The cover story for BioWorld Insight this week is about the biotech venture capital world, and how despite its much-publicized contraction, there’s a lot of exciting stuff going on like established firms closing new funds, established players regrouping to form new firms, and everyone pushing the envelope with experimental business strategies.
Although lots of changes are still to come, many of the VCs I spoke with noted how much the biotech venture world has changed already, just over the past few years. A few of their observations:
- A-B-C No Longer As Easy As 1-2-3: The traditional “Series A – Series B – Series C – IPO” business model, in which each round added a few new investors and stepped up the valuation, appears to have finally faded from prominence. According to Jay Lichter, managing partner at Avalon Ventures, “a financing won't get done unless the syndicate comes together with enough money to get to an NDA.” So we saw some hefty start-up rounds in 2011 from Ultragenyx Pharmaceutical Inc., Cleave Biosciences, Dermira Inc., Imagen Biotech Inc. and others.
- You Down With OPM (Other People’s Money)?: With regulatory uncertainties pushing drug development costs skyward, it’s all about nondilutive funding. Get it from the government, from nonprofits, by spinning out an asset someone else has already paid to advance . . . just get it. With venture funding tight, some start-ups also sought non-venture sources of funding such as angels, foreign governments and creative deals with strategic investors.
- We Are the World: Some of the year’s biggest private rounds tapped ex-U.S. investment, including Pro Bono Bio’s $600 million from the Russian government's state-owned private equity/venture capital firm Rusnano and creative financier Celtic Pharmaceutical Holdings LP, and Ascletis Inc.’s $100 million mainly from Chinese entrepreneurs. Rusnano also put $25 million into each of Selecta Biosciences Inc. and Bind Biosciences Inc.
- With a Little Help from My Friends: Brent Ahrens, general partner with Canaan Partners, said there’s been a general feeling among venture firms lately that it’s time to “lock arms and be more collaborative and less competitive.” While he admitted he’s not sure whether that’s out of desire or need, he said it’s leading to good things, like “more money at the table and more creative minds tapping into networks to help companies grow.”
- The Best is Yet to Come: Biotech venture returns over the last decade haven’t been stellar, on the whole – hence the retraction. But less money in the system should, in theory, lead to higher quality companies getting funded and better returns. Ahrens is excited to see the 2007 to 2011 vintage funds start to pay out, while Bijan Salehizadeh, cofounder and managing director of NaviMed Capital, predicted that 2010 through 2013 are likely to be “outstanding years to have had capital to be investing in biotech.”