May 11 2011

Conference Recap – BayBio 2011

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Image via BayBio.org

The BayBio Annual Conference 2011 was held on 20-21 April 2011 in Burlingame, CA.  The event was attended by more than 1,000 San Francisco Bay Area biotech and life sciences professionals from over 400 companies.

This year’s conference focused on funding trends and emerging markets in the life sciences industry.  In keeping with BayBio’s spirit of innovation, speakers discussed how pharma, biotechs, and research institutions now have to apply the same inventive thought they use in R&D to funding opportunities – whether they are early stage academic platforms, newly identified leads or potential block buster drugs driving toward first proof-of-concept studies in man.  In all cases, traditional sources of capital are scarce, forcing us all to think ever more carefully on creative funding sources and deal structures.  In her plenary session presentation, Myrtle Potter, President and CEO of Myrtle Potter & Co. and Myrtle Potter Media and former President and COO of Genentech, Inc., noted some financial strategies that she felt would become trends in the life sciences sector in the near future.

Ms. Potter noted that a decade ago the biotech industry was the “darling of Wall Street”, that it could do no wrong, and that investors were eager to place their bets on new drug candidates.  Since that time, high profile lawsuits involving drug safety, pipelines that have not produced blockbusters, and the overall decline of the global economy have investors shying away from sectors they perceive to hold more bang for their buck, or even, perhaps, just a return on their investment that would be less risky given that 80% of drug candidates never make it to market.  Changing economic realities brought the demise of the fully integrated biopharmaceutical company as a business model and small biotechs have turned to big pharma and biotech. Many companies now follow a model of taking a drug candidate from discovery to successful Phase 1 or Phase 2 data and then partner the asset to a pharma for later stage development and marketing.  However, big pharma and biotech have soundly declared that they will not be able to fund every novel product in development.  In light of this, Ms. Potter suggested a couple of alternative funding schemes.

A controversial suggestion was that companies should consider novel co-development options.  Pooling resources between biotechs or entering risk sharing relationships with big pharma can mean that the development program that couldn’t be accomplished by one company could be successfully completed by a couple.  It also means that if your drug candidate is unsuccessful and doesn’t make it to market, neither company takes the full financial brunt of the failure.  The downside to this approach, of course, is that in the case of peer companies neither party can reap the full benefits of the ensuing profit.  In the case of early partnering with pharma more value is lost than a later stage deal and the majority of revenue that can be realized will be further downstream and depend on development strategies the licensing company likely has little power to control. However, if it means the difference between shutting a program down or moving it forward, it’s an option to consider.

Another suggestion made was for biotechs to team up with nonprofits and patient advocacy groups to tap into a whole different pool of funding.  Many nonprofits and patient groups in the life sciences sector have significant pools of capital from sources not available to for-profit companies.  Of key strategic importance, these groups have not traditionally been solely motivated by a return on investment and are often idealogically driven to support novel technologies and therapies that can lead to improving the lives of their focus group. While Potter suggested that there is a particular focus on orphan indications and medicine for developing nations, experience has shown that a) there are many patient groups of “established” diseases that are active in this area and b) companies such as Gilead (the EVP of Corporate and Medical Affairs gave the next day’s plenary session) who have developed business models that fit both the needs of Wall Street and countries “most in need”. Therefore, nonprofits can contribute the cash, while biotechs and pharmas can contribute the expertise in technology and clinical development to advance treatments for focused patient groups.  A relatively recent wrinkle in this funding strategy is that some nonprofits have begun to take a more venture-based approach by providing funding in exchange for equity enabling them to both do good and do well.

Ms. Potter also stated that she expects to see an increased use of Clinical Research Organizations (CROs), especially among companies that choose to partner with each other.  Traditionally, the advantage of using a CRO is access to validated expertise without having to pay for the overhead of in-house employees or the higher rates of outsourced individual specialists.  A strong CRO can provide an overall regulatory strategy for clinical development while also fulfilling a company’s corporate and monetary goals.  Another point Ms. Potter noted was that often CROs have a presence in countries or regions that a particular biotech may not, and by working with that CRO a biotech can expand into such markets and reach an untapped set of subjects that would be impossible without the relationship. As a member of Cato BioVentures, I would be remiss in my duties if I didn’t point out that not only do we have reach to virtually all countries in the world, we are also constantly looking to fund projects using our Service Capital™ model. Not surprisingly, I find our approach of taking a risk position in developing clinical assets so that companies can access our broad experience and reach while having us as an engaged partner in the process to be an ideal mix!

Ms. Potter’s overall argument was that, currently, traditional sources of capital are scarce, therefore, moving forward biotechs and pharmas will have to consider novel funding sources and deal structures.  She discussed various partnering options, between pharmas, biotechs, non-profits, and CROs.  Ultimately, her message to the life sciences industry was that it is now time to apply innovative thinking towards their business, just as they have towards their science.

This is a post by Melissa Russ, M.S.  Melissa is a Business Development Associate for Cato Research and a Ventures Coordinator for Cato BioVentures.  She is based in our San Francisco, CA office.