Financing Strategies for the Private Biotechnology Company


5 Δεκ 2012 (πριν από 8 χρόνια και 8 μήνες)

325 εμφανίσεις

Idea to IPO … and Beyond

Lessons Learned

Ralph (Chris) Christoffersen

Morgenthaler Ventures

UCSF, March 7, 2011

I May Not Have Made Every Possible

But it Certainly Seems like it

Academic for 17 years

Professor of Chemistry (U of Kansas)

Did molecular quantum mechanics for a living


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

Common Belief:

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


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


Staffing mistakes

Intellectual property

VC meddling

Founder meddling

Board of Directors meddling


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:

Is never easy

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)


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

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







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

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


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
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


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 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



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


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

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

Is this the most important thing in your professional life?

Are you prepared to take risks and perhaps fail?