BioScience Biz

Angel-backed companies more likely to succeed, says Harvard study

A new study published by professors at the Harvard Business School shows that angel-backed companies are more likely to succeed and show more growth than those funded by venture firms alone. Researched and written by William Kerr and Josh Lerner, the report found that companies with angel funding see between 30% and 50% higher growth figures in terms of website traffic, are more likely to survive for four years, and are also in a better position to receive further rounds of funding.
Steven Clark

Angel investing itself has seen large growth over the last several months with the creation of various organizations, events, firms and legislation to spur it on. We've discussed the Open Angel Forum series of events, the creation of "Super Angel" firms, the curated Venture Hacks AngelList, as well as current legislation both helping and hurting angel investments. Steven Clark

Read the full article.  Steven Clark

VC funding is up for 2Q 2009

OnBioVC.com recently reported on the trends of international VC bioscience funding for the 2Q 2009 and found that there were 88 financings for 2Q09 versus 71 deals in 2Q08. The combined second quarter 2009 bioscience investment totaled approximately $1.7B, an increase of roughly $538.2M compared to the second quarter of 2008, or a ~31% boost.

Other tidbits follow:

• The largest deal of 2Q09 went to Boulder, CO-based Clovis Oncology which closed a $145M Series A financing (really!).


• In the three month period, 11cardiovascular device deals closed, accounting for $178.9M

• There were 41 total device deals representing 47% of 2Q09 financing.

• California continued its dominance in attracting investment dollars. The state was home to 22 financings for 2Q09 for a total of $493.2M.

• After California, the most active region was outside the US where 13 financings added up to $167.5M in investment.

• The biopharma sector attracted the most investment dollars ($868.2M), narrowly out-raising medical device deals ($743.6M).

• Biofuels accounted for $85.0M and diagnostic deals raised $16.8M.

Read the entire report here.

Is there an advantage to Angel vs VC backing during an IPO?

For companies that go public, how do those that were backed primarily by angel investors fare against those primarily backed by venture capitalists? That was one of the questions addressed in a working paper recently published by two professors from the University of New Hampshire. They examined data related to the pre-initial public offering (IPO) shareholders of companies that subsequently went public. The conclusions from the study provide interesting information that should be considered for companies looking to go public as part of their long term capitalization plan.

Read more from the article by Matt Storms that was recently published by the Wisconsin Technology Network News.

Biotechs and pharma companies need to embrace a new model

In new drug development, the “valley of death” is the period when the research funding is running out and venture funding has yet to materialize.  Both small biotech and large pharma companies increasingly are turning to a business outsource model that G. Steven Burrill labels the "virtually integrated company".  Big pharma has found it easier to spin off pieces of their operations to small biotechs that are eager to find an income stream to get them through this lean period.  Small biotechs that are already set up for a particular technology that the big pharma needs can respond more quickly and the big pharma does not have to divert resources from one profitable project to another.  This win-win model seems to be an emerging trend.  Read the full article here.

Predicting success in emerging biotechnology, Part 2. By Steve Clark

An investor recently asked me to compare the technology behind two early-stage biotech companies he was thinking of investing in. Both companies had novel therapeutic products at similar stages of development and the investor wanted to know which company’s product had the greater chance of success.

In an earlier article on this topic, I cautioned that predicting success of a technology is impossible. Therefore, in my analyses, I look for scientific limitations that might portend failure of a new technology.

Here, I illustrate another way to evaluate emerging biotechnology—science-focused market analysis. I contend that one needs to assess the market, not only from a business perspective, but also with a scientifically critical eye in order to fully appraise the risks of a new technology. Let me use a real example to illustrate how this works.

Two companies, A and B, are at similar stages of developing novel therapies for treating cancer of the prostate (CaP). Prostate cancer is very difficult to treat successfully; hence, enormous efforts are underway to develop better therapeutic options. The competition is stiff.

In order to fully appreciate the market potential for these products, we first need to understand the biology and treatment of CaP.

Treatment options are limited for CaP 

When CaP is detected, usually surgery or radiation is used first to reduce the size of the cancer (step 1 in the figure). At this stage, cancer growth depends on androgens, or male hormones produced in the testes; therefore, after surgery or radiation, men are often chemically castrated in order to retard the re-growth of any remaining cancer cells (step 2 in the figure). Despite this treatment, the cancer invariably returns and slowly progresses to a more aggressive malignancy.

CaP progression obviously means that androgen depletion no longer prevents the tumor from growing. The first indication of cancer progression is increasing blood levels of PSA (prostate specific antigen), a protein which is secreted by prostate cells. At this stage in the disease, there is no therapeutic option and one simply waits (“watchful-waiting”, step 3 in the figure) until the slowly re-growing cancer develops into end-stage carcinoma (step 4). Increasingly, patients with end-stage CaP are treated with chemotherapy, but this offers minimal, if any, results.

Experimental therapies of the two companies

Because CaP is so difficult to treat, many experimental therapies are in various stages of development and mostly target the end-stage metastatic disease. It is in this milieu that companies A and B are working to develop new therapies.

Company A is developing a naturally occurring biological product that enters cells and kills them by preventing gene expression. For unknown reasons, the product selectively kills advanced-stage cancer cells and not normal cells. Therefore, this product is targeted for potential treatment of end-stage CaP.

This experimental product has stiff competition from the plethora of other experimental cancer therapies under development. Nevertheless, it is likely that multiple therapies that have different mechanisms of action will be needed to successfully treat end-stage CaP. This means that the uniqueness of Company A’s product is a significant advantage; however, the stiff competition also means that, in order to marketable, this product will need to show as good or better efficacy and side-effects than other current and emerging therapies.

Company B has two novel therapies in development. The first therapy is derived from a natural dietary product that surprisingly blocks the androgen receptor. This drug is targeted toward prostate cancer patients who have undergone androgen deprivation therapy, but show rising PSA levels without having yet developed androgen-independent metastatic cancer. Currently, “watchful waiting” (step 3) is the only clinical option available for these patients. So, this product is designed to throw another punch at the slowly growing cancer before it achieves full blown androgen-independence.

The second product that Company B is developing is based on careful understanding of the cell biochemistry that drives CaP progression. When androgen binds to its cellular receptor, many things happen in addition to stimulating growth of prostate cells. It is believed that a specific “side-activity” of androgen stimulation is responsible for turning normal prostate cells into cancer cells. Furthermore, this side-activity also likely drives the progression of CaP from a slow growing tumor to end-stage cancer.

Company B’s second product blocks this cancer-inducing side-activity without affecting any other activity of androgen stimulation. For this reason, the drug is targeted for patients who have not yet undergone androgen depletion therapy. The goal is to retard early tumor progression and avoid the androgen depletion regimen which comes with considerable side-effects.

Which technology do you invest in?

All things being equal (or at least as much as possible between two different early-stage biotech companies), the decision comes down to predicting which technology has a better chance at success, or as I wrote previously, the least chance of failure. Here, science-focused market analysis tells you that the product under development by Company A, while unique and with good potential, nevertheless will compete with current therapies as well as with the many new experimental therapies in development.

In contrast, the products being developed by Company B specifically target stages in CaP where there is no good therapeutic option currently available. The competition for these products is negligible, which means that even if they are marginally effective or have side effects, there likely will be a significant market for them.

The unique biomedical niche targeted by company B’s products means that the significant risk factors company A faces due to competition are not likely to be a problem for Company B. Hence, market analysis through a scientific lens favors investing in company B over company A.

The example described here provides a good illustration of how scientific understanding of emerging biotechnology can add significantly to your market analysis. So, don’t forget to include your technical advisor when doing market research.

This article was first published in part in the Wisconsin Tecnology Network News
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© 2008 Steven S. Clark, PhD. All Rights Reserved.

Disclaimer: The authors used their best efforts in collecting and preparing the information published herein. However, neither Steven S. Clark, nor other authors,  assume, and hereby disclaim, any and all liability for any loss or damage caused by errors or omissions, whether such errors or omissions resulted from negligence, accident, or other causes.

Articles contained herein, are meant to be distributed freely to interested parties. However, any excerpts from any article must credit BioScience Biz.

 

Paths to entrepreneurship in the life sciences

A thoughtful article by Shreefal Mehta identifies and describes two types of life science entrepreneurs. The first type, called the "technopreneur", is familiar to most of us. This is a university based scientist who has a potentially marketable idea/product, has it patented, assumes the license from his university, finds collaborators and investors and works to launch the venture. However, this traditional entrepreneurial path is not the exclusive route to life science venture creation. 

Mehta, who is from the Lally School of Management and Technology at the Rensselaer Polytechnic Institute, points out the value of social networks that fuel serendipitous associations that can lead to the development of new businesses via unconventional routes. In other words, it is not always technical savvy that drives bioscience ventures, but sometime it is your chance associations and insights into market needs. Mehta uses several short examples to illustrate alternative paths to venture creation in the life sciences by people he calls, “market perceivers”. 

He concludes that, “A technopreneur might have difficulty in taking on all of the positive aspects of a market perceiver's aptitude, skills and mental processes, just as a market perceiver might find it difficult to evaluate and determine technical milestones, capabilities and limitations.”

Read the full article here.

Burrill: Plenty of capital, not enough connections

 Madison, WI-  Greater Madison biotechnology executives should stop worrying too much about raising capital and focus on mastering a new biotech business model, according to life science venture investor G. Steven Burrill.

Burrill, founder of Burrill & Co. in San Francisco, is considered a pioneer in the world of biotechnology investing. The Madison native returned to his alma mater Thursday to deliver a lecture in the Microbial Science Building on the University of Wisconsin-Madison campus.

His subject was the global transformation now taking place in areas like biotech and biofuels, but his best advice may have been aimed locally. Burrill spoke of a bio business model that is transitioning from vertical integration for research, manufacturing, clinical and regulatory steps, and sales and distribution to more of a virtual integration model with partnerships for all of these functions.

Burrill, who publishes an annual report on the biotechnology industry, said the changing model means it will be far less important to be in San Francisco and more important to be virtually integrated. “To succeed in Madison, you don't have to get me here,” Burrill said. “You have to be linked.”

The value of integration, he said, is evident in the RCA example. RCA invented the color television set, but could not sell color TVs initially because none of the national television networks broadcast in color. The company's solution was to acquire the NBC television network and make it the first network to broadcast in color. The rest is history.

In contrast, healthcare still is one of the few industries in which important pieces - buyer, payer, and practitioner - are delinked, he noted. The industry will need a greater degree of integration, he said, as it helps deal with issues like pandemic disease and regulatory harmonization.

Burrill & Co. is a life sciences merchant bank that concentrates on companies involved in biotechnology, pharmaceuticals, diagnostics, and other health-related industries. The firm, which primarily raises money from large companies, has more than $950 million under management worldwide and is increasingly raising money globally. Following his visit to Madison, Burrill was off to Dubai in the Middle East, where a surge in petroleum revenues is creating vast sums of wealth.

During his apperance in Madison, Burrill said something that would surprise those who are working to raise Wisconsin's profile to outside investors - there really is no shortage of venture capital. “I would put every dime in Madison if the best deals were here,” he said.

World in transition

The new bio business model will continue to emerge as it becomes more difficult, thanks in part to the Vioxx scare, to get new products approved, as researchers increasingly turn to the private sector for grants, as Congress attempts to give Medicare more power to negotiate what it pays for drugs, and as the pharmaceutical industry is increasingly seen as the bad guy when it is, in fact, part of the solution. These are all challenges that Burrill said would accompany the opportunities that await biotech.

New business models are only part of a transformation that is changing the scientific world from one dominated by chemistry to one ruled by biochemistry, from one-size-fits-all to personalized medicine, and from the mindset that says aging “just happens” to an era in which aging is optional.

The longer life spans that result will raise healthcare costs from the current $2 trillion, or 18 percent of the Gross Domestic Product, to $4 trillion, or double its current percentage of GDP by 2015. Medicare, he added, is on track to spend more than it takes in by 2013.

Some, including HIMSS chairman John Wade, don't believe this slice of GDP is sustainable and view greater adoption of healthcare information technology as a mitigating factor. Burrill, however, believes it's inevitable. He cited the combination of greater longevity made possible by new drugs for AIDS and cancer, and the aging population they create. None of the presidential candidates, he added, will be able to stop it.

While many believe the bulk of healthcare costs are linked to drugs, 75 percent of healthcare dollars actually are spent on chronic care. “What has happened is we've taken all these things that used to kill us - a dead patient is a cheap patient - and by keeping people alive through chronic care therapy, it's costing us money,” Burrill said.
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By Joe Vanden Plas • Published 02/21/08 in WTN Newsletter

Alternative Financing for Early-Stage Biotech

The public markets aren't what they used to be and venture capitalists are seeking investments with shorter timelines. But the good news is several new sources of financing are becoming available.
Although levels of financing going into the biotech sector overall may be increasing, the number of companies receiving seed investment is down. Almost half of funding from venture capitalists (VCs) goes to companies with drug candidates in the clinic, and angel funding continues to retreat. All of which means it's getting harder for young companies to get up and running. At BIO-Europe in Hamburg, Germany, on November 11 a panel of experts gathered to discuss the financing and partnering landscape, with an eye to the future. The roundtable has been edited to reflect the main themes of that discussion.
Read the full article here.

Predicting Success of Early Stage Biotechnology--Part 1, by Steve Clark

After a session at the recent Wisconsin Early Stage Symposium, I was talking with an investor from Indiana and explained to him that I analyze biotechnology. He then asked me the $64,000 question every investor would like to know--how do I determine if an early stage biotechnology will be successful?

It is a great question but, I submit, the wrong one to ask because there are no unambiguous or concrete criteria one can use to determine if a promising technology will succeed scientifically. On the other hand, one can look for warning flags that provide a measure of the risk of failure of that technology. Therefore, a better question to ask is this: are there reasons that a particular technology might not succeed. By asking the question this way, you avoid the impossible task of trying to predict success, and instead you look to reduce risk, thereby, increasing your chance of success by investing in technologies with lower chance of failure.

Invariably, when considering a promising technology at this early stage of development, the investor is presented with very exciting laboratory and maybe animal studies. Also, the inventor invariably claims that his product has tremendous market potential and there may be a lot of press hype around this (remember interferon?).

The savvy investor does his due diligence and makes his own assessment of the market potential, the business plan, company structure, etc. All of these are certainly important considerations, but even with the best structure, financing and business plan in place, the whole enterprise ultimately rests on the success of the technology, which, at this stage, is not fully tested.   

Let me turn to a case study to illustrate the technological pitfalls that can derail even the most promising science.

A case study of an anti-cancer therapy

Several years ago, a colleague published very exciting results showing that a simple plant oil—the oil that makes oranges taste “orangey”--could both, prevent and cure, advanced breast cancer in rats. Better yet, the compound, perillyl alcohol, or POH, showed no toxicity in the animals. POH already was approved for human consumption as a food flavoring, was cheap to produce and readily available, so there was high hope that POH would become the first cancer chemotherapy and chemoprevention agent devoid of side effects.

Laboratory studies showed that POH stops cancer cells from growing and causes them to self-destruct. Studies in the rat breast cancer model confirmed this and further revealed that normal tissues were not affected. Other research suggested that POH interfered with a biochemical pathway that often is abnormal in human breast cancer. All of these pieces of evidence fit into a convincingly coherent picture of an exciting and novel anti-cancer agent. Based on these findings, clinical trials began.

The early phase I trial revealed that in humans, POH is metabolized precisely as it was in rats and also confirmed that POH was non-toxic in humans. These results added to the enthusiasm for the product.

Phase II trials were then undertaken in attempt to treat human breast cancer. In these trials, POH showed no anti-cancer effect at all and it was removed from the experimental therapeutic pipeline. What went wrong?

What are the lessons to be learned?

The first lesson from the POH failure is this: It always is risky to extrapolate experimental results from rodents to humans. Simply because a rodent malignancy occurs in the same tissue as human cancer does not mean that it is the same type of cancer in both species. Rodent cancer models, like the one employed in the POH experiments, use genetically homogeneous inbred animals and the experimental cancer arises from a single, artificial genetic cause. In contrast, human cancers occur in a genetically diverse population and are initiated by many different genetic events. Thus, there is significant risk of failure when human trials are based on the results of a single animal disease model.

Second, the mechanism of action of POH was insufficiently established before the clinical trials were initiated. The data were not adequately repeated and were weak to begin with. In fact, while the clinical trials were underway, another lab found that POH actually affects a completely different biochemical mechanism than originally believed—the original results were wrong. Importantly, the correct mechanism of POH anti-cancer activity may only be relevant for a small subset of human breast cancers and more important in other malignancies.

Since the proper mechanism of action of POH was not accurately established and the rat cancer model was inadequate to generalize to human breast cancer, the human trials were not targeted for the appropriate malignancy and, thus, doomed to fail.

Yet, the risks of failure were discernable before the POH clinical trials began—critical laboratory data were weak, the rat cancer model was too narrowly focused and untested, and the clinical trials were initiated too early. These warning flags could have been picked up by an objective reviewer who understood the science.

I sometimes am called upon to evaluate the science behind products and technologies at a similar stage of development as POH was when it entered clinical trials—that is, the technology shows great promise based on lab and animal studies, but no one knows if it will work in humans. This is a high-risk, make-or-break juncture in the long process of taking a science idea to market. 

The difficulty in identifying the warning flags at this critical stage of development is that each technology will have its own unique warning flags that portend possible failure.  Furthermore, there likely are as many or more different types of warning flags as there are technologies to be developed. 

Therefore, the first, and obvious, requirement in any technology analysis is to seek the input from a professional who has good knowledge of the science. But, doesn’t this beg the question, who has better understanding of the technology than the scientists who developed it and aren’t they already telling you it is sound?

This brings me to the second, and equally important requirement for any technology analysis—it must be objective. 

An objective, informed opinion is critical for thorough due diligence and I submit this is almost impossible to do by a non-scientist, or even by a scientist who is invested in the success of the technology. It is as hard to realistically see flaws in one’s pet project as in one’s own children.

Therefore, for thorough due diligence, make sure to obtain technical analysis from a knowledgeable scientist who has no ties to the technology or the company. And be sure to ask that objective expert to evaluate the risk of failure, rather than the chance for success.

This article was originally published in the Wisconsin Technology Network Newsletter

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Steven S. Clark, Ph.D., a former professor and medical researcher at the University of Wisconsin School of Medicine provides consulting services for investors and biotechnology companies.  He encourages contributions to this page.  Email him with story pitches.
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© 2008 Steven S. Clark, PhD. All Rights Reserved.

Disclaimer: The authors used their best efforts in collecting and preparing the information published herein. However, neither Steven S. Clark, nor other authors,  assume, and hereby disclaim, any and all liability for any loss or damage caused by errors or omissions, whether such errors or omissions resulted from negligence, accident, or other causes.

Articles contained herein, are meant to be distributed freely to interested parties. However, any excerpts from any article must credit BioScience Biz.