In a previous BioVox article, we analyzed the steps needed for a life sciences start-up to turn into a fully integrated, commercial stage biotech company. For this to happen, the hurdles that need to be overcome include: the development of a first-in-class disruptive medicinal product (preferably backed up by a pipeline of runner up products), the ability to gather ample financial means, and savvy tactics for avoiding acquisition along the journey. We now ask the question: why does the pharmaceutical sector – in comparison to many other industries – provide such fertile ground for start-up companies to succeed.
In many industries it is extremely rare for start-up companies to make it to the top of the food chain. Although the automotive sector has seen the rise of Tesla, very few other new companies manage to compete with established brands. Even for Tesla, the jury is still out on their success: despite 15 years in business, the iconic electric car company is now teetering at the brink of profitability. Similarly, in the food industry, small companies can occasionally become successful in specific niches or within local market boundaries, but most eventually end up as just another brand of one of the food giants.
In clear juxtaposition to these examples, the list of Top-25 pharmaceutical companies includes four companies created less than 40 years ago (Gilead, Amgen, Celgene and Biogen), with other up-and-coming enterprises steadily climbing the ranks. These relatively new companies are currently generating several billion dollars of free cash flow and are unlikely to be dethroned any time soon. So, let’s have a look at the key extrinsic factors that enable this upward mobility for newcomers in the pharmaceutical industry.
Ring-fencing early R&D assets
The discovery process in the pharmaceutical industry typically results in drug candidates with novel chemical compositions. A novel molecular entity is highly amenable to a ‘composition of matter’ patent claim, which provides the highest tier of protection in patent world. In other industries, patented inventions tend to rely on ‘method claims’ or ‘use claims’, which are much easier to circumvent. As the method and use claims are harder to monitor and enforce, they leave small innovative players vulnerable to copycats with deeper pockets. Composition of matter claims provide pharmaceutical start-ups with better control over their assets than small companies in other industries.
In the pharma business, a small company with a well-protected drug candidate stands a good chance to keep large companies at bay. Additionally, the notoriously high costs and long timelines of drug development actually work to the advantage of small innovative companies: other companies are reluctant to spend billions of euros to develop a drug if they run the risk of coming too late in the race to commercialization.
With a little help from the service providers
A young biotech company can often stay lean and capital efficient, throughout the process of bringing a first-in-class drug to the market, by outsourcing certain tasks to sophisticated fee-for-service providers. What’s more: the drug developer often stays in control of subsequent commercialization of a new product, despite the involvement of other larger players along the road. This is because, in the pharma business, the protected innovation itself, i.e. the novel drug substance, determines the final manufactured product.
In many other industries this is not the case; a disruptive invention in any given car component, for example, rarely results in anything more than an incremental improvement of the car itself. It therefore does not provide strong leverage for a small innovative company against established car manufacturers.
First-mover advantage
A small biotech company that gets market approval for its first-in-class transformative drug, can reap the benefit of the first-mover advantage. This situation occurs in many industries, but it is particularly striking in the pharma business. First-in-class drugs build the largest dataset of documented efficacy, which builds trust at the doctor’s office.
Additionally, the time between market introduction of a first-in-class drug and expiry of the corresponding patent usually lasts no longer than ten years. Expiry of the key patent often coincides with a dramatic price drop, as generic drugs move onto the scene. Because of this, the ‘first-mover’ company can take advantage of the longest high-margin commercialization period, while the secondary players have less time and smaller market shares to recover their high development costs.
Juicy gross margins
An ambitious runner-up biotech company, wishing to control the commercialization of its transformative drug, will get tailwind from the extraordinarily high gross margins common in the pharmaceutical sector. These margins, typically in the 70-90% range due to premium pricing, is possible when the innovative drug brings life-changing value to the patient in need. The high margins allow a midsize company to set up its own salesforce and generate significant cash flow, even if the company initially sells only one product. That ultimate step is a hugely challenging feat, yet not impossible in the pharmaceutical sector; in other, lower margin, industries it is often an insurmountable obstacle.
Willem Broekaert, managing partner at V-Bio Ventures, concludes: “Recent history has taught us that once-small companies can become mega-companies in the pharmaceutical sector, due to a combination of industry-specific factors. These extrinsic factors allow for high fences at the R&D stage (strong patents, lengthy and costly R&D process), as well as relatively low barriers to market entry at the commercial stage (first mover advantage, high gross margins, outsourced manufacturing). In more traditional industries, the reverse situation is more typically the case, hampering upward mobility of newcomers.”
15 November 2018, Ghent (Belgium) – V-Bio Ventures leads Camel-IDS EUR 37m Series A financing to develop cancer targeted radiopharmaceuticals
Camel-IDS, a VUB spin-off company developing cancer-targeted radiopharmaceuticals, today secured EUR 37m in a Series A investment round led by V-Bio Ventures (Belgium) and Gimv (Belgium), joined by the co-lead investors HealthCap (Sweden), Novo Seeds (Denmark), Pontifax (Israel) and BioMedPartners (Switzerland). Existing investors also participated. The proceeds will enable Camel- IDS to run a phase Ib/II trial with its lead program CAM-H2 targeting HER2-positive brain metastatic breast cancer, while further progressing and broadening its preclinical pipeline.
Breast cancer patients with tumors that overexpress HER2, a growth-promoting protein, can benefit from effective targeted treatments today, yet have a poor prognosis when the cancer progresses towards the brain. Camel-IDS’ lead program CAM-H2 aims to effectively irradiate brain lesions while sparing healthy tissue, based on its unique technology platform that leverages the favorable tissue distribution of camelid derived single domain antibodies linked to radionuclides. The company’s technology platform also allows for a theranostic approach, where patients can be selected using a low dose/imaging version of the product, followed by a high therapeutic dose for treatment.
In connection with the financing Christina Takke from V-Bio, Karl Naegler from Gimv, Mårten Steen from HealthCap, Morten Graugaard Døssing from Novo Seeds and Ohad Hammer from Pontifax will join the board of directors.
Ruth Devenyns, CEO of Camel-IDS comments: ‘The successful financing underscores the potential of our innovative technology and product pipeline. We are grateful for the continued support from our existing shareholders and look forward to welcoming the new international investor syndicate that has extensive experience in leveraging platform technologies to develop multi-product opportunities.’
Tony Lahoutte, CSO and co-founder complements: ‘Brain metastases in breast cancer are devastating for patients and difficult to treat. The lead program at Camel-IDS is focused on the development of a new treatment option for this condition. We are heartened by the strong interest of the investors that will enable us to bring this treatment to the patients.’
Christina Takke, Managing Partner at V-Bio Ventures, comments: ‘The successful fundraise for Camel- IDS is testament to the investors’ appetite for excellent science and technology. This funding round will accelerate innovation that can make a difference to patients. We are excited to be part of this journey.’
About Camel-IDS
Camel-IDS (www.camel-ids.com), incorporated in 2014 as a spin-off company of Vrije Universiteit Brussel (VUB), develops novel radiopharmaceuticals, using camelid single domain antibody fragments (sdAb) labeled with radioisotopes. The company’s lead product CAM-H2, a new treatment option in HER2-positive cancers, is in early clinical development. The pipeline further consists of two pre-clinical programs leveraging the technology strengths. Camel-IDS has received seed funding from the Fournier-Majoie Foundation and three seed investors, complemented with non-dilutive funding from Innoviris.
About V-Bio Ventures
V-Bio Ventures (www.v-bio.ventures) is an independent venture capital firm specialized in building and financing young, innovative life science companies. V-Bio Ventures was established in 2015 and works closely with Belgium-based VIB, one of the world’s premier life science institutes. The fund invests throughout Europe in start-up and early-stage companies with high growth potential focusing on technologies that provide transformational improvements in the biopharmaceutical, pharmaceutical, diagnostics and agricultural sectors. V-Bio Ventures’ investment in Camel-IDS is supported by InnovFin Equity, with the financial backing of the European Union under Horizon 2020 Financial Instruments and the European Fund for Strategic Investments (“EFSI”).
Authored by Willem Broekaert from V-Bio Ventures
In biotech, company creation is usually preceded by scientific discoveries presenting solutions to existing problems. Because of this, early stage VC investment is, at its core, a science-driven activity. However, scientific innovation is not always applauded by all ranks of society. There is a growing anti-science sentiment among certain societal groups, opposing or denying the likes of climate change, evolution, vaccines, and GM crops. As investors, VC firms must take into account not only the scientific validity of the technology they support, but also multiple other factors. Do anti-science sentiments affect decision making in the field of biotech investments?
Who are these anti-scientists?
Anti-science is not a new concept; it is a position that has been around ever since the scientific method was first described. At its core, it is a rejection of the scientific method on the basis that it is untrustworthy, due to constant revisiting over time, and that the world is too complex to be grasped by human reason. Anti-science is not about rebutting areas of scientific uncertainty, but rather about intentionally excluding science-based arguments in favor of irrational or sometimes fictitious ones. This being said, most anti-scientists are not anti-science across the board: they tend to be selective in their beliefs.
Anti-science sentiments are often a shield used to counter an idea that undermines someone’s pre-conceived and deep-seated beliefs. For instance, a person who feels that all-natural things are pure and benign may be more likely than the average person to oppose genetic modification. Nonetheless, that same person might well despise climate change negationists for dismissing overwhelming scientific evidence on global warming. Although anti-scientists are often quite isolated, there are cases where particular movements have gained enough momentum to influence popular opinion and even legislation. Because of this, anti-science beliefs cannot be taken lightly.
VCs must remain vigilant for irrational anti-science positions and contribute to the public debate wherever possible. – Willem Broekaert, V-Bio Ventures
Anti-science in action
In the life sciences, there are two current topics particularly susceptible to anti-science sentiments. The first is the topic of vaccinations, where there is a small yet growing group of people refusing to be vaccinated or to have their children vaccinated. ‘Anti-vaxxers’ are a mixed group driven by diverse motives, ranging from religious convictions to a distrust for ‘unnatural’ substances over pharma industry conspiracy beliefs, but their influence has resulted in serious societal impacts and even political influence.
The current Italian populist government has, for example, recently suspended a law that made it obligatory to vaccinate children against common infectious diseases. A few decades ago, measles had been largely eliminated in the US. Then, just last year, there were 58 confirmed cases of measles in Minnesota; the largest outbreak the state had seen in 30 years. This disease resurgence can, according to researchers, be directly attributed to people who were not vaccinated. In the US, like in several other regions in the world, vaccination rates have been declining as a direct result of the anti-vax movement. As the success of a vaccination campaign depends on treating at least 95% of the target population to achieve so-called herd immunity, this means anti-science sentiments are threatening us all.
VCs must act responsibly with respect to invested money and cannot totally ignore regulatory roadblocks or societal acceptance issues, which may lead them occasionally to put the brake on. – Willem Broekaert, V-Bio Ventures
Another example of a popular anti-science topic is genetic modification, particularly in relation to GM crops. It is widely acknowledged that GM crops have an impeccable safety record. Nonetheless, in Europe, anti-scientists seem to have successfully influenced public opinion, politicians and regulatory bodies into upholding strict GM regulations. The EU legislation on GM is so stringent that only one GM crop, a type of insect-resistant maize, is currently being grown in Europe. The only way forward is now for a completely new tailored legislation to be drawn up. This will however, at best, take years of time and effort, potentially leading investors to take a more conservative stance when faced with funding a company based on GM technology.
The impact on VC decisions
So do anti-science positions have an impact on VC investment decisions? The answer varies, depending on the topic in question. In the context of the vaccine example, the anti-vaxxer campaigns have so far had very little impact on the amount of VC money invested in the development of new vaccines. Despite the misinformation spread by anti-vaxxers, most individuals remain convinced of vaccination benefits. With few exceptions, most politicians, regulators and healthcare organizations have been putting the efficacy data first. We must however remain watchful. The situation is unfortunately very different for genetic modification in plants. The recent ruling in Europe with respect to gene edited crops, putting them on the same regulatory footing as GM crops, is likely to significantly turn the European VC tap for new investments in this area. For situations such as this, VCs do exhibit some necessary precaution when considering their investments.
Willem Broekaert, managing partner at V-Bio Ventures, concludes: “As a vital part of society, VCs must remain vigilant for irrational anti-science positions and contribute to the public debate wherever possible. On the other hand, VCs must act responsibly with respect to invested money and cannot totally ignore regulatory roadblocks or societal acceptance issues, which may lead them occasionally to put the brake on. However, we believe that these cases should remain highly exceptional and open for revisiting in due course.“
Lowering the costs of drug development is more important than ever; with the increasing pressure on drug pricing and billions in funding poured into small biotechs, competition is fierce. While the latest reports have estimated the cost to bring a single drug onto the market at $ 2.7B, a look at the R&D expenditure of big pharmaceutical companies, and the numbers of their approved drugs, implies that even this estimation is pretty optimistic. Optimising clinical trials is key to solving these issues, as they count for over 80% of the costs of drug development.
“The amount of wasted resources in traditional clinical trials is staggering. From underperforming sites, to screening failures and patient drop-outs; all end up causing trial delays and an enormous increase in cost. This means that there are great opportunities for innovation” – Tarek Roustom, V-Bio Ventures
The early bird that went hungry: Pfizer and the REMOTE trial
In recent years, pharmaceutical companies have showed an increased interest adding more agility and efficiency to clinical trials by bringing the trial to the patient. Back in 2011, Pfizer courageously initiated their ambitious REMOTE trial: the first randomized clinical trial where patients could participate entirely from home. Using a string of technological tools, Pfizer aimed to conduct all aspects of the trials remotely: patient recruitment, screening, identity verification, consent signing, drug delivery and data reporting. Realizing that their expectations were too lofty, Pfizer halted the trial in 2012 due to a lack of participants.
Picking up where Pfizer left off
Taking the lessons of the Pfizer trial into account, a growing number of start-ups, CROs, and big enterprises have continued down this path; they have developed tools to enable the success of the ‘site-less’ clinical trial model. Most of these companies are offering specialized technical products designed to tackle one aspect of the trial at a time. However, some companies like Medidata, ClinPal, Medable etc. are offering more holistic platforms that cover the trials from start to finish: from patient recruitment, education and screening, to site management and data collection. Their mobile platforms decrease the number of patient travels to the clinical trial site, while facilitating the collection of reliable and structured electronic datapoints. However, not all indications are amenable for remote trials without any involvement of medically trained staff.
Companies who manage to integrate the latest technology and regulatory requirements into a patient-oriented platform are likely to attract keen attention from pharma industry and life science investors alike. – Tarek Roustom, V-Bio Ventures
Some companies, like Science 37, are offering fully site-less clinical trials even for those indications requiring physical interaction with patients. They do this by combining a fully-fledged mobile platform with telemedicine and home visits by nurses. With over $70Mil in funding, the 4-year-old start-up Science 37 has succeeded in setting up collaborations with Novartis, Sanofi and UCB, to run a number of home-based trials in various indications including neuroscience, dermatology and even oncology.
The benefits of a remote trial
While some may argue that the expense of sending nurses to patients’ homes, and having doctors available for telemedicine consultations, will not lead to lower trial costs, remote trials provide many other advantages that nonetheless result in huge savings for the pharma sponsor. A remote trial model significantly improves convenience for participating patients and, therefore, increases the number of potential study participants. This speeds up the recruitment process and ultimately shortens the duration of the clinical trial itself. Furthermore, remote trials provide a more diverse and representative patient population, and improve patient compliance and retention, which has been a major factor for trial delays and failures worldwide.
The rise of digital biomarkers and passive monitoring
The amount of wasted resources in traditional clinical trials is staggering… there are great opportunities for innovation. – Tarek Roustom, V-Bio Ventures
In the pursuit of innovating clinical trial efficiency, the increasing usage of consumer wearables and tracking apps offers an unprecedented opportunity to obtain relevant data passively, continuously and at low cost. This sort of electronic monitoring is particularly valuable in medical conditions that tend to fluctuate throughout the day, like many neurological and cardiological disorders. This trend has triggered a rise in start-ups developing digital biomarkers. The hope is that this new technology will some day change the way we conduct trials and monitor efficacy of experimental drugs.
Tarek Roustom, MD and Junior Analyst at V-Bio Ventures, says: “The growing acceptance of telemedicine combined with the advancements in medical devices and wearables have the potential to make clinical trials cheaper, faster and much more convenient for patients. The space is far from mature yet and many start-up companies are all trying to build a customer base. Those companies who manage to integrate the latest technology and regulatory requirements into a patient-oriented platform are likely to attract keen attention from pharma industry and life science investors alike.”
Ghent (Belgium), September 18th, 2018 – The Belgian life sciences venture fund V-Bio Ventures (www.v-bio.ventures) today announces that it joins the “Series B” financing round of Horama (www.horama.fr). Horama is a French biotech company based in Paris and Nantes, which specialises in gene therapy for the treatment of rare genetic diseases in ophthalmology. Willem Broekaert, Managing Partner at V-Bio Ventures, will be appointed to the Horama Board.
This completes the “Series B” fundraising of Horama, which was initiated in October 2017 through participation of 4 new investors (Kurma Partners, Fund+, Pontifax; and Idinvest), joined by the company’s historical investors (Omnes Capital, GO Capital, and Sham Innovation Santé/Turenne). In all, Horama has raised a total of 22.5 million euros in its “Series B” financing round.
This fundraising will mainly support the development of Horama’s lead program, HORA-PDE6B. HORA-PDE6B is a drug candidate for the treatment of retinitis pigmentosa caused by mutations in the PDE6B gene. This gene replacement therapy provides a non-mutated copy of the PDE6B gene to express a functional PDE6β protein. There is today no treatment for retinitis pigmentosa. HORA-PDE6B is currently undergoing a Phase I/II clinical study which was started in November 2017.
Horama also has in its portfolio HORA-RLPB1, a gene therapy product aimed at treating RLBP1-based retinal dystrophy, which is currently in preclinical phase, as well as other preclinical gene therapy programs.
For Christine Placet, CEO, and Russell Greig, Chairman of Horama: “We are delighted to welcome V-Bio Ventures among Horama’s investors. This new financial partner takes part in our ambition and commitment to develop innovative treatments for rare ocular diseases. Their trust and support, illustrated by this fundraising, will be another lever allowing us to speed up our development of new treatments for patients, such as HORA-PDE6B for treating retinitis pigmentosa.”
“Horama’s solid scientific data package combined with its goal-oriented approach and highly experienced management team, attracted us to this investment opportunity,” says Willem Broekaert, Co-Founder and Managing Partner of V-Bio Ventures. ” New gene therapy treatments in the ophthalmic field hold a lot of promise for patients with visual impairment, and we are delighted to help Horama reach its ambitious goals in this field.”
–Ends–
About V-Bio Ventures
V-Bio Ventures (www.v-bio.ventures) is an independent venture capital firm specialized in building and financing young, innovative life science companies. V-Bio Ventures was established in 2015 and works closely with Belgium-based VIB, one of the world’s premier life science institutes. The fund invests throughout Europe in start-up and early-stage companies with high growth potential focusing on technologies that provide transformational improvements in the biopharmaceutical, pharmaceutical, diagnostics and agricultural sectors.
About Horama
Horama (www.horama.fr) is a clinical-stage biotech company that develops gene-therapy treatments, based on recombinant adeno-associated virus (rAAV) vectors, targeting rare inherited retinal diseases. Horama was founded in 2014 by a team of academic researchers who conducted, in 2011, one of the first clinical trials of gene therapy applied to ophthalmology in France.
About HORA-PDE6B
HORA-PDE6B is a recombinant adeno-associated viral (rAAV) vector developed for the treatment of retinitis pigmentosa due to a mutation in the PDE6B gene. This gene replacement therapy provides an unmutated copy of the human PDE6B gene to replace the defective gene, in order to induce the expression of a functional PDE6β protein in the rod outer segment. HORA-PDE6B is administered as a sterile suspension of viral particles, injected directly into the subretinal space. This triggers the expression of the transgene in the rods as well as in the cones.
Contacts:
V-Bio Ventures
willem.broekaert@v-bio.ventures
Horama
Christine Placet
c.placet@horama.fr
Press: ALIZE RP
Caroline Carmagnol / Aurore Gangloff / Elise Guyot
Tel: +33 (0)1 44 54 36 66
horama@alizerp.com
“Is aging a disease?”
For a long time, the answer to this question seemed obvious: aging is a natural thing that happens to all of us. It is an inevitable side-effect of growing older. However, with new insights into the processes underlying many chronic diseases and aging, the answer is seeming less clear and researchers are starting to challenge this long-held view.
Tales of the Fountain of Youth have sparked the imagination of mankind for thousands of years, but now it appears as if the dream could become true. Well, at least partially. The aim these days isn’t on eternal life, but rather prolonging our “health spans”: the years of healthy, disease-free living before the effects of old age set in. Who wouldn’t want to live into their late 80s or 90s without any age-related ailments like type 2 diabetes, osteoporosis, or various forms of cancers? Aging and longevity; until recently these were topics that mainly concerned the cosmetic industry and quacks, yet they are now becoming hot topics in the scientific community and biotech industry as well.
Zombie cells
David Sinclair, co-director of the Paul F. Glenn Center for the Biology of Aging at Harvard Medical School, puts it as such: “The only difference [between aging and disease] in medical textbooks is that: if the majority of people get an age-associated disorder, we call it aging. If less than half of people get something over time: it’s a disease.
While some might be very skeptical and concerned about this ‘attack on aging’, from a scientific and medical point of view it makes a lot of sense.
Disease or not, aging is a highly relevant and independent risk factor for the onset of several chronic diseases in later life-stages. Part of what’s fueling the shifting perception of aging is the identification and characterization of so-called senescent cells. Normally, damaged cells and ill-functioning cells are eliminated by cell death known as apoptosis. However, some cells “zombify” instead of dying, turning into cells that do not proliferate, or fulfil any useful tasks. These senescent cells are persisting in the body and secreting inflammatory compounds which disrupt the functions of healthy cells adjacent to them, thereby contributing to the development of chronic diseases. Studies have shown that the elimination of these senescent cells with “senolytics” (compounds that induces cell death in those zombie cell) not only increase the lifespan but also the health-span of old mice. The process also works in reverse: by injecting a small portion of artificially aged “Methuselah” cells into young mice, you can make the animals slower, weaker and frailer within two weeks’ time.
While some might be very skeptical and concerned about this ‘attack on aging’, from a scientific and medical point of view it makes a lot of sense. It would, for example, be hard to explain why it´s fine to remove precancerous cells, but not senescent cells, from an ailing patient. The difference seems to be purely philosophical.
Miracle pills
Recent long-term studies on type 2 diabetes patients taking metformin (a drug launched in 1957 for the treatment of diabetes) have revealed some very unexpected outcomes. Diabetics taking metformin tend to be healthier, in many ways, compared to diabetics taking other medications: they live longer; have fewer cardiovascular events; and in at least some studies, they were less likely to suffer from dementia and Alzheimer’s Disease. However, the most shocking result was in relation to cancer.: metformin patients seemed to get cancer far less frequently, 25 to 40 percent less often, than diabetics taking two other popular medications. Furthermore, when they did get cancer, they tended to outlive diabetics with cancer who were taking other diabetes drugs. Even more astoundingly, metformin takers did not only outlive diabetic patients taking a different drug, but also outlived the nondiabetic control patients.
Would these drugs be covered by healthcare agencies, or would they create a divide between those who can afford ‘buying’ a longer, healthy life and those that simply can’t?
So far, the FDA and other regulatory agencies do not accept age as a disease, so there will be no clinical trials dedicated to preventing aging anytime soon. Nonetheless, the FDA is willing to allow testing of existing drugs as a prevention against various age-related ailments; a few studies are already underway to test if drugs approved for other indications could be repurposed.
A new age?
Repurposing old, extensively studied drugs might be a low cost and risk endeavor, but as they are already available as cheap generics there is hardly any interest from pharma companies to revive these medications for new indications. Still, there are now several start-up companies focusing on the development of novel ‘anti-aging’ drugs and treatments, which will come with a hefty premium price. The most prominent and secretive company is probably Calico (backed by Googles Alphabet), but there are also many others, with promising names like Human Longevity, Elysium, Unity, Gero, Navitor Pharmaceuticals or Genescient. These companies are trying everything from identifying longevity genes, to selectively targeting potentially beneficial pathways, administering stem cells and even infusing people with ‘young’ blood.
There are still many open questions left unanswered: Do we all want to ‘pop a pill’ every day protect ourselves from aging? Would such a pill actually have the opposite effect on the health of many people, by encouraging them to skip healthy habits (counting on the drug to do the job)? Would it lead to a reduction in healthcare costs, or would the costs explode? Would these drugs be covered by healthcare agencies, or would they create a divide between those who can afford ‘buying’ a longer, healthy life and those that simply can’t? How would we determine who should take which of these miracle drugs and can the planet bear even more healthy, active, consuming humans?
One thing is for sure: it will be a (life)long experiment, but the studies have already begun. The launch of every new “anti-aging” company indicates that VCs are starting to believe that this concept is more than just a wild dream. Only time will tell if this is indeed the dawning of a new age.
References
https://www.seeker.com/health/biotech/life-extending-discovery-renews-debate-over-aging-as-a-disease
https://www.wired.com/story/this-pill-promises-to-extend-life-for-a-nickel-a-pop
The ambition of any CEO heading a biotech start-up is to develop a new product and to reach patients quickly. However, drug development comes with long development timelines, making Biotech a capital-intensive business. Very early, these biotech entrepreneurs are confronted with the need to talk to and convince Venture Capitalists to finance the development of these new inventions, as no-one else wants to invest in these high-risk endeavours. At this moment, attracting grant money can make a big difference to the Biotech company, but also to the ecosystem at large.
It goes without saying that the Belgian funding environment is exceptionally well organized, by both European and international standards. Our in-depth sector expertise, coupled with a deep understanding of the science supporting new innovations, makes the grant application process in Belgium one of the best in the world.
We see an increasing stream of companies trying to profit from these opportunities by moving part, or all, of their business to Belgium. Many successful companies have profited from these schemes in the past and will continue to do so going forward. Changes in the public granting scheme, announced beginning of 2018, have simply added to the excellence of the system: by simplifying the public granting scheme, it has become very clear that the government has recognised the importance of entrepreneurship. A presentation held on February 8th, 2018 by Luc De Buyser, Agency for Innovation and Entrepreneurship (VLAIO), (https://www.youtube.com/watch?v=byxAibIbg_4) clearly highlighted the intention of the Flemish government to support early-stage companies and projects, enabling these new ventures to positively impact the Flemish economy.
Not all sunshine and roses
Although the Belgian grant system is clearly superb, biotech companies still need to overcome significant barriers to gain access to available funding. Obtaining a grant is most vital at the early stages of a Biotechs existence, when other funding is not (yet) available. This is the moment when such grants could have its biggest impact not only for the Biotech company itself, but also the entire biotech ecosystem in the region.
We should strive to align the evaluation criteria for public funding with the market practise in biotech and the needs of a young biotech company navigating through the most difficult phase of their life. – Christina Takke, V-BioVentures
Being in the business of identifying and investing in early-stage biotech companies, we have seen many successful applications for grant funding. Unfortunately, we have also seen many grant applications get declined, for reasons that are not linked to the quality of the projects but are of more administrative nature: the three main reasons we have chosen to outline below:
1) We see the interesting aspects of your invention or plan, but there is no evidence of sufficient FTE growth.
2) Your company might be bought in a few years and, therefore, your long-term contribution to the ecosystem could be jeopardised.
3) We see that your net assets have dropped to 50% of your share capital and, therefore, we consider your company as a company in distress.
Three suggestions of reasoning we believe can be used to overcome these issues are:
1) Especially in Europe, money to finance such businesses is still very scarce. Entrepreneurs have to keep a fine balance between fixed and variable cost in their business plans. Many companies have to stay lean and mean and outsource many of the tasks in the early years; they are only able to slowly increase the fixed cost by enlarging the R&D team if and when the future looks more predictable (if this can be said at all in Biotech). A business model built on a very capital efficient strategy, comprising a larger number of outsourced activities, indeed results in a lower number of internal FTEs. However, the outsourcing models might in the end increase the number of employees at such service providers and still have a beneficial effect on the larger ecosystem.
2) A potential acquisition of a company or program, by a partner with larger financial resources, is in many cases an essential step to product approval and market launch. It is therefore essential to making our innovation available to the patient. Furthermore, acquisitions free up talent and generate wealth that can be deployed again in the ecosystem to accelerate further economic growth, which is of prime interest of the governmental granting bodies.
3) Many biotech companies, especially successful ones, have strong ties to reputed research institutes; they will access the innovation by acquiring intellectual property through the sale of equity. This, together with the milestone-based financing of young companies, puts pressure on the net asset to share capital ratio, but does not necessarily mean that the company is in distress.
If you want to grow flowers, you have to plants seeds
At V-Bio, we believe that there are many elements that have to come together if we are to maintain and strengthen the biotech ecosystem in Belgium. In one of our earlier publications (LINK: Acquisitions of Biotech companies: a good or a bad thing?), we addressed the question: what are the downstream effects to the ecosystem of a biotech acquisition? In a capital-intensive environment, such as biotech drug development, grant financing alone will probably never be sufficient to make a measurable contribution to the ecosystem. However, in combination with funding from sector savvy investors, grants for young biotech companies can have a significant impact.
Efforts to develop and apply sector specific evaluation criteria for public grant funding, might help to better select eligible biotech companies for approval. Christina Takke, Managing Partner of V-Bio Ventures, is of the opinion that: “We should strive to align the evaluation criteria for public funding with the market practise in biotech and the needs of a young biotech company navigating through the most difficult phase of their life.”
While the immediate impact of a young biotech might not be overwhelming, the long-term positive impacts of such endeavours have been demonstrated in Belgium time and time again. For patients, the healthcare system, and for the creation of wealth and capital flow to the region, we feel that biotech start-ups should be maximally supported.
When on the 8th January 2018 the news travelled that Novo Nordisk made a €2.6bn bid for Belgium’s Ablynx, only to be leapfrogged a few weeks later by the € 3.9bn Sanofi bid, we immediately pictured the next newspaper header: “Belgium loses another crown jewel”. Quite predictably, such a take-over of a biotech company by a larger entity, especially when originating from another country, is framed in the press as a highly deplorable event: “We lose know how, we lose all the money that has been invested. This acquisition is only in the best interest of a few shareholders; investors always want the quick buck instead of patiently growing the value of the company”.
Where does this negative sentiment have its origins, and is it always justified?
Setting the right expectations
The first question to be asked is whether it is a realistic expectation that all biotech companies can and should stay independent. In our last article ‘How to build a European Amgen’ we described how many hurdles a start-up biotech must overcome to reach that ultimate stage: to become an independent, stand-alone megacap biotech company. These hurdles are pretty high; it takes an exceptional CEO, best-in-class technology, a huge amount of capital, and favourable market conditions to reach this goal. In addition, talent and capital are scarce and competition for these limited resources is fierce. This all explains why, out of the thousands of biotech start-up companies, only a handful become the proverbial next Amgen. It also explains why only the larger markets can generate multiple Amgens.
Is the single and ultimate goal the creation of Amgens?
The creation of an independent, self-sufficient biotech company is a highly desirable event in all aspects and it deserves every reasonable support. Such companies create high-quality diversified employment, provide on-the-job training opportunities, generate income for service companies in the ecosystem, generate tax revenues for the government, etc. However, it seems that everybody (the general audience, the public funding bodies, the journalists) see only the next Amgen as a success and everything else as a failure. Given the scarcity of those independent companies, it would mean that more than 99% of the biotech companies are to be seen as a failure. This is where we vehemently disagree with current sentiments.
Don’t demonise the next acquisition of a biotech but celebrate the success. Every acquisition shows that created value has been recognised and allows talent and capital to replenish the ecosystem. – Christina Takke, V-Bio Ventures
Is the acquisition of a Biotech company necessarily a bad thing?
To answer this question, we should take a broader look at the ecosystem level. Biotech companies in an industrial ecosystem are like trees in a forest. Logging a tree can contribute to the sustainability of the forest in which it grew, as long as it is done according to sound forestry management principles. A cut-down tree is a source of wood for making nice furniture and it leaves a glade in the forest allowing seedlings to grow. Similarly, the acquisition of a biotech company is a source of new opportunities and contributes to various aspects of a successful environment: circulation of talent, circulation of capital and creation of wealth.
Circulation of talent
People with a start-up and entrepreneurial mentality often don’t fit into a larger, less flexible organisation. After the acquisition of a small biotech company by a larger entity, these talented people will eventually leave and look for new opportunities or identify and create new opportunities. The valuable experience these individuals have gathered in their previous jobs, and their extensive networks, will be crucial to the success of the next start-up company. Circulating talent helps the next generation of biotech companies to grow; many of the most successful US biotechs are founded by biotech veterans.
Circulation of capital
Biotech start-ups are financed to a large extent by venture capitals, often alongside public grant money. VCs know the nature of this high-risk game and are prepared for cases where an audacious yet sound scientific idea does not pan out and the investment goes down the drain. At the same time, they cherish the acquisition of a company in which they invested, which brings them a return on their investment. In the long run, success of the financial backers of a biotech company allows them to raise new capital and use it to support new start-up companies, letting new seedlings grow in the forest.
Creation of wealth
People at key positions in biotech companies often gain personal wealth in the case of a take-over, e.g. through monetization of stock options. Although European biotech rarely generates billionaires, the gained personal wealth is often sufficient to give individuals the independence to follow their passion and search for the next invention/technology they want to engage with. Perhaps invest in as well. The ecosystem can profit from recycling both talent and capital.
All these above factors have two things in common: they get accelerated when small/ medium size companies are acquired and they all contribute to the thriving of the ecosystem as a whole.
We need to be bold and dare to create large companies, supported by the new generation of crossover funds starting to appear in Europe. We also need to appreciate the crucial importance of acquisitions of smaller biotech companies, supported by public (grant) funding and venture capital, in stimulating the growth and success of an ecosystem.
Christina Takke, Founder and Managing Partner of V-Bio Ventures: “Don’t demonise the next acquisition of a biotech but celebrate the success. Every acquisition shows that created value has been recognised and allows talent and capital to replenish the ecosystem.”
There are still very few large European biotech companies to compete with the Amgens and Gileads of the world. Only a handful of European biotech companies have managed to stay independent, grow, develop a drug and commercialize it successfully. In this article we will try to analyse what tricks an ambitious CEO of a life sciences start-up needs to build a fully integrated, commercial stage biotech company. To illustrate the point, we picked some examples from the Belgian biotech landscape.
Let us start with a recent example: the takeover of Ablynx by Sanofi. Voices have arisen saying too many early stage biotech companies get taken over by pharmaceutical companies before they have a chance to flourish and become profitable. Let’s examine how you, as a CEO, can get your start-up company to reach the top of the food chain, before losing control to a larger entity. How do we build a “European Amgen”?
The life cycle of a typical biotech company goes from a founder/scientist with a great idea, to a small start-up with a few employees, to larger companies with several hundred employees and finally ends with a large vertically integrated biopharmaceutical company with its own products and sales force. To beat this obstacle course, they will have raised several hundred million Euro at various stages. We have summarised these main four hurdles for you:
Read more about the dynamics that push pharmaceutical companies towards acquiring innovative drugs to fill their portfolio, to diversify and remain profitable here.
Hurdle 1: From start-up to billion-dollar company
At first, a seed or series A round of a few million euros by a small group of VCs can get you started. However, that money rarely gets you beyond the preclinical research stage. To get a drug into a clinical study, which may give you safety data and some indication of activity, will likely cost around 10 million euros. To get to the true value inflection point (i.e. a randomized, proof-of-concept, phase 2 trial in patients), you will need more cash, ranging from 20 to 50 million euros. For a phase 3 study, where you test in large patient populations, you need 100 to 500 million euros.
Where can you get financing like this? Not many European VCs have the means of funding a company that is raising more than 50 million euros, although their numbers are growing steadily. Most often, biotech CEOs look to pharmaceutical companies to finance their growth. A licensing deal with upfront cash and milestone payments can help you get to that next point. Still, the earlier the developmental stage of your drug, the lower the amounts will be, so don’t partner too soon.
Many roads lead to Rome, but some are taken more often than others. Either way it will take hard work, a lot of money, great people and a pipeline of good ideas to get there. – Ward Capoen
The money can take you to a point where you can get better deals for other drugs in the pipeline, or you can take them all the way yourself. Inevitably, licensing your key drug will transfer significant value to the licensee, and a small biotech will sacrifice significant value to remain independent. Yet if you have a long-term plan to stay independent, is that necessarily a bad thing? Recent examples here are: Galapagos, that received $725 million from Gilead with Phase2b data in hand, and Argenx, who out-licensed a pre-clinical anti-GARP antibody to AbbVie for $40 million (note the different economics for a more derisked drug).
To become a company like Amgen you need a pipeline with many drugs, ideally including a drug that has made it to the market and generates top line revenues. Financing should be sufficient to also take your other programs a step further.
Hurdle 2: Fighting off the vultures?
When you have developed your flagship product without a partner (e.g. by raising money from deep pocketed US investors, or via public markets), you are in some ways more vulnerable for a takeover. Why? Because most of the value is in the flagship product and so it’s there for the taking. This was the basis of Novo Nordisk’s bid for Ablynx, which had an unpartnered asset about to hit the market. Sanofi outbid Novo because it saw additional value in the platform technology. Similarly, Ogeda, after showing Phase 2 data for their main drug, was acquired by Astellas for well over 500 million Euro.
Hurdle 3: Keep your shareholders happy with an IPO?
So you’re halfway there, but your first investors are getting to the end of their shelf life? Most VCs have funds with a finite time horizon and need an exit. This usually means selling the company, lock, stock and barrel, to return the money to their own investors.
There are many hurdles along the way, but if it was easy we’d already have more Amgens around. – Ward Capoen
Of course, this clashes with your vision of a large independent biotech. So, you need to provide your investors with a profitable way out, which most often means going public. That way, investors can create liquidity for the shares they hold. Companies with a pipeline of products on the verge of showing clinical data, e.g. iTeos, are perfect IPO candidates.
Hurdle 4: Can you retain too much upside?
Suppose you have safely navigated hurdles 1, 2 and 3: you have a young, promising pipeline and plenty of money to develop your own drugs. Can this be too much of a good thing? What if you extract such great economics from your pharma partner that it becomes problematic?
Galapagos licensed their lead drug filgotinib to Gilead, retaining certain copromotion rights, billions in milestone payments and up to 30% royalties on sales. At what point does Gilead’s accounting department ring the alarm bell and suggest to the CEO to just buy Galapagos rather than pay billions in royalties?
This scenario is not as strange as it may seem and is exactly what Galapagos’ management is trying to stop from happening. You can get several large investors on board that can block any sale, or hold companies that control voting or block majorities. The downside to these poison pills is that other investors will no longer believe in M&A scenarios for your company, which may impact your stock price.
Is this the one and only formula for making a new Amgen? Probably not. According to Ward Capoen, senior analyst at V-Bio Ventures: “Many roads lead to Rome, but some are taken more often than others. Either way it will take hard work, a lot of money, great people and a pipeline of good ideas to get there. There are many hurdles along the way, but if it was easy we’d already have more Amgens around.”
In the past few years, the speed at which new drugs have been coming to the market has accelerated significantly [1]. This means there is a lot more competition than before, greatly affecting the price of drugs. Peak sales for a drug often don’t even last until the expiration date of its patent. This influences the valuation of pharma and biotech companies. In this article, we give an insight on the mechanisms affecting the changing financial landscape in the life sciences sector.
The competition is growing
When new drugs are developed, they often fall within an existing class. According to Leerink Partners [2], in 2017, 90% of the 46 approved new molecular entities (NMEs), were for indications for which medication is already on the market and 75% belonged to an pre-existing drug class. In 2017, there were in total 12 approved drugs that were first-in-class, and only 5 that were first-in indication.
First-in-indication approvals included entities such as Biomarin’s Brineura (Batten disease), Ultragenyx’ Mepsevii (mucopolysaccharidosis) and Spark Therapeutics’ gene therapy Luxturna (RPE65 mediated inherited retinal disease). First-in-class approvals included molecules such as Regeneron/Sanofi’s IL-4/13 antibody Dupixent, Celgene’s IDH-2 inhibitor Idhifa and Novartis’ CD-19 CAR-T product Kymriah. The rate of approvals of first-in-class and first-in-indication drugs has stayed fairly stable over the years. The increased number of drugs coming to market disproportionately represents follow-on drugs, either by class or by indication.
Some indications (e.g. rheumatoid arthritis, psoriasis, atopic dermatitis, etc.) experience more competition and have a more rapid turnover in the drug market. Leerink estimates that the pace of introduction in competitive indications increases by about 2 new drug options per year. This has a tremendous effect on the number of therapy options that become available over the span of a decade. Although this greatly benefits the patient, drug sales reach a plateau much faster than before, sometimes within a few years. Moreover, the sales plateau lasts less long than before, both due to reduced volumes and pricing competition from similarly efficacious drugs and due to the entry of new treatment options.
This means future and current drugs will rarely keep selling well until the patent expiration date. Drugs in competitive categories won’t command premium prices anymore, which obviously impacts valuations by management, investors and even acquirers.
Cannibalizing sales
Hepatitis C is a clear case where increasing competition for a finite group of patients and accelerating product iterations led to significant downward pressure on pricing and profitability.
Gilead brought out 4 regimens to treat hepatitis C between 2013 and 2017, each time cannibalizing its own sales. Competition came from AbbVie with Viekira Pak (2015) and Mavyret (2017) and from Merck with Zepatier (2016) [3]. These competitors drove down prices significantly. In 2014, the list price for Gilead’s hepatitis C drug Harvoni started at $94,500 (for 12 weeks of treatment) but rebates progressively got larger, up to 50% of the list price. Abbvie surprised analysts with a list price of just $26,400 (for the 8 week regimen), putting further pressure on Gilead. Gilead’s hepatitis C drug sales peaked at $19.2 billion in 2015, and are now tracking for only $3.5 to $4 billion in 2018.
Similar examples in other indications are easy to find, for instance the recent pricing battle between Praluent and Repatha, both PCSK9 inhibitors for cholesterol lowering [4].
Ward Capoen, V-Bio Ventures: “The way drug development is being valued is changing. Modelling sales figures that ramp to peak in 5 years and then assuming stable sales up to the patent cliff is no longer realistic. Products will be made obsolete so quickly that, realistically, the bulk of the value is in just a few years after launch.”
Competitive dynamics affect the valuation of pharma and biotech companies
Some companies, mostly large cap biotech companies, focus all their efforts on one class of drugs or on one particular indication. They have to rely on the sales revenue of drugs within one class, or within one disease indication, which makes them heavily dependent on what the competition is doing.
The median percentage of earnings attributed to the top single indication of biotech companies is 71% (e.g. Vertex gets 100% of earnings from cystic fibrosis medication, Gilead 63% from HIV medication, Biogen 67% from MS medication). In pharma, the median concentration from the top single indication is only 22% (e.g. GSK gets 22% from respiratory, Novartis only 9% from haematology oncology). The Leerink study shows that there is an inverse link between valuation and concentration of earnings from a single product. Why is this?
Valuations for diversified pharma are higher than for large cap biotech, which seems remarkable as biotech is perceived to be a high growth sector. It turns out that price-to-earnings (P/E) ratio for large established biotech companies such as Amgen, Gilead, Celgene, Biogen is 10% lower than that of large pharma companies such as Novartis, Pfizer, Roche, Astra, GSK, etc. This is even more obvious when looking at the P/E-to-growth (PEG) ratio: PEG ratios are better for pharma companies (median PEG 2.3) than for biotech companies (median PEG 1). Clearly, the market discounts portfolio concentration, potentially because it sees this as a threat to future profitability.
What now?
A headwind for the large integrated biotech companies, however, may be a boon for small development stage biotech companies. The increasing competitive landscape and changing dynamics will drive the market towards consolidation and diversification. Large integrated players need to defend their existing franchises and expand into new ones. And so, mergers and acquisitions will remain a driving force in the life sciences industry. Small biotech companies are the purveyors of value in this context, they are the ones developing novel drugs. Of course innovation is not actually killing the drug industry, but it is changing the dynamics and business models in a profound way and we haven’t seen the end of it.
Ward Capoen: “The need for large companies to diversify and grow benefits the ecosystem of small biotech companies. Large pharma companies need these small, dedicated companies to find novel targets, to develop new drugs and to fill their pipeline.”
References
[1] New drug approvals hit 21 year high in 2017, Reuters
[2] Leerink Partners
[3] AbbVie Wages HCV Drug-Price War on Gilead, Bloomberg
[4] Regeneron takes aim at Amgen and Esperion Therapeutics, Madison