hence once new companies were established, insufficient funds were available for follow-on funding rounds (resulting in dilution or fire-sales) and exit was required too soon, so that decent companies with good critical mass could not be built and “the buyers got a good deal”! 

One reason why Nigel joined Imperial Innovations, is it is an evergreen fund with

“Patient Capital” (i.e. willing to wait)

They invest off of their own balance sheet, and have investors that are patient (willing to wait), so that sufficient time is available to develop the drugs, and sufficient funds available for later funding rounds, allowing a solid company to be grown, and “with size comes value”.

Similarly, the Major Pharma Corporate VCs (“CVC”), who are funded by corporate parents, and invest with alignment with their strategic imperatives, have both

“Patient & Plentiful Capital”

And so are more open to funding early stage innovation.

Regarding future funding of early stage innovation, Nigel made several observations;

• Further tax incentives for early-stage investors would assist with bringing vital start-up capital to fledgling biotech companies.
• More translational funding is required for the gap between the scientific discovery and sufficient proof of concept for either spin-out or licensing to take place.  Previously there has been tendency to spin-out too soon, but trend is now to keep in-house (university etc) longer, which is good thing.
• However, if VC or CVC wants to fund some translational or earlier work, it costs more than twice what a research council would pay, because of FEC (full economic costing) and/or start-up costs for spin-out including legal fees etc.  [This is nonsensical, given the risk profile and dearth of risk capital, as money is wasted that could have been used for another opportunity].  A new approach to project funding with a sensible [equitable] costing structure is needed.

Open Innovation

Nigel believes open innovation to be a good idea, not competitive to VCs, and that the sharing of failures would be very beneficial - e.g. avoiding a company repeating another’s mistake (with a drug etc) [or showing up a profiling opportunity].

However, IPR ownership is of course key.  Or rather, it’s the ability to exploit exclusively that is necessary (to get ROI).  Traditionally this is via ownership of IPR, but increasingly there are now mechanisms for marketing exclusivity other than IPR ownership - namely Patent term extension and orphan drug legislations which provide for marketing exclusivity.  Nigel’s suggestion is for the government to introduce a form of market exclusivity for products / services arising from open innovation [where IP ownership is complex or unclear, or IPR absent] – perhaps a form of first to exploit protection.

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

Networked Pharma Partnership; Building Innovative Networks in Drug Discovery & 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.

Follow us:

Twitter @NWkPharma,      #NWkRx