The Finnish HealthBio cluster program held its annual seminar on September 13th in Turku followed by a partnering event and panel discussion on the 14th. This event collected together an exclusive audience of up to 220 participants mainly from the HealthBio “family”.
Looking from biotech and pharma financing perspective there were some important highlights worth to summarize here. Important points were emphasized e.g. by the program director Tero Piispanen in his annual review and the foreign speakers and panelists Erik Lund from Merck & Co, Magnus Corfitzen from Sunstone Capital and Stephan Christgau from Novo Seeds.
Differently from the general perception, I think, it came out that in fact during the last decade Biotech and Pharma investments have brought to VC investors the best average returns (IRR) among all the other sectors. This was different for the decade earlier, when e.g. IT was producing very good returns. The big survey from USA has been published in Nature Biotechnology 29:579-583, July 2011. This is a very important fact when we are trying to motivate both the private and public sector to develop venture capital industry also in Finland – the issue we have identified as key bottle neck to materialize the potential for growth companies in biotech sector, including VC backed pharma companies.
The biotech business models favored by the VC investors especially in Europe have evolved interestingly during the years from platforms and portfolios of projects offering “multiple shots on goal” via hybrid models with short term cash flow and high upside development projects. Today the key model seems to be focusing with a very light company to development of one product. “The investors are diversifying, the companies are not.” This model has been motivated by the small capital availability and the investor exit being primarily trade sale or licensing to bigger companies. This makes the environment challenging to the entrepreneurs, but what can you do to this “prosper or die” model. Lets see how in the future.
A further interesting discussion came about the multiple value creation points during the development of a “biotech” product. In stead of seeing e.g. the clinical proof of concept at phase II as the key value creation milestone in drug development, there seems to be for each invention multiple value peaks vs invested money. It is important to realize also that in fact more than half of the partnering deals done by the big pharma are done at preclinical phase of development. On the other hand for some orphan / niche products the optimal return can be realized by launching the product by the biotech.
The statement from VC investors about diagnostic and medtech products was that the optimal and meaningful return typically can be realized through successful launch and, more importantly, from promising sales growth on a significant market. This may lead us to reconsider our conception on these product inventions as quick and cheap investments and therefore most suitable to our “capital poor” environment.
The Finnish venture capital industry in fact does not look so poor as often thought. During last five years half a dozen very significant funds have been raised in Finland. Unfortunately those are practically exclusively focusing on MBO investments and not at all on development of new companies. This distorts the statistics of capital investments in general.
Although there is better than ever consensus between the industries about the need for more dynamic capital market to create new growth companies, the general financial environment hardly could make it any more challenging for us to persuade right now.
We just need to keep more persistent and effective in educating our environment about the opportunities of the Bioindustry.