My response on the blog post "Preclinical Biotech Structured Deals: Reflections on 2013′s Solid Start" by Bruce Booth - posted on 01/Mar/2013
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The news of structured-deals/ buy-outs of ‘tight/ single-EARLY-asset’
biotechs both pleases & scares me… pleases, as I feel this will trigger a
healthy change in the way start-ups choose their programs & scary because I
(CRO/ CMO) will now start losing clients/ programs much before the conventional
PIIA - read-on…..
While I totally agree with the points you’ve raised & the
surmises made, I’d like to add the following;
- This in some fashion is an
endorsement of the importance of early venture seeding by the very same stakeholders
that typically enable the high value exits for VCs, viz., the mid-sized/ big
pharma companies.
- As you say, there seems to be a
promise of reward for innovative organizations that know their science –
however I’m not sure if there’s any message about preference for a single
asset/ tight set of assets, It is rather a niche focus/ platform & this
aspect I’d think always mattered to the investors.
- Do I also see some de-risking in
the form of going in for companies who’s lead/ pipeline candidates are inherently
safer (recombinant proteins; antimicrobials et al) & hence highly likely to
breeze through Phase-I
- Interestingly, though the
indications are rare/ orphan, the therapies themselves seem to be more
maintenance than curative & hence more attractive to the investing company
- This lure of an early alliance/
deal may now encourage the new enterprises to come up with more compelling
technologies rather than me-toos… & thus help put drug discovery enterprise
model on a correction course
- Is this the emerging new avatar of the CVC? - CVC 2.0? (Perdona, Baron.... :-))
Now, having seen a lot of my clients getting lapped up by
mid/ big pharma & their programs either killed, shelved in favour of the
larger companies competing pipeline, I would be a little cynical till I see the
next instalment is released/ option executed.
Finally I would like to ask if there is a message in here
for the VCs? – towards an opportunity, a need to structure the initial funding deals
differently so that they could still keep an option to enhance their share
whenever such early alliances crop-up eliminating avenue of series-B funding?
Post Thought:
Quite a coincidence that I was just reading an article in
HBR (Mar 2013) titled “How Competition Strengthens Start-ups” by Andrew Burke
and Stephanie Hussels of Cranfield University.
The authors postulate that exposure to competition in the early stages
of a firm’s life increases its long-term survival prospects – competition in
this context including competing against a lean-funding scenario & hence
learning to stay creative, efficient & productive – Since for all four
companies here the early pressure is almost eliminated of by the reasonable/
comfortable funds received (upfront instalment OR buy-out), I was wondering if
that makes these companies less long-term in light of the above study.
Of course I do understand that it’d be foolhardy to apply an
academic study arbitrarily to any context, particularly in life sciences, where
the author’s themselves have made a provision indirectly through their
statement “Of course, early competition has a downside: Some new businesses fail before they have time to build up
the immunity we describe” which sure sounds like the business of designing drugs.
Interesting to note the theme of 'venture capital model being broken' is being evaluated from very different perspectives by different people – while I’d love to see the perspective of an LP on this, haven’t come across any till date…
