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Vlerick HealthCare ConferenceOktober 2016Brussel Dirk Reyn
COMPETING FOR CAPITAL IN BIOTECH & PHARMA
OBSERVATIONS & LESSONS LEARNED
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Where I have competed for capital/best value
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Commercial Staff functions
R&D & Business Development & Commercial Leadership functions
CEO – series A/IPO/M&A
CEO - SPV
CEO – series A
Early stage investment Mid stage investment Late stage investment
24 MM Euro 70 MM Euro 110 MM Euro plus many deals
Venture Coach
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Agenda
Competing for capital: How much and current trends
Where to find capital : Before and after 2008
Lessons learned: • Seed financing & Series A• IPO• Pharma Deal financing
CONFIDENTIAL 3
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The background for this sessionAccess to capital to finance drug development
9
200 MM
Euro
90 MM
Euro80 MM
Euro
150 MM
Euro400 MM 30 MM
Product X
+/- 900 Million Euro
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To be as brave as the people we help
Capital Needs : Big Pharma versus Biotech views
• Capital need: R&D cost – Production cost – S&M cost and overhead
• Portfolio approach : Total average cost to market (failure corrected) per new medication: 900 MM USD*.
• Biotech view: The out-of-pocket cost per product 250-500 MM Euro (+/-10 yr) but…very dependent on the product profile, prescriber profile and the indication
• Phase III asset in GP market – 55 MM R&D cost to market (280 MM Invested by JNJ) but 185 extra MM Euro S&M cost to profitability
• Phase I asset in specialty cancer market – 240 MM R&D cost to market and 340 MM Euro (cumulative) to profitability
*Tufts Center for the Study of Drug Development
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To be as brave as the people we help
Capital R&D requirements
•For the chosen indication, need to answer two basic questions:• Improved Benefit/risk over standard of care (Regulatory)• Improved Cost-effectiveness over standard of care (Reimbursement)
•More patients/capital required if• Difficult access to objective clinical endpoints (correlated to basic research focus of the industry)• Satisfactory medical benefit of current Standard of Care• Not life-threatening – high safety hurdle • Cheap alternatives available – need for comparative trials• (Patient/political pressure)• More post marketing trials required to detect serious AEs
• Examples• A product treating symptoms of constipation requires 70 trials and 2500 patients• A New (effective) cancer drugs require +/- 10 trials and 500 patients: T-VEC - 2 phase I, one phase
II and one phase III trial
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Capital requirements: increasing $ cost per patient
CONFIDENTIAL 7
Oncology Other indications Oncology Other indications
Phase I 32,300 12,670 57, 500 29,500
Phase II 34,670 23,450 67,500 34,500
Phase III 37,560 27,540 69,750 35,000
Phase IV 12,560 9,600 25,350 13,500
2005 - 2007
Tufts Center for the Study of Drug Development
2010- 2012
40 - 70 % increase over 7 years
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Recent trends further increasing capital needs
• Changes in protocol design to include biomarker information
• Inflation in the cost of inputs taken with costly and sophisticated equipment
• Increasing clinical trial complexity itself
CONFIDENTIAL 8
2007 2012Number of Eligability criteria 31 46 + 58 %
Number of CaseReport from pages per protocol
55 177 + 227 %
Number of procedures per Trial 105 166 + 57 %
Tufts Center for the Study of Drug Development
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Agenda
Competing for Capital: How much and current trends
Where to find capital : Before and after 2008
Lessons learned: • Seed financing & Series A• IPO• Pharma Deal financing
CONFIDENTIAL 9
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Sources of funding before 2008
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Sources of
capital
Fools & Family & Friends
Private or Public Venture Capital Funds
EU funding
Local government grants e.g IWT
Pharma & Biotech Partnerships
Patient Driven Research associations
Corporate Venture funds
Public Markets
Business Angels
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What changed after 2008
• Withdrawal of relevant number of LPs from High Risk, Low and Late Return Biotech investments• Consolidation of Specialized VC funds focused more on later stage, less risky investments • More direct investment by Family offices themselves due to poor returns
• Emergence of new players to fill the Gap• Syndicated Angel Groups• EU funding initiatives ( e.g Horizon 2020, IMI,…)• Venture philanthropy ( Gates, Zuckerberg, Hopp,…)• Patients groups (Parkinson, Melanoma, ALS, …)• Army (selected areas)
• Change in strategy of Pharma companies• More early deals to fill their meager pipelines• Strategic early investments by Corporate Venture Funds
CONFIDENTIAL 11
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Sources of funding Today - after 2008
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Sources of
capital
Fools & Family & Friends
Government or Private or Public Venture Capital Funds (Consolidation)
Private equity & Hedge fundsEU funding e.g Horizon 2020 /IMI
Local government grants e.g VLAIO
Pharma & Biotech Partnerships
Venture Philanthropy - Wealthy (involved) sponsors
Patient Driven Research Associations
Army
Corporate Venture funds
Public Markets
Business Angels
Crowdfunding
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CONFIDENTIAL 13
2015 was best VC investment year ever with more than 235 Seed and series A rounds
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2 observations
CONFIDENTIAL14
More money available –Less investors (certainly EU) –More innovative projects
Top 20 Investors in Europe see > 600 application per year and increasing.
More need to tailor your story as profileand sector knowledge are variable
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Agenda
Competing for Capital: How much and current trends
Where to find capital : Before and after 2008
Lessons learned: • Seed financing & Series A• IPO• Pharma Deal financing
CONFIDENTIAL 15
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Seed and Series A financing
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Commercial Staff functions
R&D & Business Development & Commercial Leadership functions
CEO
CEO
CEO
Early stage investment Mid stage investment Late stage investment
24 MM Euro
Venture Coach
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What is critical in a VC pitch
Clear view on your team with good mix of required experience
A clear Business Plan with focus on
Solid understanding of which market you play in and competition
What makes your product Unique ?
Development plan with milestones/view on Cash Burn
Understanding of : how will you retun money/how much/when
Does this project fit within the Fund strategy
CONFIDENTIAL 17
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CONFIDENTIAL 18
Lessons Learned & observations
Syndicate formation & Diligence: Specialist versus non specialist funds
• Large anchor investor a must for rapid closure
• (Too much) impact of consultants on Value Assesment
• Investigate the previous collaborations of your syndicate members & board members
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CONFIDENTIAL 19
Shareholders agreement –mind the details
• Liquidation Preference
• Preferential rights
Lessons Learned & Observations
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CONFIDENTIAL 20
Always prepare for M&A EXIT
• Intelligent to structure company from day 1
• Every trick to create competition/increase value is good
• Mostly divergent priorities during EXIT• Management vs VCs• Dollars vs People/patient
Lessons Learned & observations
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My experience so far
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Commercial Staff functions
R&D & Business Development & Commercial Leadership functions
CEO: Series A & IPO
CEO
CEO
Early stage investment Mid stage investment Late stage investment
70 MM Euro
Venture Coach
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To be as brave as the people we help
Reflections on the value of an IPO
• In Europe, the public market/stock exchange remains the best/only place to finance an innovative, strong growing company with a mid/late stage product that needs more than 50 MM capital
US ONLY if proper preparation and minimal 500 MM valuation
• IPO supplies a benchmark for company valuation – Even in difficult markets - the valuation is better in public markets than in VC markets
• Possible EXIT for original investors (and founders). Gives sector specialists and long term investors the chance to replace VC investors
• Gives the company a “boost” in terms of corporate governance, communication, reporting and PR exposure etc.. Een IPO places a company on the radar screen (suppliers – partners – customers)
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More Lessons learned
CONFIDENTIAL 23
• Choice of banker (good sales channel in desired territory – supportive analyst)
• Realistic Price Range (and valuation of the company):• Range whereby the target milestones can clearly
offer a value increase within the 3-5 year timing horizon of most institutional investors
• Anchor investor or Champion is CRITICAL
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My experience so far
Mature markets
Market access product
placementClinical/field trials
POCdevelopment
Preclinical/POC
research
Discovery researchValue Chain
Commercial Staff functions
R&D & Business Development & Commercial Leadership functions
CEO
CEO
CEO
Early stage investment Mid stage investment Late stage investment
110 MM Euro plus many deals
Venture Coach
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Pharma capital as funding option
CONFIDENTIAL 25
Corporate Venture Funding
Pharma Partnerships
• Between 2010 and 2016, Big Pharma -signed over 1,100 drug-focused deals, valued at 133 Bln USD and growing at a compound annual growth rate of 10%.
• Payment metrics on deals continue to increase, but higher proportion of deal value locked up in milestones
• Early-stage candidates dominated in volume of deals
• Corporate venture participated in 23.5 % of all venture deals in 2015 and H1 2016
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Pro & Cons of Early Corporate deals
•Can add a lot of value in expertise and connections i.e. Pricing equation
• Industry related endorsement of your company
•Groundwork for potential M&A deal
CONFIDENTIAL 26
•Added operational complexity despite alliance managers
•Negative impact on access to other potential partners/customer if they consider them as competitors
•At the mercy of changing strategic directives from Licensor
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Competition for capital within Pharma
CONFIDENTIAL 27
CEO’s/KOL PET projects Hype factor
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Take away messages
• The increasing complexity of clinical trials is increasing capital needs for young companies
• The battle for capital has become more fragmented and more competitive since 2008 – sizeable round needs international funds
• Success (and failure) have always been associated (next to the business plan itself)
with• Presence or not of a committed and experienced Anchor Investor/Champion
• Right expectation on valuation/price setting – win/win
• Your fundamental understanding of the funding dynamics on the investor side
• Right management team
• Persistency
CONFIDENTIAL 28
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CONFIDENTIAL 29
Source: Innovothink Center, Thomson Reuters, Forbes, Factset Research Systems; all pharma data corrected for 2012 dollars. Spending/drug = total R&D spend 1997-2011 / # total drug approvals during same period.
$B/Drug
31 US Biotechs
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CONFIDENTIAL 30