For young biotechnology companies, attracting seed and early stage funding has become increasingly difficult this year although anecdotal signs of recovery are beginning to emerge.
The main reason: venture capital funds have been focusing on their existing portfolio companies who were holding off on exits while waiting out the markets. Last year the biotech industry saw only one IPO — Florida-based Bioheart Inc.’s contentious USD 5.8 million float of Sunrise in February. Only six VC-funded companies went public across all industries, making 2008 the worst year for public entrance since 1977. The outcome has been a marked slowdown of new investments.
Against this backdrop, the achievement by Critical Pharmaceuticals, a UK-based biotechnology company, seems all the more remarkable. Yet rather than banging on a closed door, they opted for going after non-VC funding routes. The amount of effort required to secure non-VC funding amounts to the same as VC routes but the outcome can be far preferable: less “management” of investors, no dilution of shareholding, fewer “strings attached”.
However, non-VC funds are relatively few and far between, making it more important than ever for potential new investment opportunities to tell a clear and compelling story.
Critical Pharmaceutical’s investor pitch was exactly that. It was concise (12 slides from start to finish), yet contained all the components that attract and win investment from VC and non-VC sources alike, namely:
- A management team with a good track record
- Substantial growth potential
- A sustainable unique selling point and strong intellectual property position
- A scalable business plan
- Capable of achieving a profitable exit within 3-5 years
In Critical’s case, their unique proprietary drug delivery technology had demonstrated preclinical proof of concept for the effective delivery of biologicals. The market potential for their product is substantial, since 30% of new drug applications are for biological drugs, amounting to a $40bn market. Since 98% of biological drugs are given by frequent injection, any technology that reduces or removes the number of injections that a patient requires will be highly attractive for potential pharmaceutical partners.
The £1.5M that they secured came from the Welcome Trust to fund the next the clinical development of their nasal spray technology for use in the growth hormone market. Up to 50% of patients do not adhere to the existing daily injection regimen and leading endocrinologists believe that non-invasive delivery would be very attractive. The work would also demonstrate human proof of concept for Critical’s technology and open up the opportunities for novel products.
Having already secured revenue-generating collaborations and license partners, the investor pitch by Critical was successful and it gives a valuable model for surviving the current economic climate.
