What does venture capital look for when investing in biopharma?
- Venture capital is frequently a vital resource for fledgling drugmakers, but not all investments are made the same. A drug's therapeutic target, stage in development and potential to yield returns shape whether its manufacturer is worth backing — or whether money would be better spent elsewhere.
- At least, that's according to a few prominent life science investors. During a Tuesday panel discussion at the BioPharm America conference in Boston, Todd Foley of MPM Capital Inc., Kevin Johnson of Medicxi and Nilesh Kumar of Novo Ventures explained what catches the eyes of biopharma-focused VCs.
- Particularly attractive are medicines ahead of the curve, aimed at diseases likely to move into the spotlight over the next few years. "We do react to trends and emerging trends and try to build what we think the pharma companies are going to want to buy," Foley said.
The biopharma sector literally has a wealth of VC funding at its fingertips. Biotechs, for instance, received the second most venture funding of any industry in the first half of 2016 despite overall declines in deal value and volume across a number of industries, including the life sciences.
Those investments come from companies like MPM, which has provided capital to 23andMe Inc., Radius Health Inc. and Valeritas Inc. MPM specializes in financing early-stage life sciences businesses, usually conducting pay rounds in the $40 million to $60 million range, according to Foley.
Identifying promising preclinical assets, therefore, is key to MPM's strategy.
"As early-stage investors, we're willing to take significant biology risk and early development risk," Foley said. While not every drug selected will be a winner, those that hit can offer huge returns because "you start to see the value is quite high after proof of concept," he said.
Therapeutic areas come into play as well. Treatments for neurodegenerative diseases are on MPM's radar. So are immuno-oncology drugs — as is the case across many life science VC funds. Behind each target, investors are considering how the candidate fulfills patient needs, according to Medicxi's Johnson.
"The general rule we think works is if you put the patient at the center of it, you won't go far off. Even though the world may not know it needs a particular modality for a particular condition, if you can see how that's really going to make an impact," then a VC can reason out whether a therapy is worth investing in, he said.
With the backing of Novartis AG and Alphabet Inc., Medicxi in June launched a $300 million fund aimed at European biotechs in late-stage drug development. At the time, Medicxi said it would be funding companies that craft treatments for unmet medical needs, but didn't specify much further. Yet, according to Johnson, at the top of the investor wish list are products that are forward-thinking rather than currently fashionable.
"You do sort of have to have the idea of what's going to be a must-have in five years or beyond. The chances are it's not what's hot now — and I think people want to be in a hot area because it feels like where complex and interesting dealmaking are," he said.
In any case, investments are more likely to pour in when a company's drug is supported by strong data, particularly evidence demonstrating its effectiveness both in animals and in the clinic.
"People come up to us with some great animal data. The problem is attrition rates in those things and translatability to man is huge, they're a very difficult thing to go into. And once you've got something [that can make that leap], it's a huge validation that this stands a chance of working," Johnson said.
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