July 20, 2011
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[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
March 8, 2011
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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.
April 6, 2010
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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.
January 20, 2010
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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.
August 12, 2009
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This 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
- Enobia Pharma, whose lead (Phase II) product is a human recombinant enzyme for hormone replacement in hypophosphatasia patients, raised $50 million in their third venture round this week. Remember the grim report on Canada’s VC numbers last week? Well, between this Enobia deal plus Allostera’s $17 million round in July, Canadian healthcare companies are on-track to match 2008 levels (no great shakes, but still better than other sectors were faring at the end of Q2).
- In other interesting news, investment firm LOM Bancorp and BioQuest Capital Corp., a biotechnology developer, announced a new joint venture this week. More to come on this one as we learn more about the goals, structure and funding, but this will be good for Canadian biotech.
- We also hear that the Ontario Emerging Technology Fund launch will really get moving with the engagement of a fund administrator, as the Province’s RFP process wraps up in the next couple of weeks.
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.
August 6, 2009
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When 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.
July 22, 2009
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Many 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:
- 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.
- 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.
July 19, 2009
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The 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.
- 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.”
July 16, 2009
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A 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.
June 16, 2009
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Yesterday 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.
May 25, 2009
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The 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…
A lot to catch up on over the last few days…
And last but not least:
April 20, 2009
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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.
April 3, 2009
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“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:
Read more of this post
March 31, 2009
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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.
March 23, 2009
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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.