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Biotechnology, Health and Business in Canada, the United States and Worldwide

Tag Archives: venture capital

Valuation and Other Biotech Mysteries – Part 8: The Current State of Healthcare Venture Capital

[Ed. This is the eighth part in Wayne's series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

The world of healthcare VCs has changed dramatically in the two decades which I have spent in capital markets. VCs are impacted by changes in the broader capital markets, changes in healthcare capital markets and changes in the industries on which they focus. Read more of this post

Stability at the Top: A Look at Top Biotech VC Deals from 2007-2010

FierceBiotech published the top 15 biotech VC deals of 2010 last week, measured by dollars invested. Since they noted an overall uptick in investments in 2010, it seemed like a worthwhile time to look back. Here’s what U.S. VC investment in biopharma and medical devices looked like from 2007 to 2010 (normalized to 2007 levels):

Not unexpectedly, a huge decline between 2007 and 2009, though not as big as the overall decline in VC investments. Here’s the really interesting part — the average amount invested (±1σ) among the top 15 deals each year:

Remarkably stable. Even during a period of steeply declining investment there will be standouts that generate real excitement, proving that as FierceBiotech said in 2008 “[g]ood science will attract funding in any market.”

It’s not a surprise that good ideas always get some funding, but why do the top investees always attract the same amount?  The price of admission to the top 15 between 2007 and 2010 has ranged only between $39 and $42 million.

It must be that (once a concept reaches a certain stage) the amount of money needed to really propel a life sciences company to success is constant — apparently an average of $50 – $60 million — and recognizing that, VCs will fund their best prospects to that level even at the expense of other investments.  So the next time you’re contemplating a $10 million C round, keep in mind that you’re more than two standard deviations off the mean investment made when VCs really mean it. It’s an interesting idea the other way too: Pacific Biosciences, which IPO’d in the middle of its range at $16/share last October, was the top deal twice in four years (including the +2.4σ variant of $109m in 2010). It’s currently trading at $15.74, giving it  a market cap of $831.43 million, just over double the reported $370 million of VC that it raised prior to the IPO.

Check out FierceBiotech’s list of the top VC investments from 2010, 2009, 2008 and 2007 and apply your own 20:20 hindsight to your heart’s content. Also, keep your fingers crossed that a 3% increase stops feeling like such a victory when we see the 2011 data.

State of the Biotech Industry — Heading into BioFinance

As the BioFinance conference in Toronto starts up today, I thought it would be worth looking at a few recent data points for the biotech industry:

  • The Q1 Burrill data (via PharmPro) shows above-market gains for public biotechs (up 8% in Q1), $6.1 billion of pharma partnering deals were done, and total biotech VC investments were up 7% in Q1 (over Q4 ’09) though follow-on VC rounds were down 52%.
  • Regenerative medicine company Tengion Inc. is heading for an IPO this week, aiming (low, says John Carroll) for 4.4 million shares at $8 to $10 apiece, with current stockholders taking about $15 million of the offering.  Watch this one for a good barometer of what a clinical stage biotech (lead product in Phase II) can aspire to.
  • Public investment is still running strong in many jurisdictions as well.  Ontario is waiting to learn how MRI’s new money will be spent; Palm Beach Gardens in Florida is setting aside 681 acres for a biotech park; and the Washington DC region continues to invest in its strong cluster, including a new tax law in Virginia that “creates a three-year window under which entrepreneurs and investors can start and invest in early stage technology companies in Virginia without having to pay any long-term capital gains taxes on the returns those companies generate.”

Stay tuned here and @crossborderbio on Twitter for updates from the conference.

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Biotech Trends Update — Personalized Medicine: The Case for Diagnostics Focuses on Cost and Effectiveness

A report in FierceBiotech today distilled the views of three life science VCs on trends to watch in 2010.  Along with other worthwhile observations (and I’d encourage you to read the whole thing) was this bullet pointing out the value of personalized medicine in addressing comparative effectiveness concerns:

“Interest in molecular diagnostics is heating up. It’s one of the most attractive areas because physicians are increasingly demanding test that can tell them which treatments have the best chance of working before expensive medicines are issued. And diagnostics fit well with the healthcare reform efforts. Bloch adds that any technology that improves the efficacy of how care is delivered will be attractive to investors.”

The business case is eminently obvious.  Earlier this week AstraZeneca announced a collaboration with Dako Denmark A/S that will see Dako developing companion diagnostics for products in AstraZeneca’s oncology pipeline.  Key quotes from the announcement highlight the companies’ focus on “health care costs” and “reimbursable products”:

“Targeted treatment with personalized medicine is the future, and … is also a significant contributive factor in cutting health care costs” (Dako CEO)

“This agreement … will enable us to develop novel, reimbursable products that … predict which patients are most likely to respond to treatment, ensuring that we are giving the right treatment, to the right patient, the first time.” (AZ Head of Oncology Development)

The economic case for personalized medicine was one of this blog’s top biotech trends in 2009 and looks to continue at a strong pace through 2010.  To reach its full potential, though, the industry will have to convince policy makers and clinicians that personalized medicine can live up to its promise.

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Biotech Trends in 2010: Top Three Reasons Why Biotech Companies Should Use Social Media

Tech startups use social media avidly [rabidly?], but biotech companies? Not so much.  Biotech companies should be blogging, tweeting and linking in like mad, though.  Here’s why:

  1. Your customers (pharma companies) do it.  More and more pharma companies are active in social media. Take a look at this article in the December issue of Life Science Leader (h/t @FiercePharma) or read the Dose of Digital blog any day of the week and you’ll be directed to interesting information about how products are being developed, tested and marketed. These are things you need to keep in mind as you move through your own product development process. Also, lots of pharma folks are on LinkedIn, so if you are as well, you’ll maximize your ability to reach out through personal connections when you’re building a constituency for your partnering deals.  Here’s my Twitter list of BioPharma news and analysis.
  2. Your investors do it.  Check out this Twitter List of Canadian VCs, Angel investors and other funders.  Look at what they’re talking about, and you’ll see you don’t have to tell people what you ate for lunch (or disclose your latest lab results) to convey that you’re doing something interesting that other people are interested in.  Check out the CVCA’s blog, Capital Rants or the Maple Leaf Angels blog.  In Toronto? Stop in at the MaRS blog or the R.I.C. blog to see where investors will be and what they’re thinking about.
  3. Your peers (other startups) do it.  If you’re not participating in online conversations, you’re missing a world of good advice and perspectives.  Click over to Rick Segal’s blog or  StartupCFO, Mark MacLeod’s Blog. It doesn’t really matter that these guys aren’t involved in biotech. Lots of startups are facing similar issues to yours — funding, staffing, etc. and getting out of the biotech bubble from time to time can be a good thing.  Plus, being at a startup is isolating, particularly in biotech with its strong incentives to run a virtual company, so go online to find peers, mentors and other resources.

If this all sounds reasonable, but you’re still skeptical, or not interested, then find someone in your organization who’s excited about it, regardless of their actual job, and set him/her loose.  [Not totally loose, of course. Common sense is critical online because it's hard to hit "undo" on the web, and appropriate confidentiality remains key to biotech ventures.  But all your people have common sense and discretion, right?]

We’ll be keeping an eye out for biotechs and other bioscience companies that are making good use of social media as part of our Biotech Trends series this coming year.  Other suggestions for 2010 biotech trends?  Let us know

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Q3 Is Looking Up for Biotech: Emdeon, Cumberland, Domain, LOM BioQuest, OETF

light at the end of the tunnel smallThis week has seen a continued upswing for biotech and other health industry companies in the U.S. (with two IPOs) and in Canada (with great VC news and the pending appointment of an administrator for the Ontario Emerging Technologies Fund):

In the U.S.

Here in Canada

In the pipeline

With personalized medicine seeing increasing validation as a clinical strategy, genomics technology will be key.  News this week from Helicos Biosciences that an individual’s complete genome was sequenced in one month for just $50k in consumables is an important marker (har) on the road to regular full-genome scans as part of our medical toolkit.

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Q2 Venture Capital Numbers Do Not Look So Rosy in Canada

world_map_2002When Q2′s venture capital investment numbers came out for U.S. investment, healthcare/biotech investments were on top, beating out even IT investments in that period and generating some optimism.

Dow Jones has released the worldwide Q2 venture capital numbers (H/T @startupcfo, and things do not look so rosy here in Canada:

  • The overall number of VC deals in 1H 2009 Canada was off 30% from 2008 levels, and the average raise was down as well, resulting in a nearly 50% drop in total investment from 2008 levels. That’s over $130 million less invested in 2009.
  • Unlike in the U.S., there was no silver lining for biotech in Canada.  Whereas IT investment was about 1/3 off its 2008 levels, healthcare/bio was off a whopping 62%, raising only $18 million total in the first 6 months of 2009!

One caveat is that things are not quite as bad as they seem on the biotech front, since quarter-to-quarter volatility is normally very high.  In fact, Allostera closed a $17 million A round in July which practically doubles the YTD number from 1H levels, and I don’t expect we’ve seen the end of Q3 biotech VC activity.

Bottom Line: Even if a few banner deals pull the statistics up for Q3, BIOTECanada’s numbers will not improve without OVCF, OETF and Teralys making some sustained commitments to the biotech sector.  No time like the present, folks.

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Do the Q2 Venture Capital Numbers plus the HGS Success Indicate a Light at the End of the Tunnel for Biotech Funding?

light at the end of the tunnel smallMany of the articles and talks on biotech funding over the past year or so have lamented that public markets are closed to biotechs, and that the absence of a public exit, coupled with the preference for licensing over M&A by big pharma, would seriously dis-incentivize venture funding for biotech startups.  Two data points this week suggest the tide may be turning:

  1. Human Genome Sciences’ drug candidate for Lupus shocked analysts, showing positive results in its clinical trial, which sent HGS shares up almost 400% and boosted shares of two other companies working on products in the same pathway.  More importantly, it reminded risk-seeking investors of the outsize returns that make them love biotech stocks.  Remember last week’s NVCA study showing a 20% cost-of-capital for biotech?  Everyone (including me) focused on the take-away argument for biologics exclusivity, but now is a good time to remember that the cost-of-capital calculations are backed into from the historical (outsized) returns shown by biotech’s success stories.
  2. PwC-NVCA numbers released Monday showed biotech as the biggest recipient of funds in Q2, exceeding every other industry (thanks in part to the crappy numbers for other industries, but still…), and getting $3.67 billion for 612 companies January-June.

The change in mood has been immediate.  One obvious example is this piece in the WSJ’s Venture Capital blog that touts the value of biotech partnering deals as a boon to investors.  The same partnering deals that just a few weeks ago were described as barriers to VC exits are now a rationale for follow-on investment.

Not that there aren’t still challenges.  The Aveo Pharma deal in the WSJ post has two important features — they retained key assets for an M&A or public exit and their partner took equity in the licensing deal –  but a few more headlines like “Biotech Start-Ups Striking It Rich With Partnerships” and we could be on the road to a biotech recovery.

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New Tennessee State Tax Credits Incentivize Venture Fund Investments

Tennessee_state_flagThe Tennessee legislature passed a bill earlier this month that indirectly creates $120 million of venture funding.  It gives tax deductions to insurance companies that invest in qualified entities called “TN Investcos” which are in turn instructed to make “focused investments of capital in early or seed stage companies with high growth potential.”  Firms that meet the requirements and are interested in being one of the six Investcos apply to the Tennessee Department of Economic and Community Development.  The companies receiving TN Investco funds must:

  • be independently owned and operated and headquartered in Tennessee,
  • conduct its principal business operations in Tennessee, and
  • have at least 60% of its employees located within Tennessee. 

Restrictions include:

  • no more than 100 employees, and 
  • not principally engaged in professional accounting, medical, or legal services; banking or lending; real estate development; insurance; oil and gas exploration; or direct gambling services. 

According to a memo on the legislation by Tennessee law firm Waller Lansden, a similar $100 million tax credit program started in 2004 in Alabama has “created 781 jobs bearing an average annual wage of $40,628″ and “generated more than $32 million in new annual payroll for the state.”

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New Data Shows 70% of Canada’s Biotech Companies Have Under 12 Months’ Cash. BIOTECanada’s New Ask: Government Loans.

Canadian moneyA Canwest story today highlights new BIOTECanada data showing 70% of survey respondents have under 1 year of cash, up from 50% in January.  FierceBiotech picked it up as well, guaranteeing a full dose of international attention.  

Even though the remaining 30% of respondents likely include some with big recent successes — Bioniche, Allostera and Zymeworks – and some with creative approaches — ConjuChem, Neuromed, etc. — the top-line number is grim indeed.  Plus, as Kasia Majewski points out:

“Most firms have found away to extend their cash, but they’ve done that by massive layoffs, by shutting done operations to the bare bones. So essentially the lights are on but there’s one guy home.”

Given that there has been no systemic cash infusion, it’s not surprising that the number of firms in trouble has gone up since January. 

On the other hand:

There is a bolus of fund-of-funds and direct capital waiting to be deployed, including:

Plus, Lumira Capital’s Q2 newsletter (pdf) points to the new BDC money, Alberta Investment Management Corp’s PE plans and the new Alberta Enterprise Corporation as potential additional sources of funding in the medium term.

BIOTECanada bottom line:

In the winter, the organization was focused on tax initiatives.  Yesterday, though, the focus was entirely on

“negotiations with Industry Canada to obtain a loan program for Canada’s biotech sector that can hold the industry over until capital markets rebound. … [Specifically,] government loans to be repaid after a two- year period at six per cent interest.”

Maybe it’s the new money looming on the horizon, or the seeming lack of traction for the tax policy asks, but the focus has definitely shifted.

My bottom line:

Even the new loan program advocated by BIOTECanada will not help if the other government funding doesn’t make it to biotech companies and VCs. We’ve been keeping an OVCF scoreboard that still shows a goose-egg for biotech investments.  It may be early days for these new capital sources, but the hour is late for Canadian biotech companies.

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Senate Action on Small Business Innovation This Week?

SBIR bannerThe Senate schedule for today does not include consideration of The Small Business Innovation and Research Act of 2009. Late last week there were rumors the House version of legislation, passed by the U.S. House of Representatives on July 8, would receive expedited consideration on the Senate floor as early as today, using the unanimous consent Senate measure. The Congressional Budget Office estimates the cost of implementing the House legislation would be $272 million 2010-2014. The legislation increases funding amounts and eases eligibility for SBIR grants to companies backed by venture capital investors. SBIR grants are available in all U.S. federal agencies, including NIH, Dept. Defense, Dept. Energy and NASA.

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SBIR Reauthorization Likely: Uncertain Improvements for VC-Backed Companies

SBIR bannerThe SBIR program in the U.S. looks to be heading toward reauthorization with increased funding amounts — up to $250,000 in Phase One (up from $100,000) and up to $2,000,000 in Phase Two (up from $750,000). 

VC-backed companies are not eligible under the current program, but that should change.  The Senate version of the bill allows some funding to VC-backed companies, but caps the percentage of grants that can go to VC-backed firms at 8%.  The House version doesn’t cap the amount, but implements some other restrictions to prevent abuse: no SBIR funding to companies with over 500 employees, or that are majority-owned by one venture firm, or that have too large a stake held by “corporate-owned venture firms.”

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New Funding for BDC Says Venture Capital in Canada “Tastes Great!”; Kedorsky Says “Less Filling!”

Horse's MouthYesterday Tony Clement announced an additional $450 million in funding to BDC:* $100 million in credit guarantees, $260 million for follow-on investments in companies where BDC is already a direct investor, and $90 million to invest in venture funds.  The follow-on money and the LP money will be spent over 3 years. (On purpose. (Ha.))

All the more topical, then, that in a recent WSJ VC Blog post on Canada’s venture capital industry Paul Kedorsky is quoted as saying that Canada’s industry won’t be helped by “government want[ing] to goose things.”  Paul, who used to be at Ventures West, authored a Kauffman foundation report saying the U.S. VC industry needs to shrink (check!), and thinks the industry on both sides of the border needs “a kind of restart.”

Personally, I vote “don’t look a gift horse in the mouth.”

*H/T Mark Macleod and @chrisarsenault.  Pic from thelivingdead531.

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More New Canadian Tech VC Funding

BDC LogoThe Business Development Bank of Canada (BDC) is putting $75 million, allocated in the Federal 2008 budget, into the new Tandem Expansion Fund. The Fund expects a first close of $300 million this summer, and will invest in “Canadian technology growth companies.” At the helm are Charles Sirois and Brent Belzberg. 

More details about the team and the fund after the jump…

What You Missed While You Were at BioFinance

A lot to catch up on over the last few days…

And last but not least:

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New Data in Canada: BIOTECanada-PwC 2009 Life Sciences Forecast

The BIOTECanada-PricewaterhouseCoopers 2009 Canadian Life Sciences Forecast was released today.

The Forecast was produced from data gathered in October and November 2008, so is (unsurprisingly) a bit bleak, but there are a few bright spots to be found:

  • Canadian companies are increasingly flexible about exit scenarios.  In the 2009 Forecast, 66% of firms looked to mergers (down from 80% in 2007), while 48% looked to co-development partnerships and 46% saw licensing or selling IP as their success strategy.
  • Some problems were reduced from levels reported in 2007:
    • Only 26% of respondents identified “attracting and retaining key employees” as one of the three most challenging issues, down from 39% in 2007;
    • In 2007, 33% of respondents identified “attracting a licensing or strategic partner” as most challenging, which was down to 22%  in 2009; and
    • 21% instead of 29% of respondents cited “managing the regulatory process.”
  • Finally, there was a 66% increase in the number of respondents who believed “protecting intellectual property” would be a top-three challenge, which is excellent news … at least for lawyers.

The predominant issue weighing on the minds of respondents was clearly access to capital:

  • Sixty-one percent of respondents ranked “increased Canadian venture capital” as critical to the industry; and
  • While the overall percentage of companies expecting to raise between $10 million and $100 million in their next round remained the same as it was in 2007, the percentage expecting between $10 and $25 million tripled while the percentage expecting betwen $25 and $100 million was cut nearly in half.

The really good news about this, though, is that since the survey was taken last Fall, over $1 billion in venture investment funding has been budgeted in Ontario and Québec, and the Ontario Venture Capital Fund has already made several commitments … some of which are bound to end up with biotech VCs, right? Right?? Stay tuned.

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Canadian Life Sciences VCs Lead the Realization Parade

Liquidity Shrivels Up For VCs in First Quarter” was the banner screaming across the wire services earlier this week. While true, what was lost in the subtext were a few important observations for Canadian VCs, particularly those focused on life sciences:

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Essex Woodland Health Ventures’ New $900 million Bio Fund

Essex Woodlands Health Ventures closed on its Fund VIII today with $900 million to invest “across the spectrum of drug, device and service companies in North America, Europe and Asia.”  The In Vivo blog points out that this isn’t exactly new news, but it is still good news for companies that are now a big step closer to seeing the money deployed.

One Canadian connection I was able to turn up: Dr. C. Thomas Caskey is an Adjunct Partner to Essex Woodlands and also sits on the Genome Canada Board.

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New Merck Serono Biotechnology Ventures Fund

Merck KGaA, the Darmstadt-based company (not part of Merck & Co. Inc. of the U.S.),  is starting a biotechnology venture capital fund that will invest €40 million ($55 million) in emerging biotech companies during the next five years, with a focus on the core therapeutic areas of Neurodegenerative Diseases, Oncology, Autoimmune & Inflammatory Diseases, Endocrinology and Fertility, as well as enabling tool and discovery technologies.  Companies wishing to submit proposals or receive additional information can contact Merck Serono Ventures via their website.

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