Betting Bigger, Later in Development
As a result of the regulatory pressure and the demand of investors for human data, Greeley said, biotech companies and venture capitalists are coming to terms on “mega-super” series A rounds that are in the tens of millions of dollars, much higher than typical for a first helping of venture capital.
“The series A rounds that get done are raising $30 or $40 million. They are basically saying, we’re going to create companies from whole cloth, and we’re going to build a base of investors that can take it all the way to the clinic up front. Whereas before, entrepreneurs would raise a few million dollars, say $5 million, get to some early animal data, then they’d go raise another $10 million, then validate their data with a clinical study,” Greeley pointed out.
“Because there were so many more investors, there was a much more robust market, and the presumption was that if you had good data, you could always raise money,” he added. “That’s really not the case right now.”
Drug developers likelier to find funding, Lefteroff agreed, have molecules in Phase II or Phase III trials or that are at least about ready to enter clinical trials. “I don’t think any biotech companies are getting funded today that do not have at least some human data. Venture guys can’t fund them through the true R&D phase any more. You still might see a few of those deals get done, but not many.”
Seed-stage financing plummeted between Q1 2010 and Q1 2011 from $137.72 million to $47.71 million. Expansion-stage financing rose from $107.64 million in Q1 2010 to $137.71 million in Q1 2011. Later-stage financing rose from $180.72 million in Q1 2010 to $219.05 million in Q1 2011.
An example of a large series A round for a later-stage company is $30 million raised by PanOptica, whose lead compound is in Phase II trials. PAN-90806 is being developed as a topical (eye drop) treatment for neovascular age-related macular degeneration (AMD).
On the other hand, Blueprint Medicines, which does not seem to have clinical-stage products, also closed a high series A financing of $40 million. The firm is developing personalized cancer therapies. What it lacks in later-stage candidates it makes up for in co-founders: Nicholas Lydon, Ph.D., and Brian Druker, M.D., had a track record of success as co-developers of Gleevec®, a treatment for chronic myeloid leukemia (CML).
Until companies can convince investors of their potential, Lefteroff added, they have to either pursue government grants or pour in their own money. An interesting model for some megasized venture awards is one where payments are tranched based on milestones. In those cases, companies do not see a windfall, explained Lefteroff and Greeley.