competing for capital in biotech & pharma value/media/executive-education/open... ·...

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Vlerick HealthCare ConferenceOktober 2016Brussel Dirk Reyn

COMPETING FOR CAPITAL IN BIOTECH & PHARMA

OBSERVATIONS & LESSONS LEARNED

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Where I have competed for capital/best value

Mature markets

Market access product

placementClinical/field trials

POCdevelopment

Preclinical/POC

research

Discovery researchValue Chain

Commercial Staff functions

R&D & Business Development & Commercial Leadership functions

CEO – series A/IPO/M&A

CEO - SPV

CEO – series A

Early stage investment Mid stage investment Late stage investment

24 MM Euro 70 MM Euro 110 MM Euro plus many deals

Venture Coach

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Agenda

Competing for capital: How much and current trends

Where to find capital : Before and after 2008

Lessons learned: • Seed financing & Series A• IPO• Pharma Deal financing

CONFIDENTIAL 3

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The background for this sessionAccess to capital to finance drug development

9

200 MM

Euro

90 MM

Euro80 MM

Euro

150 MM

Euro400 MM 30 MM

Product X

+/- 900 Million Euro

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To be as brave as the people we help

Capital Needs : Big Pharma versus Biotech views

• Capital need: R&D cost – Production cost – S&M cost and overhead

• Portfolio approach : Total average cost to market (failure corrected) per new medication: 900 MM USD*.

• Biotech view: The out-of-pocket cost per product 250-500 MM Euro (+/-10 yr) but…very dependent on the product profile, prescriber profile and the indication

• Phase III asset in GP market – 55 MM R&D cost to market (280 MM Invested by JNJ) but 185 extra MM Euro S&M cost to profitability

• Phase I asset in specialty cancer market – 240 MM R&D cost to market and 340 MM Euro (cumulative) to profitability

*Tufts Center for the Study of Drug Development

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Capital R&D requirements

•For the chosen indication, need to answer two basic questions:• Improved Benefit/risk over standard of care (Regulatory)• Improved Cost-effectiveness over standard of care (Reimbursement)

•More patients/capital required if• Difficult access to objective clinical endpoints (correlated to basic research focus of the industry)• Satisfactory medical benefit of current Standard of Care• Not life-threatening – high safety hurdle • Cheap alternatives available – need for comparative trials• (Patient/political pressure)• More post marketing trials required to detect serious AEs

• Examples• A product treating symptoms of constipation requires 70 trials and 2500 patients• A New (effective) cancer drugs require +/- 10 trials and 500 patients: T-VEC - 2 phase I, one phase

II and one phase III trial

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Capital requirements: increasing $ cost per patient

CONFIDENTIAL 7

Oncology Other indications Oncology Other indications

Phase I 32,300 12,670 57, 500 29,500

Phase II 34,670 23,450 67,500 34,500

Phase III 37,560 27,540 69,750 35,000

Phase IV 12,560 9,600 25,350 13,500

2005 - 2007

Tufts Center for the Study of Drug Development

2010- 2012

40 - 70 % increase over 7 years

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Recent trends further increasing capital needs

• Changes in protocol design to include biomarker information

• Inflation in the cost of inputs taken with costly and sophisticated equipment

• Increasing clinical trial complexity itself

CONFIDENTIAL 8

2007 2012Number of Eligability criteria 31 46 + 58 %

Number of CaseReport from pages per protocol

55 177 + 227 %

Number of procedures per Trial 105 166 + 57 %

Tufts Center for the Study of Drug Development

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Agenda

Competing for Capital: How much and current trends



CONFIDENTIAL 9

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Sources of funding before 2008

Mature markets



POCdevelopment

Preclinical/POC

research


Sources of

capital

Fools & Family & Friends

Private or Public Venture Capital Funds

EU funding

Local government grants e.g IWT

Pharma & Biotech Partnerships

Patient Driven Research associations

Corporate Venture funds

Public Markets

Business Angels

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What changed after 2008

• Withdrawal of relevant number of LPs from High Risk, Low and Late Return Biotech investments• Consolidation of Specialized VC funds focused more on later stage, less risky investments • More direct investment by Family offices themselves due to poor returns

• Emergence of new players to fill the Gap• Syndicated Angel Groups• EU funding initiatives ( e.g Horizon 2020, IMI,…)• Venture philanthropy ( Gates, Zuckerberg, Hopp,…)• Patients groups (Parkinson, Melanoma, ALS, …)• Army (selected areas)

• Change in strategy of Pharma companies• More early deals to fill their meager pipelines• Strategic early investments by Corporate Venture Funds

CONFIDENTIAL 11

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Sources of funding Today - after 2008

Mature markets



POCdevelopment

Preclinical/POC

research


Sources of

capital

Fools & Family & Friends

Government or Private or Public Venture Capital Funds (Consolidation)

Private equity & Hedge fundsEU funding e.g Horizon 2020 /IMI

Local government grants e.g VLAIO

Pharma & Biotech Partnerships

Venture Philanthropy - Wealthy (involved) sponsors

Patient Driven Research Associations

Army

Corporate Venture funds

Public Markets

Business Angels

Crowdfunding

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CONFIDENTIAL 13

2015 was best VC investment year ever with more than 235 Seed and series A rounds

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2 observations

CONFIDENTIAL14

More money available –Less investors (certainly EU) –More innovative projects

Top 20 Investors in Europe see > 600 application per year and increasing.

More need to tailor your story as profileand sector knowledge are variable

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Agenda

Competing for Capital: How much and current trends



CONFIDENTIAL 15

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Seed and Series A financing

Mature markets



POCdevelopment

Preclinical/POC

research




CEO

CEO

CEO


24 MM Euro

Venture Coach

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What is critical in a VC pitch

Clear view on your team with good mix of required experience

A clear Business Plan with focus on

Solid understanding of which market you play in and competition

What makes your product Unique ?

Development plan with milestones/view on Cash Burn

Understanding of : how will you retun money/how much/when

Does this project fit within the Fund strategy

CONFIDENTIAL 17

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CONFIDENTIAL 18

Lessons Learned & observations

Syndicate formation & Diligence: Specialist versus non specialist funds

• Large anchor investor a must for rapid closure

• (Too much) impact of consultants on Value Assesment

• Investigate the previous collaborations of your syndicate members & board members

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CONFIDENTIAL 19

Shareholders agreement –mind the details

• Liquidation Preference

• Preferential rights

Lessons Learned & Observations

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CONFIDENTIAL 20

Always prepare for M&A EXIT

• Intelligent to structure company from day 1

• Every trick to create competition/increase value is good

• Mostly divergent priorities during EXIT• Management vs VCs• Dollars vs People/patient

Lessons Learned & observations

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My experience so far

Mature markets



POCdevelopment

Preclinical/POC

research




CEO: Series A & IPO

CEO

CEO


70 MM Euro

Venture Coach

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Reflections on the value of an IPO

• In Europe, the public market/stock exchange remains the best/only place to finance an innovative, strong growing company with a mid/late stage product that needs more than 50 MM capital

US ONLY if proper preparation and minimal 500 MM valuation

• IPO supplies a benchmark for company valuation – Even in difficult markets - the valuation is better in public markets than in VC markets

• Possible EXIT for original investors (and founders). Gives sector specialists and long term investors the chance to replace VC investors

• Gives the company a “boost” in terms of corporate governance, communication, reporting and PR exposure etc.. Een IPO places a company on the radar screen (suppliers – partners – customers)

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More Lessons learned

CONFIDENTIAL 23

• Choice of banker (good sales channel in desired territory – supportive analyst)

• Realistic Price Range (and valuation of the company):• Range whereby the target milestones can clearly

offer a value increase within the 3-5 year timing horizon of most institutional investors

• Anchor investor or Champion is CRITICAL

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My experience so far

Mature markets



POCdevelopment

Preclinical/POC

research




CEO

CEO

CEO


110 MM Euro plus many deals

Venture Coach

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Pharma capital as funding option

CONFIDENTIAL 25

Corporate Venture Funding

Pharma Partnerships

• Between 2010 and 2016, Big Pharma -signed over 1,100 drug-focused deals, valued at 133 Bln USD and growing at a compound annual growth rate of 10%.

• Payment metrics on deals continue to increase, but higher proportion of deal value locked up in milestones

• Early-stage candidates dominated in volume of deals

• Corporate venture participated in 23.5 % of all venture deals in 2015 and H1 2016

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Pro & Cons of Early Corporate deals

•Can add a lot of value in expertise and connections i.e. Pricing equation

• Industry related endorsement of your company

•Groundwork for potential M&A deal

CONFIDENTIAL 26

•Added operational complexity despite alliance managers

•Negative impact on access to other potential partners/customer if they consider them as competitors

•At the mercy of changing strategic directives from Licensor

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Competition for capital within Pharma

CONFIDENTIAL 27

CEO’s/KOL PET projects Hype factor

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Take away messages

• The increasing complexity of clinical trials is increasing capital needs for young companies

• The battle for capital has become more fragmented and more competitive since 2008 – sizeable round needs international funds

• Success (and failure) have always been associated (next to the business plan itself)

with• Presence or not of a committed and experienced Anchor Investor/Champion

• Right expectation on valuation/price setting – win/win

• Your fundamental understanding of the funding dynamics on the investor side

• Right management team

• Persistency

CONFIDENTIAL 28

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CONFIDENTIAL 29

Source: Innovothink Center, Thomson Reuters, Forbes, Factset Research Systems; all pharma data corrected for 2012 dollars. Spending/drug = total R&D spend 1997-2011 / # total drug approvals during same period.

$B/Drug

31 US Biotechs

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CONFIDENTIAL 30

competing for capital in biotech & pharma value/media/executive-education/open... ·...

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