High risk,high-reward, no consensus- kc business magazine june 2013, p 43


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Trends impact investment direction in life sciences.

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High risk,high-reward, no consensus- kc business magazine june 2013, p 43

  1. 1. High-Risk, High-Reward,No ConsensusTrends impact investment direction in life sciencesSTORY BY MALCOLM GARCIABIO CORNERAfter a little more than four hard yearsof recession, investors see some hope thatinvestments in the life sciences will increasethis year.The announcement by Boston-basedThird Rock Ventures, which raised $516million in March to create over a dozen newbiotechnology companies over the next fewyears, showed increasing optimism amonginvestors for life sciences start-ups.Last year, U.S. venture capital funding inthe life sciences sector, which includes thebiotechnology and medical device industries,dropped 14 percent in dollars and 7 percentin deals. Venture capitalists invested a totalof $6.6 billion in 779 life sciences projectsduring the year, compared with $7.7 billionin 836 deals during 2011. The number of lifesciences companies receiving VC funding forthe first time reached the lowest level since1995 with only 135 companies receivingfunding in 2012.“Third Rock’s recent announcementreminded me of the old days when thingswere good,” Nicholas Franano, CEO ofNovita Therapeutics, a biopharmaceutical andmedical device company, says. “Since 2008,there has been big attrition from venture capitalpartnerships in the life sciences.”The life sciences, Franano says, have alwaysproved to be a challenge for investors becauseit requires large amounts of capital and time tocreate products. “It is a high-risk, high-rewardinvestment,” he says. “Life sciences require alot of capital to create a product.”Continued slow economic growth meansthat investors willing to take chances willmore likely consider later-stage developedcompanies rather than start-ups.“The drop in investment last year sendsup a cautionary flag of concern,” Jeff Boily,an entrepreneur and private investor in lifesciences in Philadelphia, says. Last year,Boily was the CEO of the Center for AnimalHealth Innovation in Olathe.“The activity in early-stage businesses,early high-risk, that activity has decreased,”Boily says. “People are still holding back. Ittakes a toll on young companies.”According to Boily, large pharmaceuticaland biotech firms have begun looking atearly-stage developments from academicinstitutions and not-for-profit organizationsto share costs. “It’s a new way to do deals,to move forward on deals that bring valueto the table.”Food and agriculture start-ups are beginningto gain more interest from two kinds ofinvestors, says Ron Meeusen, managingpartner with Cultivian Ventures fromCarmel, Indiana, a venture capital firm.“One group is basically saying the returnin traditional areas is down and they’re lookingfor new areas to invest in,” Meeusen says.“The other group of investors is interestedbecause of trends: How has population demandcaught up with supply? Will we have enoughgrain next year? More food requires newtechnology. It’s a long-term trend.”With money tight at the federal level, nowespecially with sequestration, the developmentsin the areas of infectious diseases, cancerresearch and patient care delivery offeringconcrete results will rise on investor’s lists,says Lawrence Dreyfus, the University ofMissouri-Kansas City’s vice chancellor ofresearch and economic development.“The focus is shifting more away from basicresearch,” Dreyfus says. “It’s short-sightedbecause the trend ignores what underpinseverything and that is basic research.”Despite improvement in the market anddeveloping trends, risks abound for investorsconsidering start-ups.“Start-ups are so far away from where theyneed to be,” Dreyfus says. “They are in whatwe call ‘the valley of death.’ They’ve madea discovery to get traction in the market.But if for lack of investment they don’t getpushed forward, they go nowhere.”RELATED READING“THE DROP IN INVESTMENT LAST YEARSENDS UP A CAUTIONARY FLAG OFCONCERN” - JEFF BOILYI N S I G H T, I N N O VAT I O N & I N S P I R AT I O N 41