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Biotrinity and the Outlook on Biotechnology Financing

The last few years have been tough ones for the biotechnology and pharmaceutical industries with facility closures and massive layoffs, followed by decreased growth in R&D funding for much of big pharma. On the bright side there’s been a recent rise in venture capital investments in the life sciences, both in total dollars and in the size of an average financing. However the number of deals and overall funding is still “down considerably from the recent highs in 2007 and 2008,” says Bruce Booth, a partner at Atlas Venture.

While biotechnology companies try to innovate and navigate increasingly complex regulatory requirements on a shoe string budget, and big pharma seeks ways to fix its broken research engine and reinvent how they develop products in the face of a looming “patent cliff,” VCs and big pharma are joining forces. The Biotrinity conference, organized by the Oxfordshire Bioscience Network (OBN) in April, highlighted the growth of corporate venture funding where many of the major corporate venture companies showcased their recent investments and described the types of investments they were seeking in the future. There is well over $1 billion dollars available for investment from these funds, with the typical investment ranging from $5 million to $10 million per company – a substantial sum to receive for a small biotech. The investment strategies of these corporate venture companies vary from ever-greening where the returns must be able to sustain future investments to strategic investments to fill waning pipelines. Companies seeking investment had varying strategies as well. Sunil Shah, CEO of O2h, a drug discovery and development service provider, urged small companies to focus on building their company for the long term to add value, even if you have a shorter-term exit strategy, by setting a culture within the company that facilitates value creation.

Following big pharma mergers and to offset the patent cliffs many pharmaceutical companies are facing, partnering and licensing is expected to continue to increase over the next several years to “feed the beast” so to speak. The consensus at Biotrinity was that most quality late phase opportunities have already been acquired so big pharma are looking at earlier phase opportunities, where the risks may be higher but the costs of licensing or partnering are lower. This is good news for those early stage biotechnology companies who have promising technology, but may not have sufficient funds to take them through to proof of concept (POC).

Merck launched a venture capital fund specifically for these types of early stage opportunities, and has other funds focusing on health care adjacencies, one for technology and one for emerging markets, and as a deviation from past deals is now willing to accept smaller rights for late stage products. Astra Zeneca’s approach is similar to Merck’s, where they are looking for regional deals, especially in emerging markets, but say market exclusivity rights are still important to them. External sources will soon comprise 40 % of AZ’s product portfolio, as they will at Sanofi Aventis, according their new CEO, Chris Viehbacher. These are unprecedented amounts for both companies, representing the future reality for many pharmaceutical companies. Hopefully, this will be the future reality for those small, early phase biotechnology companies who are looking to partner their technologies or ultimately be acquired, and their uncertain outlook will become more assured.


Blog article by: Patti Seymour