June 27, 2007
Biotech funding: intellectual property makes or breaks deals
Few investments are as pricey, long-term and risky as biotechnology and life sciences ventures. In 2001, the Tufts Center for the Study of Drug Development reported that it takes 10 to 15 years and US$800 million to bring a new drug to market.
Human therapeutic biotech products are in the same ballpark. In Canada, the industry boasts some 500 companies, approximately 80 of which are publicly listed. Most have no revenue streams—instead, they must attract deep-pocketed, patient and risk-tolerant capital.
It’s not easy to obtain an US$800 million investment from your average Canadian venture capital fund. The seven-year venture capital life cycle modeled on information technology ventures, for example, is not long enough to get drugs to market. Biotech companies have also looked to government for funding, but governments have tended to invest excessively in early-stage companies; they haven’t provided the funding that mid-stage companies need.
Big pharmas are filling the funding and investment void, says Eileen McMahon. “A lot of the big pharma companies have totally scaled down their own research and are on a major hunt to fill their pipelines by acquiring biotechnology companies.”
In many ways, big pharma firms—large multinationals such as GlaxoSmithKline and Merck—are ideal biotech investors. They are risk-tolerant, and have deep pockets and knowledge of the sector. Many of them are facing expiring patents, and have poor research and development performance, so they are taking chances and being aggressive.
"The risks that big pharma is willing to take on right now is considerable," says Eileen, adding that they are "going after early-stage companies, actively scouting out companies with products that are very far from commercialization. The bidding almost gets into a frenzied state. The value of these deals to the business development people at big pharma is often jaw-dropping. They look at an opportunity, and 10 years ago, there would have been a certain price tag associated with it, depending on where in the life cycle the product or research was. Now, the prices are going through the roof."
There's a caveat, of course: "The IP has to be good. When the IP is good, the deals are sometimes worth more than what the IP is worth. They have to be strategic with their IP from the get-go. How you do and present your IP is an important part of whether you will or will not get to a deal. Good IP, coupled with the good strategic presentation of this IP, is one of the ingredients that makes it easy for big pharma to start salivating. It doesn't mean you have to have all the answers. No biotech and no big pharma company has all the answers in IP, or in its regulatory strategy. There is never zero risk. But when biotechnology companies do a good job of presenting their IP, it is interesting to see just how many big pharma companies step up."
There are no Canadian big pharma players, so any deal would pass at least some of the research and technology control and ownership to an international company. But for any far-reaching biotechnology company, it is the world—not Canada—that matters.
"The U.S. drives everything," agrees Eileen. "If you look at any of the biotechnology or pharma companies, none of the really well established companies would ever seek Canadian regulatory approval before seeking U.S. approval. Even if the regulatory strategy in Canada goes sideways, what most companies are concerned about is how that impacts their U.S. strategy."