Financing Trend Expands for Young Biotechs in 2013

There were around 1,600 attendees this year at Biotech Showcase 2013 held at the Parc 55 Hotel in San Francisco.  One of the luncheons I attended was a panel discussion.  The topic was “The View from the Street: Looking Forward.” Here is some of what was discussed by the panel. Each of the panelists gave their view of this topic.

Robert Hazlett, Senior Research Analyst at Roth Capital said that he is “bullish for the biotech and pharma industry.”  He also predicts 38 drug approvals a year.  Hazlett said there has been beneficial advancement in biology and he is enthusiastic about advancements in oncology.  He thinks there has been modest progress on the regulatory side.

Evan McCullough, Portfolio Manager at Franklin Templeton, gave his perspective as a buy side guy.  He said Gilead started a rally by buying Pharmacet.  McCullough said that the IPO window is open, payers are tough, high deductible plans are coming so think about how that effects reimbursement of drugs.  He is also frustrated that there isn’t more M&As.  If a company wants to go IPO, they need proof of concept and solid Phase 2 data, McCullough added.  He said that for companies that want to have an IPO, there are ways to do it.  Companies spend too much time on the lead compound.  They need other compounds in case the lead compound fails.

Evonne Sepsis, Managing Director at ESC Advisors said, “Companies are looking for $2 million initially and that’s difficult.”  Private companies need a great management team, great technology, and safety is becoming very important, she added.  Also important are pricing, reimbursement, and commercialization.

Also on the panel was Greg Simon, CEO at Poliwogg.com.  Poliwogg is an internet-based broker/dealer/crowd funding portal/asset manager.  Simon pointed out that there are lots of people going into there 30’s.  They will be investing.  With crowd funding, a non-accredited investor can invest $1 million in a company.  Accredited investors can invest over $1 million.  The new JOBS Act law lets people like Simon for example invest only $100,000 in a company.  He said,  “You can now get a crowd of people to invest in you.”  The JOBS Act lowers the threshold of investment.  People typically start investing at age 35.  VC’s are making room for a whole new crowd to move in.

New Biotech VC Investing Model Emerging

It appears that a new biotech investing model is emerging and may play out through 2013.

On October 9, 2012, I attended the BIOInvestor Forum at the Palace Hotel in San Francisco. At the Plenary Session “It Takes A Village: The New Pharma-VC Model for Biotech Investing,” moderator Alan Eisenberg said, “Thirty-nine percent of VCs reported decreased HealthCare investment in the past three years.”  This sector has continually underperformed.  In addition, there were only 16 early round financings.

Will Biotechs Play a Kind of VC “Hunger Games”  to  Survive?

One panelist believes that 2013 will be like the “Hunger Games.”  “Companies need to change how things are done to survive,” said De Rubertis. According to Brian McVeigh, Vice President of Worldwide Business Development Transactions and Investment Management, at GSK Pharma, “This is a relationship business.  Relationships with academics are also important.

Location, Location, Location

The other piece is geographic.”   Francesco De Rubertis, Partner, at Index Ventures said, “Returns have to be good enough for investors to get back in.”  Index Ventures’ strategy is to invest in early-stage, single-asset companies in Europe, U.S. and Israel.  Recently, there have been a number of high-profile funding collaborations between pharma companies and traditional VC funds such as GSK and JNJ with Index Ventures, Sanofi and Third Rock (Warp Drive), and Eli Lilly and TVM Capital.  The strategy is that by combining their resources and expertise, these firms hope to source and develop drugs that are winners.

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