Monthly Archives: February 2013

Early Stage Biotech Venture Investing

Life Sci VC (see here) provides a list of the lessons learned from early stage biotech investing. Investing in early stage biotech is complex, unpredictable and very risky. However the field is filled with investors and people running research companies who are naïve to this reality, especially here in the UK.  One of the purposes of this article is remind our clients of issues they need to think about in an investment sector which is presently getting more difficult.  Life Sci VC’s lessons are summarised below:

1. Management is a key part of success. It needs to change as a biotech company goes through different stages. It needs the right relationship with the Board. It needs to be changed quickly when things go wrong, and resumes for the management team need to be read very critically.

2. Ensure you have the right co-investors.  Don’t have too many, and those you do have need to possess the same vision.

3. Technical diligence is key. Do your own.

4. Pick the right investment model. In general go in early, tranche around milestones, don’t assume late stage is less risky, don’t believe stories of imminent success, remember that diversification can destroy value and that lean virtual models have their disadvantages.

5. The legal aspects are important. Take care with IP diligence, reading the deal contracts and don’t expect deals with pharma to happen quickly.

 

European Biotech Gives Lower Returns At Exit

The Life Sci VC blog has provided an analysis of venture-backed biotech M&A figures for 2012.  It notes 3 main trends:

– median investor return multiples have risen from 2.5x in 2011 to 3.5x in 2012.

– European biotech exits have a far lower invested capital to return multiple. In 2012 it was 1.3x for Europe and 3.5x for the US.

– time from founding to trade sale has increased from 5 years in 2005 to 9 years in 2012.

Pondering on the lower returns for European exits, it’s not too surprising.  I know that in the UK at least, there is far less money in the system and that must lead to companies being bought out more cheaply. It’s more difficult to be optimistic about the future when financing is hard to get.  However I would also propose from personal experience that UK biotech is more insular than US biotech, at both the academic and research company levels, and that means it is less responsive and less influenced by commercial considerations.  I would imagine fewer UK companies know their market as well as US companies, to the extent for example where they would have analysed the likelihood of their product outcompeting existing products.  That means European companies are at risk of developing technologies which may be excellent, but which are going to make less money than technologies chosen and developed with an eye on the commercial considerations.