The earlier in development, the greater the risk. It’s an unspoken law in biotech that makes valorizing promising academic projects difficult to fund. Venture Capitalists (VCs) specialized in early-stage funding need to be creative to come up with ways to make their investment worthwhile. In almost all cases, the solution lies in partnering up with academia, industry and even patient groups and charities.
Academia is full of the brightest minds around, conducting cutting edge scientific research. However, innovative science is not meant to stay within the borders of academia. For society to really reap the benefits, science and technology are pulled into industry, where practical applications based on this new knowledge are developed.
The transition from academia to industry can be a rough trajectory, with new companies in need of funding while the risk of failure is still at its greatest. The old model consists of the company receiving a small amount of seed funding from a VC (fund), followed by several financing rounds as the company matures and achieves certain milestones. VCs hope that this will eventually lead to an acquisition by a pharma company, through which they are compensated financially for the significant risks taken early on. However, risks taken at the early stages are often not recognized by later stage investors, putting pressure on the returns of early-stage investors.
Creative VCs needed
VCs interested in, or even dedicated to, supporting these kinds of very early-stage projects need to be inventive if they want to continue doing so in a sustainable way. As such, different models of collaboration have arisen to make investments in discovery projects financially rewarding.
Some VC funds have built structural partnerships with academic research centers and university technology transfer offices (TTOs). In this way, funds can keep a close watch on what’s moving in academia, and select the most promising technologies to grow into start-ups. This allows the VC to become involved from the very inception of the fledgling company. These partnerships can also include larger industry players willing to support the starting company, financially or otherwise.
One example of this model is the French investor Kurma Partners, which harnesses its network of academic, business, and industry partners to foster early stage investments. Kurma has collaborations with various TTOs in France and is a privileged partner of the renowned Institut Pasteur. Likewise, V-Bio Ventures partners with Belgium’s premier life science institute VIB to incubate technologies and create new companies, such as Confo Therapeutics and Aphea.Bio.
Taking the matter into their own hands
Some TTOs and VC funds have even set up their own drug discovery units to start development of high-potential programs. By funding early drug development research and gathering additional preclinical data, it can rapidly advance a project and gain credibility towards other potential investors, which in turn should lead to the creation of a start-up. Together with the European Investment Fund (EIF), the KULeuven TTO Leuven Research and Development (LRD) created the Center for Drug Design and Discovery (CD3). CD3 was founded to bridge the gap between academic research, spin-off companies and pharmaceutical industry. Since its inception, CD3 has partnered projects with pharma behemoths such as Pfizer, Merck, AstraZeneca and Novartis. In a similar fashion, Swiss venture capital firm Versant Ventures founded the drug discovery engine Inception Sciences.
In another approach, funds can also be created by parties interested in propelling early-stage projects. The Apollo Therapeutics Fund was created for this purpose by the TTOs of the Imperial College of London, Cambridge University and University College London (UCL) together with pharma companies GSK, AstraZeneca and Johnson & Johnson. The £40 million fund provides £2 to 3 million per project for the development of pre-clinical assets.
In some examples, these consortia creating funds focused on early stage development also involve non-profit organizations such as patient groups and charities. As such, funds are created with syndicates that truly represent all ecosystem players: companies, academic institutions, CROs and patient organizations.
If one thing can be clear from the previous examples, it’s that collaboration is a must in fostering early-stage assets. However, aligning different parties with often a different endgame in mind can be quite the challenge. Only open and transparent structures together with a great portion of respect towards each other’s needs can make these initiatives successful and generate sustainable new funding options.