On June 27, the Massachusetts Biotechnology Council (“MassBio”) featured its second Forum in the series “Adventures in Biotech: Stories of Success (and Failure): A Six-Part Series: June-October 2013, called “Financing the Dream: Avenues for Raising Capital”. The presenters included: Jeff Arnold, President and CEO, Arnold Strategies, LLC; Bernard Davitian, Vice President, Business Development Licensing & Structured Investments, Sanofi-Genzyme BioVentures; Michelle Dipp, M.D., Ph.D., Co-Founder and CEO, OvaScience; and Guy Macdonald, President and CEO, Tetraphase Pharmaceuticals with moderators Marc R. Cote, Chief Operating Officer, Accellient Partners, LLC & Chief Financial Officer, Synchroneuron Inc. and John Hession, Partner, Venture Capital Financings & Emerging Companies Practice Groups, Cooley LLP. Frommer Lawrence & Haug LLP is an active member of MassBio and attended this Forum.
Arnold described the process how “angels do drugs,” for example, repurposing previously-approved therapies for new uses, which may involve lower risk and capital and a clear opportunity for exit. An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. With angel investing, opportunities generally require financings under $5 million with no venture capital in the plan and value-creating milestones early on. Some advantages of angel investing, Arnold explained, are rolling closes with easy follow-ons and more is typically owned at exit. Angel investing, however, requires more investors (40+) that have more involvement than a board member on a venture capital fund. Building a syndicate requires finding a champion and applying to several groups simultaneously with drug candidates in one or more incubators for development. The angel investors are looking for a clear exit strategy, typically within 3-6 years, which often takes longer for pharmaceutical/biotechnology products. On angel money, clinical studies may get as far as phase 2 but never go to all phase 3 studies; at this stage, the projects require big pharmaceutical manufacturer support to continue.
Arnold noted that grant funding, such as grants from the National Institutes of Health (“NIH”), will help to generate interest in the product(s) but obtaining angel money requires frequent and continuous networking. Many prospects will not advance to a true diligence, e.g., there are 8 Mass Medical meetings a year with about a dozen new plans a month; at each meeting there are about 200 proposals evaluated, and three proposals are presented at each meeting with only one advancing to a true diligence.