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Feb 28 2011

Recap of the 20th CED Biotech/Life Sciences Conference

CED Biotech Life Science ConferenceThe 20th Annual Council for Entrepreneurial Development (CED) Biotech/Life Science Conference was held on 21-22 February 2011 in Raleigh, North Carolina.  Several member of the Cato BioVentures team were in attendance at this year’s conference.

Featured Speakers

Governor Beverly Perdue gave a keynote speech, emphasizing North Carolina’s commitment to biopharma as an important component to achieving her number one priority of job creation in North Carolina. Governor Perdue is eager to have a large number of North Carolina citizens working in the biopharma industry and is willing to retrain a historically agricultural and textile‑oriented workforce to compete in the biopharma industry.  Since the mid-1980s, 500 new biotech companies have come to North Carolina, bringing more than 226,000 jobs.

Biopharma Company Showcase

The Biopharma Company Showcase was a popular venue.  The meeting room was filled beyond seating capacity with over 250 attendees.  During the showcase, eight local biopharma companies, including Viamet Pharmaceuticals and Liquidia Technologies, gave 10‑minute presentations highlighting their current activities and developmental plans for 2011.

Financial Panel: State of Capital Markets and the Changing Funding Market

The Financing Panel emphasized an improvement in capital markets since 2010.  The panel included representatives from Lilly Ventures, Domain Associates, HealthCare Ventures, and Index Ventures.

The moderator, Jennifer Jarrett of CitiBank, stated that large pharmaceutical companies are currently focused on returning cash to shareholders and have a projection of flat to negative sales growth over the next 5 years.  Compounding this situation, these companies’ projected R&D budgets have been reduced from 16% of total sales in 2008 to 10% of total sales today.  This decline in R&D budgets yields a reduction in the amount of money allocated to mergers and acquisitions (M&A) of new technologies.  In the current economic environment, large pharmaceutical companies may limit the number of M&As because of limitations on financial and human resource capacity necessary to take on new projects.

Large pharma companies are expected to continue to fill their pipelines through acquisitions; however, most of these acquisitions will now be for products in the later stages of development, such as after some Phase 3 data has been generated or upon New Drug Application filing.  These M&As will be back-end loaded –  based on milestone payments instead of large up-front cash payments.  Additionally, the total size of deals through M&A is anticipated to continue to reduce over time because of the decrease in Big Pharma’s R&D budgets.

Ms. Jarrett explained that venture capitalists are changing their investment model as follows:

  1. Diversification of portfolio: investing in China and emerging markets
  2. Growth equity: moving toward very late-stage assets (Phase 3), with little regulatory risk
  3. Health care sector expansion: investing in other health care sectors such as information technology or diagnostics
  4. Late-stage, private companies (at the start of Phase 2) strategy: keeping the company private and developing the product to approval so the investors can sell the asset at a higher valuation compared with a Phase 2 asset

According to Jarrett, at the same time, many biotechs are having a more difficult time raising capital for the following reasons:

  1. Decreasing drug prices because of health care reform
  2. Unpredictable regulatory environment
  3. Difficulty in raising capital coinciding with increasing drug development costs
  4. Limited M&A potential , challenging initial public offering (IPO) environment (IPO is possible, but valuations are lower now compared with several years ago), and the disappearance of the mezzanine market

The advice from the venture panel was to pursue novel products and ideas, run your organization lean, and use your capital wisely.  Raising the same amount of capital now takes four or five venture firms compared with three in the past.  Because capital is going to be even scarcer in the future, companies should not plan on having multiple rounds of capital investment; rather only plan on raising one round to sustain the company to a successful exit.

The good news is that all panel members agreed that interesting assets attract capital.  Entrepreneurs should listen to what the market is telling them. If the market does not like your business plan, make modifications to the plan or move on to the next project.

In closing, the 20th Annual CED Biotech/Life Science Conference was a successful conference for exploring topics and policies essential to today’s life science and health care markets.

This is a post by Mike Cato, M.S., R.A.C.  Mike is  Vice President of Cato BioVentures and Vice President of Quality Assurance at Cato Research.