Life Science Startups Look to New Sources of Funding

Source: Ed Mathers, Partner, NEA  with WRAL Tech Wire

It’s no secret that the flow of capital into the life sciences industry has slowed to a trickle over the last several years. The number of funds being raised continues to decline, with only a handful of firms raising fresh funds in the past two years (including NEA), leaving venture capitalists with a shortage of dry powder and an ever-dwindling appetite for risk. In 2012, the sector saw a 10 percent drop in total dollars invested and a six percent decrease in the number of deals. First-time financings were hardest hit, with the lowest number of deals since 1995.

Coupled with an unstable economic environment and a widespread aversion to capital-intensive projects, the hurdles to bringing new treatments and therapies to patients seem higher than ever, and the threat of an innovation bottleneck (with grave consequences for human health) looms large. Clearly the industry must redirect the flow or find new sources of capital to survive.

This transformation underway in life sciences is a core focus of CED’s Life Science Conference, where we discussed the broader funding landscape, dynamics within the venture capital industry, and emerging opportunities to pursue less traditional sources of capital. The flow of capital will certainly be a key topic for discussion throughout 2013, and we can expect several key shifts to emerge or become more firmly rooted during the course of the year.

A New Role for Big Pharma

What has begun to unfold in the life sciences industry is a massive paradigm shift of the role “big pharma” plays in the startup ecosystem. As more and more VCs pull away from the early-stage biotechnology and medical device sectors, many big pharmaceutical and biotech companies have stepped in and supplied an influx of much-needed corporate cash. Why now?

Historically, big pharma has honed in on products as they enter late-stage development, seeking low-risk opportunities to close the gap on existing pipelines. Previously, the corporate venture groups participated in financings—fast forward to now, and we see more pharma-led financings. Ironically, at the same time, pharma is also cutting back on R&D budgets, and exiting certain therapeutic areas.

This crisis has delivered a wake-up call for big pharma in recognizing the importance of platform-oriented companies, which are focused on creating new, disruptive, and broadly-applicable technologies rather than a specific therapeutic product. Structured to foster innovation, these types of companies are uniquely positioned to make technical and scientific advancements that will fuel the next generation of therapeutics. Large pharmaceutical and biotech companies depend upon a thriving life sciences eco-system, and platform-focused companies are an increasingly important factor in that equation.

Corporate R&D “Going to Where the Science Is”

Corporate R&D, equally important to the ecosystem, has increasingly made “going to where the science is” central to its strategy. Large corporations are increasingly collaborative, partnership-focused, and are cultivating hubs for innovation.

For example, Johnson & Johnson recently announced the launch of four research centers in prominent life sciences communities, including Boston, California, China and London. Merck established the California Institute for Biomedical Research in San Diego to conduct early-stage drug research. Bayer partnered with the University of California, San Francisco, to establish an innovation center focused on helping basic research discoveries progress to the drug development stage. Pfizer has also announced several academic relationships, all with a goal of early access to cutting edge technology and relationships with academic leaders in their fields. We can expect to see more of this in 2013.

Casting a Wider Net

Clearly, reviving the flow of capital to life sciences cannot (and should not) be fueled by big pharma alone, and there is still considerable room for growth in developing new strategies for funding. A successful future for the life sciences industry will require medical startups to think outside of the box to bring in fresh capital, and they have already begun to do so.

During the last few years, the concept of alternate funding sources appears to be gaining traction in life sciences. Liquidia Technologies received a $10 million equity investment from the Bill & Melinda Gates Foundation in support of their development and commercialization of safe and more effective vaccines. Hedge funds in Boston and San Francisco are the latest backers of Intarcia Therapeutics, which is developing a potential treatment for type-2 diabetes.

Pharma-backed VC funds companies are also beginning to flow significantly more money into deals, proving their willingness to elevate their role from simply strategic investor to financing leader in this space. As life sciences startups lay the bricks for alternate roads to funding, we’re likely to see increased momentum when it comes to finding new sources of capital and, longer-term, a much more diverse life sciences ecosystem.

The Seeds Are Planted

Although the life sciences sector is struggling right now, it appears that the seed has been planted for new survival strategies. As the VC capital channels to life sciences continue to shrink, the industry must become much more flexible and innovative in their fundraising process through big pharma’s increased support of platform and product-oriented companies as well as medical startups’ exploration of new avenues to fresh capital. The evolution of the psyche of the life sciences investment ecosystem only stands to continue in 2013 and, for the sake of all of our health, let’s hope it does.

Ed Mathers, partner at NEA. He is a director of Intarcia, Liquidia Technologies, Plexxikon, Ra Pharmaceuticals, Rhythm Pharmaceuticals, and Satori Pharmaceuticals.

Venture philanthropy: An emerging source for life science funding

Source: Jim Roberts, special to WRALTechWire

What is a philanthropic, for profit venture fund? Not exactly an oxymoron, but it could be a bit confusing if you were not familiar with the new concept of venture philanthropy or Program- Related Investments (PRI).

The North Carolina Biotechnology Center, NC BIO, Southeast BIO and other regional biotech organizations from Florida, Virginia and Georgia led one of the first regional conferences- the Southeast Venture Philanthropy Summit –  for this new concept. Venture Philanthropy is where mostly non-profits make equity investments in early stage life sciences companies to both advance the novel science and attempt to fund the future of the non-profit.

A prime example: nanotechnology firm Liquidia Technologies, which is based in Research Triangle Park. Although the company was not discussed much on stage at the event, the company is widely seen as the most familiar story with this scenario. The Bill and Melinda Gates Foundation made a $10 million equity investment in 2010 after founder Joe DeSimone met Bill Gates at a conference. This was an equity investment by the non-profit where the foundation now owns a part of Liquidia and will financially benefit if Liquidia has an exit event due to an acquisition or an Initial Public Offering (IPO) on the stock market.

The Bill and Melinda Gates Foundation now has a $1 billion fund to do this kind of investing. (Melinda Gates attended Duke University before going to work at Microsoft.)

Do Well by Doing Good

The easiest way to explain the concept of venture philanthropy is to say: ”Do Well by Doing Good.” This concept was repeated several times throughout the conference at the Friday Center in Chapel Hill, North Carolina. If a non-profit invests a small percentage of their foundation towards an equity investment into an early stage company with new promising technology, two good things can happen.

First, the novel science and research gets funded and hopefully progress is made towards the purpose of the non-profit to solve problems in cancer, diabetes or rare diseases.

Second, if the science proves to be successful and the company can turn that into a profitable venture, the company will likely get acquired or have a public offering. If that happens and the philanthropy receives a good return on their investment, they can then reinvest that gain into the non-profit, like an “evergreen fund”, to do more good work in the near future.

While venture philanthropy is only about 2 percent of current research funding overall, this is an important needed section of investing at the earliest stages. Venture Philanthropy can come in at the early stages after grants and before angel investors and venture capital that are trending towards later stage investing. Venture Philanthropy can serve to reduce risk and serve as a qualifier for venture capital as the companies and the technologies mature.

Partners: The Company, Academic Institutions, Non-Profit Backer

To shed light on the process, four female venture philanthropy executives spoke on “The Why & How To Work with Venture Philanthropies.” According to Kristin Schneeman of FasterCures, Venture Philanthropy provides “financial, intellectual and human capital to the companies that they work with. The funds are supposed to be used towards capacity building, not towards general operating expenses.”

Louise Perkins of the Melanoma Research Alliance and a 1981 graduate of the University of North Carolina, explained that there are typically three partners in this kind of deal. The industrial partners, the academic partners and the non-profit partner that provide the seal of approval of peer review.

NC Examples of Non-Profits Showcased 

In a recent panel about cancer funding, two NC non-profits and true brands and legends of North Carolina spoke about their experience. The Jimmy V Foundation CEO Susan Braun and Max Wallace of the Accelerate Brain Cancer Cure discussed their experience in funding and their part in the venture philanthropy industry.

While the high profile Jimmy V Foundation, who partners with ESPN, is not a true venture philanthropy fund as they do not take an equity position, they do partner with and fund the Accelerate Brain Cancer Cure (ABC2) organization, Braun said.

Wallace, a thirty year veteran of the North Carolina Biotechnology sector, gave the most interesting example of a new trend. The 1,000 Coupon Project is where the ABC2 foundation will give 1,000 people a single coupon to have their brain tumor sequenced for free at the expense of the foundation. This is typically a $60,000 treatment that only the very wealthiest of people can afford. While this is in the very early stages of development, the foundation has ten samples to begin the research.

Jim Roberts was involved in starting technology entrepreneur bootcamps in Charlotte in 2000, started the entrepreneurial council and angel investor network in Asheville and has worked for NC Department of Commerce and Center of Innovation for NanoBiotechnology (COIN) since moving to the Triangle in 2008. Jim is founder of RedSpire Connections, a consulting firm for business development, lead generation, marketing and a leader of industry related events.

About Scale Finance

Scale Finance LLC ( provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.