Filling The Pipeline: 'Early Stage' Firm Varies In Eyes Of Beholder
By Cynthia Robbins-Roth
BioWorld Today Columnist
MENLO PARK, Calif. - VCs, entrepreneurs, public and private investors, and management from the full range of biotech and pharmaceutical companies met here at the 14th annual IBF Biotech Investing conference to argue about the latest financing trends - what they mean and, most importantly, who should do something about it!
This year's meeting, subtitled "Filling the Pipeline," focused on just how the heck we are supposed to keep the products coming when nobody wants to back preclinical R&D any more.
The lead-off venture panel, with folks from Abingworth, Versant Ventures, NEA, CMEA and Charter Life Sciences, kept insisting that they all do early stage deals. But when pressed to define "early stage," they mostly agreed that they needed programs no further than six to 12 months from the clinic, with a focus on cash constraint and using "other people's money" to reach the almost-clinical stage.
There was a moment where the crowd clearly smelled blood and put the panel on the defensive about their unpopular requirements for investments.
But let's give the VCs a break. They are simply responding to the natural evolution of their business model, which has mutated what their investors demand in return for those growing funds under management.
Biotech can whine and complain about the good old days, when a great new pathway with cool targets could fuel $50 million in private investment. It would be more productive to accept that it's time for us to evolve, too. The eternal question: How do you progress promising early research to the point of acceptable early clinical data if the venture folks won't kick in?
The VCs suggested that academia should shelter programs through screening, compound development and preclinical toxicology, using grants and philanthropic foundation money. Avoid selling equity (easy, as nobody is buying it this early), and instead use "other people's money" - that is, not venture money!
The problem is that it's not reasonable to expect academics to figure out how to do a great job of preclinical development. And if we keep moving them away from the basic research, keep removing serendipity from the university environment, we may kill off the very beginning of the pipeline.
Jonathan MacQuitty held forth on his conspiracy theory about the cartel controlling Nasdaq and the IPO market. The growth in fund size and the loss of the boutique banks mean that both the buy- and sell-side need ever-larger deals to put cash to work and generate transaction fees sufficient to cover the growing overhead at the mega-merged banks. "The entire biotech world could disappear, and Nasdaq wouldn't really care," he said.
That's got to be a bit disconcerting for the 13 companies with IPOs waiting to go.
So What About Those Foundations?
We have a strange supply-and-demand phenomenon - just as novel innovation supporting new products is needed as never before, the funding for such work has plummeted on many fronts.
Venture money flowing into R&D is minimal - 73 percent of the $504 million in seed/Series A rounds January through August this year went into clinical-stage companies. NIH funding was cut in 2006 for the first time in 30 years, dropping the success rate for grant proposals to 21 percent - not exactly encouraging the academic work that the VCs hope for. Most of the big biopharma partnering or M&A deals have involved programs in or near the clinic.
Everyone from entrepreneurs to big company CEOs is wondering who will step up and pay for the translation of great science into clinical candidates.
A key player emerging in the past few years is the private philanthropic foundation. My panel at the IBF meeting included folks from the Myelin Repair Foundation, the Michael J. Fox Foundation for Parkinson's Research, Cystic Fibrosis Foundation Therapeutics, Cure Huntington Disease Initiative, Faster Cures and Amyris Biotechnologies Inc. - a young company founded in conjunction with foundation support.
Their thoughts after hearing the VC panel urge start-ups to petition foundations? Come on down - just be ready for a very different agenda.
The key goal of those groups is to do everything possible to get effective treatments to the patients ASAP. They aren't focused on peak sales. The bottom line is time, not money.
The panelists said that foundations are taking on more than just the financial role from the VCs; they are being asked to educate researchers about product development, reaching the next fundable benchmark and edging toward corporate partnering.
In some cases, they literally are the management team/contract research organization: providing access to experts with important screening assays, disease models and patient populations to accelerate development and clinical evaluation - managing the flow of information and resources between the out-sourced groups carrying out the work, developing patent strategies and talking with potential corporate partners about the dataset required to move the compounds forward quickly.
Those groups can provide hefty support in dollars and in-house resources. Their singular focus on their patients means they require that all rights related to their disease revert to them if the research team or company fails to move the program forward in a certain time frame. And their funding goes solely to support the work for their disease focus, though companies are free to extend the knowledge to other indications.
Should foundations be in the risk-mitigation business, providing the resources to move programs forward to the point where the venture community or corporate partners are willing to jump in? As one panelist put it, "why should we line the pockets of the VCs while taking on the risk?"
Given the current state of true early stage funding, the foundations don't really have a choice.
The big winners in the venture community might want to follow the high-tech example of the Gates and Allen Foundations, and put some of their returns back into the system.
Robbins-Roth, Ph.D., founding partner of BioVenture Consultants, can be reached at firstname.lastname@example.org. Her opinions do not necessarily reflect those of BioWorld Today.
BioWorld Today November 20, 2006