Easing the Early-Stage Company Funding Crisis
By Malorye A. Branca, PharmaWeek
March 12, 2007--Panelists at this year’s Sachs Investing and Partnering in Biotech Forum were in firm agreement that early-stage biotechnology products are still not getting sufficient funding in the US, but they tried to offer a variety of solutions to that problem. The Forum was held in Boston on Monday, March 12.
Changes in the capital markets have made it less likely that venture funds will ever again back early-stage companies at anything approaching the level seen in the 1990s. While the problem is very much a local one, “The US is a crucial world leader and unless we figure it out in this country, the innovation will go elsewhere,” said Jeremy Levin, global head of strategic alliances at the Novartis Institutes for Biomedical Research.
Novartis has taken action, creating a new funding vehicle called an Option Fund. The Fund, which is already in place, is designed to give start-up companies venture backing. “Where we find great science, we will lead a funding round and get top-tier venture funds involved,” said Levin. Novartis will take an option on one of the start-up’s clinical programs, he explained.
No firms have been funded through the Option Fund yet, but “deals are imminent,” Levin said. Novartis will seek venture partners who were founded with the express intention of funding early-stage companies. “Those who have raised funds for this purpose and want to continue in this business,” he said. “Hopefully, more pharmaceutical companies will follow our lead.”
Can such innovations help? “When we are funding companies that venture capitalists won’t support, are we just founding businesses that won’t survive?” asked Maggie Flanagan LeFlore, head of AstraZeneca’s R&D Ventures.
Venture capitalist Bill Mills applauded Novartis’ approach, saying “Just because venture capitalists don’t invest in something doesn’t mean it’s not worth investing in.” He pointed out that while venture capitalists are not helping to found many early-stage companies, they are interested in new ways of structuring deals. Many funds are simply too large now to invest in early-stage companies, and most investors want a much quicker return on their money than they used to expect.
Comerica Bank’s Janice Bourque suggested that venture capitalists, pharmaceutical companies, and academia might have to come together to create new funding platforms for start-ups. “Academia needs to put more endowment money behind these companies,” she said. Such a plan would require competitors to cooperate, “And we would need to change some expectations,” she said.
LeFlore pointed to the spate of recent “$400 million plus” deals and asked “Do these prove the drought is over and the cycle is coming around?” Panelists agreed, however, that most of these deals were limited to technologies that represent major steps forward, such as siRNA or novel antibody engineering approaches. Another winning tact is to target medical arenas where there is still tremendous unmet need, such as hepatitis C.
“Companies make these big deals for a variety of reasons,” explained Levin. He suggested that the next rally is less likely to be led by big pharmaceutical companies. “I’d be watching the mid-cap biotechnology companies,” he said. “Many of them have reached their maximum potential with the pipelines they have.”
One thing is for certain: “If no one invests in early-stage companies, there are no late-stage products later on,” pointed out Christopher Mirabelli, a venture capitalist who spoke during a second panel at the Forum. “But today’s start-ups need to be much more capital efficient and put the money they get into advancing the science.”
Copyright 2007, Cambridge Healthtech Institute. All Rights Reserved.
