Life Science Venture Capital in Turbulent Times Douglas Fambrough, Ph.D. Oxford Bioscience Partners...
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Transcript of Life Science Venture Capital in Turbulent Times Douglas Fambrough, Ph.D. Oxford Bioscience Partners...
Life Science Venture Capital in Turbulent Times
Douglas Fambrough, Ph.D.Oxford Bioscience Partners
Swedish-American Life Sciences SummitStockholm, Sweden
August 21, 2008
• Leader and innovator in life science VC
• Five funds totaling $1B of committed capital
• Based in Boston, MA
• Proven investment performance
• Team of 5 general partners and 5 additional investment professionals
• Investing in biopharma, medical devices, life science research tools, and
select life science opportunities outside of healthcare
• Particular strength in innovative life science technologies such as genomics,
RNAi, bioenergy, etc.
Oxford Bioscience Partners
Biotech has come of age after 2000
$ bi
llion
• Biologics are some of the industry’s biggest sellers
• Pharma is increasingly dependent on these drugs
• A spate marketed biologic
acquisitions:
– 2007: AZ - MedImmune
– 2008: Roche - Genentech
– 2008: BMS - ImClone
• Biotech is fundamental the pharmaceutical industry 2007 WW Revenue of selected biologics
approved in the last decade
Big Pharma is turning into Big BioPharma
The consolidation of all our biologics capabilities from AstraZeneca, Cambridge AntibodyTechnology (CAT) and MedImmune into one unit immediately creates one of the world’slargest biologics pipelines and establishes us as a leader in biotechnology among our pharmaceutical peers.” AstraZeneca Annual Report 2007
We were one of the first pharmaceutical companies to get involved in biotechnology in the 1980s through our relationship with Genentech. Biopharmaceuticals now account for 55% of our revenue Roche Annual Report 2007
…Wyeth [is] the world’s fourth largest biotechnology company by revenue Wyeth Annual Report 2007
Pfizer is committed to establishing itself as a leader in biotherapeutics…Pfizer Annual Report 2007
% Of Revenue At Risk from Patent Expirations 2007-2011
Tremendous pressure on Pharma cash flows
Despite the centrality of biotechnology to
the pharmaceutical industry, the broader
biotech community is struggling
Healthcare spendingexpected to reach $4.3Trillion by 2016!
Healthcare spending was $2.3 trillion in 2007
• Credit crunch and recession crimping markets
• Pharma somewhat sheltered, but biotechs caught in market retreat
• VC also affected, fundraising down 30%
• Rising health care costs suggest future pressures on industry
• Regulators running scared
Global Environment
Healthcare spendingexpected to reach $4.3Trillion by 2016!
Healthcare spending was $2.3 trillion in 2007
• Potential revenue growth in developing markets
• Growing need for biotech outside of healthcare
• Biologic technologies continue to mature
• Genomics moving out of basic research and toward medical practice
Global Environment – It’s Not All Bad
A Transition in the BioPharma Venture Capital Process
Focus on the exit environment
After the bubble:VC in the 2000s
• IPOs are rarer, require more maturity, and are poorly priced
• The rise of the buyside biotech specialist; not an active trader, risk sensitive
• Spitzer settlement (2002) has led to a big decline in sell-side analysis
The “good old days”:VC in the 1990s
• Most IPOs carried a nice premium
• Many non-specialist investors (including retail) providing higher prices and liquidity
• Sell-side analysts well compensated and effective
“We threw an IPO and nobody came”
Wall Street Journal 2002
How bad is it out there?
Number of Nasdaq Biotech IPOs 2001-2008
Birth of the $7 special
A modest number of IPOs mid-decade, now back in the deep-freeze
Capital Raised Prior to IPO vs IPO Pre-Money
Premiums Have Declined Since 2001
$mn
Post-IPO Performance: Current Price vs Offering Price
Few stocks have shown sustained value creation
Nu
mb
er o
f S
tock
s
Acquisition and dismantling of specialist sell-side investment banksAlex Brown, H&Q, Robertson Stephens
Is the IPO Decline Temporary and Permanent?
Decline of retail interest in the sectorTrading volumes are meager
Rise of biopharma specialist investorsBiotech Value Fund, MPM Bioequities, etc.
Tightened regulatory environment has increased riskMore clinical ‘implosions’
Could change
Could change
Permanent
Permanent
So what is a VC to do?
“No Exit”
“The Myth of Sisyphus”
“Waiting for Godot”
An Existentialist Market?
“As You Like It”
“Much Ado About Nothing”
“All’s Well That Ends Well”
Or Shakespeare?
High Value M&A Deals Becoming A Favored Route For Exit
M&A deal rate seems fairly stable through current market crisis
Capital Raised Prior to M&A vs M&A Value
Pharma Innovation Trends Suggest M&A Will Continue
% Sales From Internally Discovered DrugsTop 10 Pharmaceutical Companies in 2006
“Closed Loop” Innovation Area
Late Stage Licensing and Mega Merger Area “Open Loop”
Innovation Area
Source: Defined Health
Big Pharma Internalizing Biotech
Pfizer is organizing their new Biotherapeutics and Bioinnovation Center around biotech acquisitions:
BBC is run out of Rinat in SSFCovX operates as a separate facility in SDColey talent running Cambridge RTC facility
“We will preserve the unique cultures of these biotherapeutic organizations … [and] get out of their way.” -- Corey Goodman
GSK CEDDs Structure: Sirtris acquisition feeds a growing Cambridge-based metabolic group
“The CEDDS create the spirit of a small R&D-led team within a very large pharmaceutical organization and allow us to be more nimble, and therefore more productive, in our approach.” GSK Annual Report 2007
Planning an M&A is hard to do
What’s A Venture Capitalist To Do?
• Fund Companies Attractive to Acquirers– Large market focus
– Biologics > Small Molecules
– “Big Pharma” programs, not “Wall Street” programs
– Compelling mechanism of action: HSP90, DPP4, -catenin
– Proprietary Innovation• North America and Europe remain the center of pharma innovation
• Capital Efficiency– Exit values rarely >$500 million; less investment means more ROI
– Outsourcing to save costs: China, India
• Biologics Platform Companies– Propriety technology with unique/scarce capability
– Compelling commercial opportunity enables by the technology
– Compelling team that will transfer the technology
• Moving Genomics from Basic Research to Medical Science
Sirna Therapeutics Case Study
Proprietary biologics platform – RNA InterferenceRNAi opens up new targets to drug development
Commercially compelling programs – HCV, diabetesUnpartnered programs were pre-clinical
Strong team to transfer technologyBackground in antisense, ribozymes and translational medicine
Sirna Illustrated the ‘three-legged stool’ model for successful platform investing
Launched in spring ’03First partnership late ‘05
Acquired for $1.1 billion in late ‘06
The Plummeting Cost of Genetic Info
Genomic Medical Record
The cost of one base of DNA, in dollars, by year
Creates new business opportunities Mol diagnostics, risk assessment, non-healthcare applications
Requires a new generation of tools Sequencing, gene expression, instruments for non-specialists
As costs continue to decline, genomic information will become increasingly important to medical practice. Eventually everyone will have their genome sequenced.
Where is Genomics Going?
The $1000 Genome (or less!)Third-gen sequencers
The Genomic Medical RecordThe most fundamental information
Treating the GenomeDrugs that directly edit the genomic program to cure diseased cells
Genomic Engineering and Meta-Genomics• Designer microbes• Environmental applications
Challenging Areas for VCs
Whenever a small company bears the risk of late-stage clinical success, the numbers will be against them
Taking clinical programs through phase III data exposes VC investors to the full integrated risk of drug development
• Whenever a small company bears the risk of late-stage clinical success, the numbers will be against them– Risk-share deals that generate a strong IPO story often set a
company up for a devastating clinical failure
– Later stage clinical development forces a company is ever larger and more dilutive rounds of financing
• In-licensing, re-purposing, NRDO models, etc.– Seldom are these programs sought for acquisition,
– The clinical track record is poor relative the promise of “de-risked programs” that this model assumes
• Pharma-specific research tools, software, etc– Pharma wants these tools but won’t pay for them
Challenging Areas for VCs
Life Science Venture Capital in Turbulent Times
Douglas Fambrough, Ph.D.Oxford Bioscience Partners
Swedish-American Life Sciences SummitStockholm, Sweden
August 21, 2008