Showing posts with label Biotech. Show all posts
Showing posts with label Biotech. Show all posts

Tuesday, January 21, 2014

Funds-on-Tap is passé & Drip-Funding is the new reality.

It’s probably been true for IT/ ITES (particularly for e-commerce and social media & app-developers) much longer, but for the drug discovery start-ups hitherto unaccustomed to expecting anything under a mio given their rather pricey research, the writing on the wall is abundantly clear - Funds-on-Tap is a pipe dream & Drip-Funding is the new reality.

Over the past year, more and more VCs have started to unveil & employ their own versions of a ‘return-maximizing, risk-mitigated investment model’ that typically involves multiplying the early-stage portfolio & bringing down the average-size of seed-investment while maintaining the overall seed-stage investment at no greater levels than earlier - A case-in-study being the recent Seed-class of Atlas Ventures & equally demonstrated by Index Ventures developing its proprietary version of MonteCarlo simulation for optimally distributing precious funds across its portfolio of biotechs' with assets across different phases of clinic.

This holds largely true for the increasingly active Pharma CVCs too that not only are mimicking the VCs in increasing their early-asset portfolio, but have taken derisking a notch higher with their joining forces* with other CVCs (competing pharma) in funding rounds, quite apparently compromising on the eventual ownership of the commercial potential &/or IP generated in the bargain.

* OPSONA (Novartis, Roche, Baxter among other VCs) AILERON (Novartis, Roche & Lilly among other VCs); MERUS (Novartis, J&J & Pfizer among other VCs)

While this may sound like life sciences venture funding is slowly turning into a mere statistical exercise (venture-farming…?), a la the stock market, knowing what it takes to separate wheat from the chaff in the complex world of drug discovery, the users of these models will surely need a lot more than a practical knowledge of the probability theory – which even a cursory read of the above posts again will make it very evident. Just may be, a biotech VC can still showcase ‘proprietary deal-flow’ as a core-strength while making a pitch to the LPs.

Now how does this lean-funding scenario impact the development strategy of the start-up? – while a few indicators of change are already out there like the CROs being encouraged (~arm-twisted) to share risk with the biotech while providing services, I believe this'll trigger bigger changes & hopefully nudge the drug-discovery towards an innovation pathway that’s a lot more rational & predictable – but then this is something Drug Baron should talk about.

Tuesday, October 15, 2013

Deal-Flow : Value-addition :: Silicon-rapids : Organic back-waters

Reacting to the rather weird scenario wherein some VCs are trashing their own brotherhood, Bruce Booth wonders in his latest article if this is an outcome of a Lake Wobegon-like illusion or if it is the Dunning-Kruger effect in action.

In my comment against this post, I offered my own little suggestion for this apparent case self-deprecation (OR is it not) and more....

My comment:
If I go by what Mahendra Ramsinghani said here on LPs bothering more about deal sourcing capability than value-add by VCs, Khosla’s indictment of ‘95% zero-value add VCs’ shouldn’t really rock the boat more than the supposed shake-up caused by the AngelLists’ & Kickstarters’ of the world – The ‘80% negative-value-add’ rhetoric though is way below the belt & confounding.
Perhaps these intriguing proclamations are a manifestation of nervous energy of the PE biggies that are ‘but-of-course rattled too’ by the progressive warming of the PE globe and thus eager to reaffirm their value-add alternate asset investor status to the larger LP universe.
Can’t help but note again that a lot of the above paradigms, shake-ups, prophesies & reactions are all still relevant mostly to the 'silicon-rapids' (IT et al) and much less to the 'organic-back-waters' (~biotech) – taking a cue from what you said about the CEO, I’d think the loneliest job in the world at present probably is that of a biotech venture capitalist :-)

Friday, June 28, 2013

A start-up messed up at its foundation OUGHT TO be fixed!

The celebrated venture investment guru Peter Thiel postulated a law that says "a start-up messed up at its foundation cannot be fixed" - Bruce Booth attempted a commentary of this law in the context of Biotech ventures through his blog post titled 'Foundings Matter: Thiel’s Law Applied To Biotech' - While Bruce's application of Thiel's law is based on a tacit agreement of the postulation, I believe this can be argued differently, as indicated by some campus talk here...

Below is my comment against the article by Bruce Booth, wherein I agreed and disagreed with the author in two independent contexts....

My comment:
It bugs me no end just how little the VC & PE literati out there ever attempts to explain all those lurid, smart theories in the context of biotech enterprises instead of solely building case-studies out of super-achieving IT start-ups that brought-in bags of cash to the VCs very early into its life cycle. This peculiar penchant among the authors for avoidance of anything called biotech enterprise I feel is owing to a general investor impatience for acknowledging the veracity of any investment that can’t be cashed out profitably within 3-5 years & thereby not showcased as a text-book case of intelligent investing. While otherwise is a decently thought-provoking & stimulating book, “Venture Capitalists at Work: How VCs identify and build billion dollar successes” by Tarang Shah is one such recent addition to my list of disappointing treatise.

Peter Thiel too probably isn’t greatly different after all, since a lot of the wisdom he’s been postulating is validated only within the narrow context of IT start-ups - Your effort Bruce, at ‘pharmifying’ the ‘Thiel’s law’ is thus a very welcome diversion.

None of the mess-ups you listed right from ‘un-reproducible science’ to ‘inappropriate capitalization’ can be contested as inconsequential in any which way & together these six make a great check-list for the entrepreneur on how not to go wrong initially & for a full-fledged due diligence by the VC either at the initial funding or an informal, abbreviated review prior to subsequent funding rounds. I however am struggling a little bit to accept that the DNA can’t ever be repaired once messed up – isn't disruptive innovation, which inherently amounts to re-coding the DNA of the enterprise /or enterprise's innovation/ business model, an accepted strategy now?

In the June 2013 issue of HBR, Rita Gunther McGrath (Author of “The End of Competitive Advantage”) talks on how the current day enterprise scenario is all about moving away from the conventional ‘Sustainable competitive advantage’ model and instead moving towards “Transient competitive advantage’ – Biotechs' that operate within an ever evolving, dynamic clinical scenario I believe can’t really base their strategy on sustainable competitive advantage & have to necessarily adapt, quickly & efficiently to the transient competitive advantage model & this may necessitate periodic re-coding of the enterprise DNA - What I quote here is what pretty much you and others said earlier regarding the need of emergence of ‘lean-start-ups’.

So instead of trying overtly to ensure all loose ends are tied-up upfront (…including the phantom scenarios!) & showcase a supposedly fine-tuned enterprise DNA to the VCs, the start-up would do good to expand the scope of the business plan to incorporate a well thought through set of situation-appropriate pivots & an alternate disruptive innovation model or two.

My two Rappen*

*on a business trip in Switzerland at the time of posting this article

Tuesday, March 5, 2013

What could VCs learn from the recent pharma deals involving biotechs with very early-assets?

My response on the blog post "Preclinical Biotech Structured Deals: Reflections on 2013′s Solid Start" by Bruce Booth - posted on 01/Mar/2013

The news of structured-deals/ buy-outs of ‘tight/ single-EARLY-asset’ biotechs both pleases & scares me… pleases, as I feel this will trigger a healthy change in the way start-ups choose their programs & scary because I (CRO/ CMO) will now start losing clients/ programs much before the conventional PIIA - read-on…..

While I totally agree with the points you’ve raised & the surmises made, I’d like to add the following;

  • This in some fashion is an endorsement of the importance of early venture seeding by the very same stakeholders that typically enable the high value exits for VCs, viz., the mid-sized/ big pharma companies.
  • As you say, there seems to be a promise of reward for innovative organizations that know their science – however I’m not sure if there’s any message about preference for a single asset/ tight set of assets, It is rather a niche focus/ platform & this aspect I’d think always mattered to the investors.
  • Do I also see some de-risking in the form of going in for companies who’s lead/ pipeline candidates are inherently safer (recombinant proteins; antimicrobials et al) & hence highly likely to breeze through Phase-I
  • Interestingly, though the indications are rare/ orphan, the therapies themselves seem to be more maintenance than curative & hence more attractive to the investing company
  • This lure of an early alliance/ deal may now encourage the new enterprises to come up with more compelling technologies rather than me-toos… & thus help put drug discovery enterprise model on a correction course
  • Is this the emerging new avatar of the CVC? - CVC 2.0? (Perdona, Baron.... :-))

Now, having seen a lot of my clients getting lapped up by mid/ big pharma & their programs either killed, shelved in favour of the larger companies competing pipeline, I would be a little cynical till I see the next instalment is released/ option executed.

Finally I would like to ask if there is a message in here for the VCs? – towards an opportunity, a need to structure the initial funding deals differently so that they could still keep an option to enhance their share whenever such early alliances crop-up eliminating  avenue of series-B funding?

Post Thought:

Quite a coincidence that I was just reading an article in HBR (Mar 2013) titled “How Competition Strengthens Start-ups” by Andrew Burke and Stephanie Hussels of Cranfield University.  The authors postulate that exposure to competition in the early stages of a firm’s life increases its long-term survival prospects – competition in this context including competing against a lean-funding scenario & hence learning to stay creative, efficient & productive – Since for all four companies here the early pressure is almost eliminated of by the reasonable/ comfortable funds received (upfront instalment OR buy-out), I was wondering if that makes these companies less long-term in light of the above study.

Of course I do understand that it’d be foolhardy to apply an academic study arbitrarily to any context, particularly in life sciences, where the author’s themselves have made a provision indirectly through their statement “Of course, early competition has a downside: Some new businesses fail before they have time to build up the immunity we describe” which sure sounds like the business of designing drugs.

Saturday, March 2, 2013

What when the boundaries blur between VC & PE?

My response on the highly thought provoking blog post "Venture Capital 2.0" by Drug Baron (David Grainger) - posted on 01/Mar/2013


Once again a really thorough proposition by Drug Baron that leaves frustratingly little scope to contradict. For the sake of a debate I would still like to raise a few questions; make a few statements & generally try not to sound like mouthing a rejoinder in support of Venture Capital 1.0 - which it definitely is not! J

It is absolutely true that the VC model should periodically re-invent itself & evolve like the innovations of other kind it chases routinely – this, I believe is not just true of VCs focused on life sciences but for all others too. Also, after a quick read, I realized that one could misread the term “asset centric investing” if they do not go through what exactly Index ventures pursues through its IDDs – David, you may consider hyperlinking your statement “Asset-centric investing is only the first step on a road to improved returns for life science investors” to

Now, since the primary intent of the asset-centric-investing model appears to be de-risking venture funding to the LPs (and thus raise funds with less difficulty), the inferred premise(s) of this model appear to be as follows;
  • That the early discovery prior to lead-validation should-not-be/ need-not-be venture funded

  • That owing to the large investment & the inherent risk of failure, innovation (in particular drug discovery) is something better left to academic/ federal institutions & large pharmaceutical organizations that can afford the risk (did someone say, ‘risk is neither created nor destroyed, only transferred and hedged differently!’ :-))

  • And finally that any VC backed biotech with a “pipe-line” hasn’t probably thoroughly screened the clinical & commercial viability of candidates including, probably in a few cases other than, the lead-program candidate for which it managed to tease out some funding?

No doubt this model makes absolute sense to the fund of funds or LPs on its focus on sheer reduction of risk to IRRs but not sure if this model helps generate & nurture novel enterprises & why should it? - now I do realize that the ACI model also believes that creation of an innovative enterprise is NOT the VCs responsibility (probably since they are using ‘others money’ for this noble cause? J) & more a responsibility of the struggling entrepreneurs themselves?

Without sounding too knowledgeable about it, I would like to believe that across the past few years, VC seemed to have played a role in keeping afloat the spirit of enterprise at the most critical & vulnerable early stages and thus helped, however minimally, in letting a lot of budding innovators take root & grow their enterprises into cash-cow organizations that’d offer a lot more de-risked alternative asset investment options to the LPs.

So while I generally & unequivocally support the need for yet another paradigm shift in drug discovery methodology & innovation models, I am not sure if a VC model de-risked to this extent almost morphing into a PE would help this innovation paradigm nor help create the much needed pipeline of early innovative enterprises that later mature into investable asset-centric organizations.

Post thought:

In the current context of drastically reduced spend on basic discovery by big-pharma, I see that most most biotechs, drug discovery organizations have started to reinvent themselves into “drug development organizations” and have quite voluntarily started de-risking by building a pipeline/ portfolio of in-licensed/ spun-off ~pre-validated drug candidates . So I guess without so much as a nudge, the enterprise out there is all ready for Venture Capital 2.0 – Now again that doesn’t say much about the survival chances of real innovation that not necessarily stems from the largest of organizations/ institutions….. after all, garage innovation in life sciences appears to be a distinct possibility in in these winds of open source drug discovery.

Monday, January 28, 2013

Drug discovery unable to attract big money! - Is innovation, rather the lack of it to blame?

Some interesting observations on early-stage funding for healthcare from the 2012 Venture Capital Activity Report published by CB Insights (report abstract at this link);

  • Healthcare gets a not-so-insignificant share of 23% of all venture capital in 2012, but the overall investment into healthcare is lower than 2011 numbers, inline with the overall decrease in VC funding from previous year
  • The year also saw overall deal-sizes within healthcare fall from 2011 levels,  again like in other industry segments
  • Within healthcare, medical device & equipment related investments took 40% of the total dollars distributed and this shift of money towards devices & equipment segment has gotten stronger in 2012
  • Within the remaining 60%, drug discovery, development & biotechnology seemed to have got ~35% share, of which chemistry based drug discovery/ development got ~20%
  • and finally, within the 35% share share towards drug development, a majority seemed to have gone towards late-phase funding (>60 %?)

Thus the funding received in 2012 by individual companies towards early stage (discovery pre-clinical et al) seems much lower than the 2011 average (while ~10mio USD seems to be the average deal-value for all phases included, ~2 million USD could be the average value for early phase funding) - I don’t see any reason to believe that 2013 will be any different and if this trend indeed continues, the introduction of new candidates into clinic will continue to lag as before and economizing the cost of discovery & early-development will continue to be a rational strategy to be employed by the small & virtual discoveries - not sure if that'd compromise on innovation further....

The tilt of VCs towards medical device/ equipment segment looks like a commonly employed de-risking strategy of most investors. It also simultaneously suggests a seemingly prevailing weak-sentiment in investor universe towards the quality of innovation happening in biotech & chemical drug development.

While innovation domain should go through its own disruptive innovation now...., any major positive swing from 2012 trend would happen only if GPs (& LPs of course....) innovate their conventional low-risk investment strategies resulting in a) significant increase in number of deals and b) an appropriately incremental average funding on each deal and both towards drug development. 

So when is the new paradigm shift in drug discovery happening & who is going to drive it?

Thursday, January 24, 2013

The clinical attrition of INX-189 post a 2.5 billion acquisition - are investors into life sciences really looking at where the buck is headed?

October 2012
Discussion initiated onGlobal Private Equity & Venture Capital group on Linkedin

Agreed BMS is no VC & acquisition of Inhibitex at 2.5 billion was more a survival tactic, but probably the outcome could be such for many investments into the life science (drug discovery). I believe the investor due-diligence of the investee should go beyond market projections of the pipeline candidates & a rational assessment of the druggability & clinical longevity of the pipeline candidates is what should interest the investor the most – not sure if this happens to the extent required?

Would love to hear what the investor community feels about this.


PS: My love went totally unrequitted :-)... zero response