Jul 01 2010

Use A Detailed Development Plan to Secure Venture Capital

It’s a tough time to be asking for money.  Whether you’re a high schooler who needs cash to gas up the ride or a fledgling biotechnology company with a hot technology, there’s not much extra to go around.  In today’s stiflingly competitive biotechnology financing market an on-target presentation to a potential investor can make the difference between sealing a deal and ending up in the discard pile.

One issue weighing heavily on the minds of investors in the biotechnology sector is the uncertainty surrounding product development times.  Regulatory requirements represent a significant reason for extended development times.  An increasingly skittish FDA, resulting from public relations debacles such as with Vioxx and Celebrex, continues to tighten the safety reigns placing additional burden on developers and clouds expectations of agency reviews.  As development times lengthen, venture capitalists and angel investors are increasingly turning their attention away from biotech investing and toward industries with shorter timelines to exit or clearer paths to market.  Investor anxiety over development time and regulatory oversight was exemplified by comments made at a recent townhall meeting with Dr. Jeffrey Shuren, the director of FDA’s Center for Devices and Radiological Health.  During the public comment portion of the meeting, prominent representatives from the venture capital community iterated their concern with the increasing uncertainty surrounding the regulatory aspect of developing drugs, biologics, devices and diagnostics.  It is that uncertainty and how that uncertainty correlates with unclear development times.

What steps can a biotech company seeking funding take to gain an edge?  At Cato BioVentures, many of the business plans submitted for our review contain a well-prepared summary of the history of the technology along with a very clear overview of the potential marketplace and the competitive landscape.  Often, however, no more detail than a flowchart is provided outlining the projected development path.  This omission of a detailed development plan fails to capitalize on an opportunity to provide answers to the key questions of potential investor described above.  Ideally, the party seeking funding should present the specific development activities that need to take place, how long those activities are likely to take, and, most importantly, what those activities are likely to cost.

Scientists at Cato Research are regularly engaged in the preparation of integrated development plans in which experts in nonclinical, clinical, regulatory and manufacturing disciplines take existing information about the technology and author a comprehensive document outlining the activities necessary to advance the technology to a desired stage of development.  The development plan also provides cost estimates for the projected activities.  Although the development plan has historically been viewed as a road map for the technology holder, it has more recently become a valuable fund-raising tool as a supplement to a business plan.  The details contained in the development plan directly address those concerns at the front of a venture capitalist’s mind and may represent a difference maker in the funding of a promising technology.

This is a post by Shane Grivna, Ph.D. Shane is a Clinical Strategy Scientist for Cato Research and an Analyst for Cato BioVentures.