Biotechnology — the use of living organisms to develop drugs and therapies – is an area of increasing focus for investors, the pharma industry and the general public for the impact it will have on their lives. In 2014 McKinsey explained: “Investing in biotech R&D has yielded better returns than the pharma-industry average. The current biologics-development pipeline supports an outlook of continued healthy growth.”
Between 2000 and 2010, the number of Biotech companies which were generating revenues greater than $500 million rose from 9 to eighteen. Investors interest in the sector has been increasing. During the first half of February 2015, eight biotech firm launched IPOs in the US and combined raised $500 million. In the past 12 months biotech firm share prices have risen by almost 60%.
Valuations may be, as Linda Thompson head of AXA’s Framlington Biotech fund said in the FT, “substantially stretched”. Stelios Papadopolous, a veteran biotech investor, has been arguing that the increase in share prices is due to more companies delivering on their promises. As a company delivers and puts their drug into the market, they stand to benefit from the drugs being patent-protected which enables confident predictions of revenues
This is, however, an industry which is far from “sure things”. Boston Consulting Group estimate that 90% of the money invested in biotech will be spent on drugs that fail.
For startups in this sector the technical and financial challenges can be daunting. For financing, some large firms finance the scientific work of smaller companies and then takeovers the development once clinical trials are needed. AstraZeneca’s Chief Executive, Pascal Soriot, has explained that they “will do what a biotech would do” to build a development model based on “entrepreneurial spirit and speed.”
There is also the venture capital and fund industry to tap into. One firm making headlines is the new Patient Capital Trust Portfolio being launched by Woodford Investment Management which plans to invest £200 million in start-up and early-stage businesses. The Telegraph has reported that many of the businesses in which they Trust is likely to take “stakes are likely to emerge from collaborations with British universities’ science and medical departments.”
An alternative funding route which is beginning to be tested is crowdfunding. In February 2015 in the UK, Cell Therapy closed a £700,000 round. They are working to advance a heart disease treatment pioneered by the Nobel prize winner Sir Martin Evans. In Scotland, Parkure raised £60,000 for researching Parkinson’s disease, while in France, EyeBrain a medical diagnostics company closed a €1.3m round.
If you want to meet and work with likeminded people from diverse backgrounds and professions on new biotech venture ideas for 54 hours, then join our Startup Weekend which is being held from 20th to 22nd March 2015.