November 27th 2020
Looking to 2019 six exceptional VC funded Therapeutics companies have been acquired for more than one billion. This involved 35 different VCs with a particular visionary credit to Orbimed (involved in 5 out of 6 exits) RA Therapeutics (4 out of 6) or Sofinnova Investment (2 out of 6). This record should be broken in 2020 with a growing number of “billion plus” transactions.
Fundamental reasons from Big Pharma for such appetite are well known and confirmed their choice to progressively disinvest early and risky research. If one should summarize the dramatic paradigm shift, it looks that Big Pharmas have decided to focus on clinical/ regulatory development and S&M businesses. Early science turns out to be less strategic and is progressively externalized by big players. It also gives credit to the unprecedented motivation of scientific entrepreneurs vs. R&D employees, private money vs. public investors, fast acting and flexible structure vs. heavy decisions committees. In short, a magic combination of players and advisors in this multibillion added value game.
2020 VC BACKED BIOCOMPANIES EXITS > 1 B USD
Since the last decade, the number of VC backed Life Sciences companies exit have soared by 42% and 2020 is expected to see a spectacular increase of more than 50% deals vs. 2019. Where does the big investment multiple concentrates? What are the franchises, indications, technologies that have grasp the main part of the value and what are the emerging trends for the future success stories? Looking to the most recent transactions, a few lessons shall be learned:
US BASED COMPANIES ARE "IN THE WIND"
In Life Sciences, success stories do not seem geography agnostic. Performing R&D in a supportive ecosystem with easy access to animal facilities, top of the edge chemists, industrials, funding, CROs, entrepreneurs do not look enough. You need to be in the US. When looking five of the main exits in 2020, all of the companies were in one of the top three US Bioclusters: Boston, Silicon Valley or San Diego. However, it is not yet certain that this paradigm will remain. VC investments in Therapeutics in Europe have dramatically increased, from 15% in 2018 to 25% in H1 2020! In addition, European bioclusters are growing and turn out to be more mature with more powerful incubators. Like in Digital where Sequoia Capital set up a new London based office, there is a growing number of Transatlantic Life Sciences VCs investing massively in both continents. MVM, Abingworth, Epidarex, SR One, EW Healthcare, F Prime, Apple Tree… with a particular emphasize to be stressed on Versant setting up Ridgeline in Basel, a super Discovery Engine that define the new standard of excellence for future incubators. Implementing a vision from scratch by picking up critical people, assets, technologies, facilities and funds change the investor profile to a more entrepreneurial and holistic leader.
5 YEARS TO GENERATE BILLIONS!
It took less than five years to seed, develop and sell the top VC backed Therapeutics companies in 2020. This is a total revolution in BioPharmas! It means that most of these companies didn’t have yet product in clinical development when they were acquired. It also means that License & Acquisition competition has turned out to be so strong that deals happen earlier with much sophisticated and high value terms, introducing regulatory Milestones for pure acquisitions! In order to be fast, New Cos needs to deliver quickly on critical drug development endpoints. The lead investor also needs to syndicate strongly, shorter the Series A to Series B timeline and be able to leverage funds, expertise and Big Pharmas connections faster. In Therapeutics, there is limited suspense on prioritized areas of investments. In this regard, Regulatory agencies, Big Pharma and VCs are totally aligned. A treatment addressing a major Unmet Medical Need in other words dedicated for patients with no/ limited therapeutic alternatives for potentially life-threatening diseases is the Holy Grail. Addressing critical Unmet Medical Need will offer a clear Medical Development path, price premium, solid strategic rationale for big pharmas and an exit boulevard for investors. Following this, Authorities, Big Pharmas and VCs focused in Oncology (#1 PRIME status delivered by the EMEA agency, #1 License & Acquisition franchise, #1 VC investments), Neurosciences (Alzheimer, Parkinson, Epilepsy, Refractory/ neuropathic pain…) with a particular bonus when the BioCompany has a platform able to deliver new chemical leads.
PEOPLE FIRST: SERIAL ENTREPRENEUR OR FIRST TIME CEOs?
Looking to the most successful exits, this question remains totally open. Decreasing the uncertainty of investment by working with serial entrepreneurs is obviously a winning choice. Having exceptional talents aboard able to adapt the strategy and the tactic according major changes in the road map is indeed a critical success factor. I still remember the first meeting with an entrepreneur who came to pitch for a one-product-company with a questionable patent and a huge cost of goods product. Not a very sexy investment target on the paper when you have 400 other business plans on your desk. Because this leader had an intimate knowledge of the market, strong connection with opinion leaders and industrials, unquestionable experience and a clear mitigation plan for all potential issues we had identified in diligences the company was funded and was sold three years later seven times the money raised. It comes with no surprise that the very same team was backed again by the same VC to build up Corvidia that was sold five years later 8 to 24 times the money raised (depending on Regulatory & Commercial Milestones). If nobody had followed the entrepreneur for his first project, millions of patients would have been with no/ limited therapeutic option and billions of dollars would have not been generated.
Michael Davidson (Corvidia), Steven James (Pionyr) and David Johnson (VelosBio) are the serial entrepreneurs behind the major success stories of 2020. Sofinnova Partners, Orbimed, Arix, Venrock, Takeda Ventures, Apple Tree Partners, SV Health are the key VC winners of this strategy. It shall also be raised that first time entrepreneurs Jeffery Millebrandt and Dr Aaron Diantonio have been successful in developing SARM1 inhibitors to fight axonal degeneration and sold the company up to 1,2 B USD to Lilly in less than four years. Ditto with first time CEO Christine O’Brien who was successful in developing New Chemical Entites by blocking HLA-G receptor preventing the suppression of innate and adaptive immune activity to fight cancer. The company was sold up to 1,25 B USD to Gilead (including Milestones). Choosing leaders who will build an extraordinary business and bringing critical drugs to the market is indeed not an exact science. Talent, patience, determination conjugated with hard work appear to be more visible markers for success.