Expanding the bandwidth of life science investments: Increasing investment viability

Guest content Contributed by Jayme Norrie, Chief Strategic Officer, Incite World

From what we have experienced, angel investors are shoring up the gap in new innovations coming forward. However, they seem to be more naive than VC’s in terms of due diligence prior to investing. Scientists from the company march in with charts and scientific graphs 99% of angel investors don’t know anything about. The rule they seem to forget is: there is ALWAYS a patient market, and there is ALWAYS a scientific platform – that undoubtedly has competition. Will any new life science innovation get a percentage of the whole market? Absolutely not. They will get a percentage of a percentage based on third party reimbursement and their label. We end up doing this work for our clients and typically the results are startling to them.

Angels and VC’s tend to think that some phone calls to scientists to provide insight will help. This also hurts investments in the long run as they are asking strangers to give them financial advice. And most of these strangers – albiet with great CV’s – have never seen the data on the platform, or on other similar platforms that will ultimately compete with the innovation. More so – how can those “experts” who are brought in for evaluation on a particular scientific technology know everything about so many varying therapeutic areas? They can’t. So companies depending on a handful of “experts” to give them advice aren’t playing with a full deck – of common sense or investment strategic advice.

What I find the most amazing in the life science investment sector as a whole is the lack of investment review by true experts. Professionals who work for big pharma, biotechnology (of companies we’ve heard of), or big device. When interviewing “experts”, ask them how many successful products they’ve put on the market – Do they understand all of the nuances that lead to a successful life science product? Ask them what actual burn rates are to include FTE’s, clinical trials for THIS particular product, manufaturing and distribution costs – Do they understand and have they demonstrated their understanding above “costs of clinical trials = {blank}”; based on what? In other words, do they understand the regulatory path, the manufacturing, how this product will differentiate its label, and what strategies will be required to secure rapid product uptake?

It concerns me to look at the long term viability of the life science market as investors will continue to shy from it if they continue to get burned. The rate of new innovation discovery is tremendous; finding those that will attract IPO’s and licensing agreements means looking at them as ranking industry would – the big boys – and the only people that can do that are those that are internal to these organziations, or those who have been recently. When looking for advice on life science investments, start with the whole teams experience and make sure – if they have a cross-functional team – that its from a company you’ve heard of.

We’re grateful for the Angel community; without them emerging innovations wouldn’t get a chance in these days of upswing with tech investments. And we support the VC community as well. In the long run it will require better due diligence by ranking professionals and looking beyond level of education to level of documented experience.

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  1. michael hammond
      August 11, 2007

    So called extensive “studies” are done on all drugs produced by the pharmaceutical industry yet not a day goes by that we don’t read about a drug that was vetted and studied and approved by the FDA and sold to millions of people for years that has to be pulled from the market because it was found to be more deleterious than efficacious. This is the drug cycle and the pharmaceutical guys know it and they will make money with it and be ready with the next “wonder drug” when the current one runs its cycle.
    How can this be? Pharmaceuticals are a trillions a year business. The economy of the US depends on their production as well as the investment portfolios of many politicians.
    But this will not last ; there are signs that “the pigeons are coming home to roost” and you don’t want to be in these stocks for spiritual and financial reasons.

  2. Jayme Norrie
      August 13, 2007

    Okay, so let’s think about this for a moment. Your right that the FDA cannot provide an exacting answer to the long term safety of every product, and I think this will change. However, it isn’t because the FDA isn’t doing their job, its because we are all made genetically different. I think what will emerge is a personalized medicine approach, which provides the answers physicians and drug makers need to move away from a “one size fits all” approach.

    In terms of the “bad guy” rap the industry recieves due to the extremely low percentage of product failures (pick up a Merck Manual and look at how many products are available versus how many have “gone ary”), its true that there is a great deal spent on marketing. As well, there is an extremely high failure rate in the lab; so the risk warrents some of the reward. But, the marketing is to keep patients on products as much as it is to get them to try them. Compliance rates are dismal – especially with chronic disewases such as diabetes. Its amazing how many patients are willing to lose their sight or feet. And there are Government programs as well as patient assitance programs to help with payment.

    That said, I suppose we could let go of antibiotics, products that put us to sleep during surgery versus biting a bullet, or die of heart attack and stroke in our 30’s as our forefathers did. Clearly, it would lessen the economic burdens of population growth and life science company profits. Or, we can go to a nutraeutical model of vitamins and herbs, which have some powerful advantages and cost when you look at what they cost to fill up with everything possible on a monthly basis. The problem is, we don’t have any scientific verification on a lot of them. We know that they can work – but who is manufacturing them? How are we testing for quality and purity? And some, when taken in combinatin with prescriptions can cause harm – such as St. Johns Wart with an SSRI.

    I agree that there are no perfect solutions to making sure every global citizen is safe 24/7. And we, as citizens, need to be more vigilant about our health care choices. At the end of the day, though, when I need surgery, or have a bad infection, I probably won’t be eating grass from the yard clippings. And my spirit will be just fine with that.