Financing Strategies for the Private Biotechnology Company

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5 Δεκ 2012 (πριν από 4 χρόνια και 10 μήνες)

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Idea to IPO … and Beyond


Lessons Learned



Ralph (Chris) Christoffersen

Morgenthaler Ventures


UCSF, March 7, 2011

I May Not Have Made Every Possible
Mistake


But it Certainly Seems like it


Academic for 17 years



Professor of Chemistry (U of Kansas)


Did molecular quantum mechanics for a living



Administration


Provost (Kansas); President (Colorado State University)


Large Pharma for 10 years



Upjohn Company


Started biotech group


VP Worldwide Discovery Research



SmithKline Beecham


Sr VP Research; member of Development Committee


Biotech CEO



Ribozyme Pharmaceuticals (10 years)


Venture Capitalist



Morgenthaler Ventures (9+ years)

It May Look Easy But Don’t Be
Fooled

Common Belief:


The hardest part of starting a company is creating the
concept and doing key experiments for initial patent filings

Truth:




It’s an important part, but there are hundreds of ways to
mess up (not always under your control), including:



Financing



Staffing mistakes



Intellectual property



VC meddling



Founder meddling



Board of Directors meddling



FDA


Lack of corporate partner


Corporate partner meddling


Choice of initial product/clinical indication


Choice of development pathway


Lack of liquidity opportunities

How To Tell If Your Idea Is Worth
Forming a Company

Ask whether the technology platform will:


Produce multiple products


Single product companies are too risky


Represent a true paradigm shift if successful


i.e., change the way medicine is practiced


Note: Bias above toward “innovation” business
model vs. other valid approaches including:


Faster/Better/Cheaper (e.g., next
-
gen products)


Roll Up Model


Late stage

Raising Money Should be Easy

(All VCs are the same)

Raising money:

1.
Is never easy

2.
Always takes longer than expected


Forming syndicates can be quite tricky


VCs have different interests, approaches and focus


Approximately 130 VCs with $150B under management



53 “Early” stage investors



13 “Later” stage



68 “Various” stages


Be sure VCs in the syndicate have “deep pockets”


Half of current VCs could be lost in current “shakeout”

Raising Money Should be Easy

(All VCs are the same)
-

2


Choose VCs with significant operating experience



All those mistakes can be helpful



Mentoring is an important value
-
added benefit



VCs have distinctive personalities; call other CEOs

Why Is It So Tough to Hire Good
People?

CEOs can make or break a company
-

the problem is
finding the right one


Ideally want serial entrepreneur who has successfully
built/sold a biotech company


Very few around; burn out issue


Risk profile is tough to match with experienced candidates


Corporate execs frequently have good experience but lack risk
tolerance and need significant support structure underneath


Not uncommon to have a start
-
up CEO with good science
credentials replaced later by CEO with more market experience


Founders typically make lousy CEOs


Great science credentials with little/no business experience


More often are most useful as Chair of the SAB



Is Curing Cancer Always the
Best Product Focus?

Assuming the scientific platform has multiple product
potential, the ideal initial product portfolio has:


More than one product


Lead product is chosen by speed to Proof of Concept
(Phase IIa clinical result), NOT size of market


Remember IRR


your investors will


Corporate partner will develop large market products


Lead product should have one or more good biochemical markers


Should achieve POC within 5 years of company formation


Must keep a balance between developing lead product(s) and
further development of the platform

Can VC Conflicts Be Avoided?

No, but they can be managed if they are known in
advance. Some examples:


Founders and company management should begin with
the realization that VCs require exits:


Conflicts between building the company & investor “exits”


Planning for VC exits from the beginning (e.g., following POC)


This is separate from long term company building


VCs are NOT uninterested in company building


“Cash is King”


CEOs should generally raise money
whenever it is available to keep the doors open;


Balanced with everyone’s desire to minimize dilution and VC
desire to be “capital efficient”

When Do You Raise a Series B?



Whenever you can!



Generally it will take $40M+ to get to POC



Don’t worry about “Down Rounds”



You will take heat from your board, but “Cash is King”


The end valuation is all that really counts


Financing mechanism currently being used by some VCs
(including Morgenthaler)


Single Series A/B round of $30
-
40M, tranched against Milestones


Hard to find syndicate partners but,


Minimizes financing risk for company


Puts premium on “execution”, and avoids Series B down rounds
and dilution (helps both management and VCs)

Why Not Finance Everything with
Corporate Partnerships?


Corporate partnering can be very helpful in
achieving financing goals:


Especially helpful if non
-
dilutive financing can be achieved
(e.g., non
-
equity support of product development costs).


Best done with leverage (i.e., partner needs the
technology/products; multiple partners are interested)


Be careful to avoid “control” issues


Essential to keep some assets unpartnered to
attract buyers

Don’t Be Afraid to Change Directions


Many examples of companies whose success was
unrelated to their initial technology/products


Can’t predict science/medicine


Need to keep a “prepared mind”


However, a change in focus may increase (not decrease) risk



Will discuss several case studies:


Ribozyme Pharmaceuticals


Catalyst


Avidia


Replidyne


ICOS

Ribozyme

Therapeutics


Founded in 1992, on the Nobel Prize discovery by Tom Cech that RNA
could be catalytic and was not simply a passive messenger


A
-
level VCs: Venrock, Morgenthaler, CW Group, Advent


Developed major technology platform advances


RNA is unstable in serum (half
-
life less than a few seconds); RPI
discoveries provided chemical modifications with stability for days


Therapeutic programs in cancer and infectious disease initiated,
including corporate collaborations with Chiron and Lilly.


Tox issues in monkeys caused cessation of clinical studies and
belief that the platform would fail


Discovery of siRNA provided entirely new application for RNA


Work on stabilizing RNA was essential and owned by RPI.


Company (then called SIRNA) was purchased by Merck for $1.2B

Catalyst


Formed based on technology that allowed development of
new classes of therapeutics called Alterases (Proteases w/
altered target sites or potency)



The initial product portfolio consisted of products to treat complement
-
based
inflammation, anti
-
angiogenesis using VEGFr inhibition and IBD using a
natural protease.


Portfolio review as part of the Series B (led by Morgenthaler),
determined that different products using altered proteases
against coagulation targets provided a much shorter path to
POC with crisp clinical endpoints and biochemical markers.


The resulting product portfolio contains three lead products
(Factor VIIb, Factor IX and Factor X), representing billion
dollar market potential and likely short term M&A opportunities

Avidia


New technology for productions of libraries of
therapetic molecules (Avimers)


Diversity, selectivity and potency equivalent or better than
antibodies but with completely different structural motifs.


Portfolio review as part of the Series B to determine
if a more rapid path to POC could be obtained.


Resulted in choice of Crohn’s disease using CRP protein
as a marker, saving over a year of time compared to
cancer targets that had been top priority previously.


It also created interested from Amgen, who
purchased the company within a year for $450M.

Replidyne


Replidyne is a company that fell victim to a bad
choice of strategy and regulatory change


Technology for new antibiotics based on new
knowledge about MOA of bacterial DNA replication


Initial products were on track for IND filing


A business development opportunity arose that
resulted in
-
licensing a late stage antibiotic with 9
Phase III studies already completed


Based on conversations with the FDA, the company
prepared and filed an NDA for multiple indications, and the
entire company became focused on that product

Replidyne

(continued)


FDA summarily rejected all claims


In spite of their earlier agreements in writing, they
(because of Congressional pressure) changed the rules
and the company would have to redo all their clinical trials
using placebo controlled protocols


Devastated the company


Sold and returned $.10 for every $1.00 invested



Moral of the story (from a VC perspective)


Company lost its way by leaving a multiple product
strategy that could have minimized risk by staying “under
the radar” of the FDA into a strategy that bet on both a
single product and the FDA being reasonable

ICOS


Founded in 1989, focused on inflammatory diseases


12 different drugs in clinical trials for different diseases


PDE5 inhibitor (tadalafil) that was being developed for
treatment of hypertension changed the company


Due to the success of another PDE5 inhibitor (Viagra


Pfizer), company rapidly refocused and received
FDA approval in Dec 2003 to market Cialis.


Lilly bought ICOS for $2.3B cash


Cialis sells in excess of $1B/year. The company never
successfully developed any other products

Is It Worth It?

If your answer is Yes to the following questions, you
may be destined to start a biotech company:


Have you invented a technology which, if successfully developed, will
change the way medicine is practiced?


Is the intellectual property coverage as broad as the technology and
already filed?


Have you identified a successful serial entrepreneur to run the company?


Are you prepared to put up with the frustrations of dealing with investors,
company politics, regulatory agencies, Board of Directors, corporate
partners?


Are you ready to accept the market assessment of the value of your
technology?


Is this the most important thing in your professional life?


Are you prepared to take risks and perhaps fail?