Quest for Cash
PHARM EXEC: What is the current state of the commercial model for biotechnology? How has the risk-averse regulatory climate combined with
the economic downturn and fiscal crisis affected startup operations and their capacity for growth?
Bill Newell, CEO, Sutro Biopharma
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BILL NEWELL, CEO, SUTRO BIOPHARMA: Money is the mother's milk of politics—and it is equally true for biotech. In addition to good science, what we require is
access to capital. Obtaining funding today is very different than it was a decade ago. What private money is available now
flows largely to late-stage projects that are effectively "de-risked" by having secured the data likely to find support from
the regulator. It is tougher for small, early-stage innovators to access capital in this environment. That said, I am seeing
more opportunities beyond the traditional reliance on private venture capital (VC). There are new innovative government financing
programs for small players, and the big pharma companies are forming their own in-house VC units to invest in promising early-stage
projects. Both provide alternative capital options that have to be pursued in this challenging economic environment.
Kleanthis Xanthopoulos, President & CEO, Regulus Therapeutics
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KLEANTHIS XANTHOPOULOS, PRESIDENT AND CEO, REGULUS THERAPEUTICS: Small startups are operating under extreme constraints of capital. But there is another issue—that is, accessing capital
in a way that is non-dilutive: you want to obtain funding without sacrificing equity to the point that the organization has
no financial incentive to progress against its own internal milestones. As a startup, what we are really selling is hope—the
ability to execute against an idea that might, with time, lead to a product. If you can demonstrate in a stepwise fashion
the capacity to advance that idea, then you will be able to find sources of financing. Big Pharma certainly has the deep pockets
to support a novel molecule, or a new diagnostic target; each of the top 10 pharmas spend roughly $5 billion a year on in-house
R&D. They also claim to allocate around 30 percent of their resources to external R&D projects. If you do the math, that's
an aggregate of $15 billion per year towards collaborations.
Bob Baltera, President & CEO, Amira Pharmaceuticals
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BOB BALTERA, CEO, AMIRA PHARMACEUTICALS: One reason why it is harder to attract venture capital to biotech is that in today's high-risk environment, investors have
to plan on a 20-year window on their investments. The old 10-year fund life model for venture capital is on life support,
if not dead. What I see instead is that funders are willing to talk only when you have a compound that you own and it is progressing
at Phase III. A decade ago there was interest in financing to help you move from Phase II proof of concept to Phase IIb. No
more. We are in survival mode. And cash is king.
LICHTER: I am a bit more optimistic. Being the 69th company investing in oncology is no recipe for success, but if you have a compound
that is a truly novel alternative to expensive surgery, then you have a chance.
XANTHOPOULOS: This industry has always been in a survival mode. Nothing has really changed on that front.
BALTERA: If you pulled out the list of biotech companies that went public in 1995, how many of these companies today have products
on the market or even still exist? I could count them on one hand. The confidence and optimism at that time led to much over-reaching,
including the assertion that a cure for Alzheimer's would be found in 10 years. The reality is it takes more than a decade
just to progress to a clinical trial.
LICHTER: I disagree with the notion that any investor in biotech can obtain an asset that is de-risked. Even if you have a good bet
on a compound's clinical efficacy at Phase III, there are significant looming challenges on the payer and physician front
that did not exist a decade ago. Getting providers to pay for innovation is a big new risk factor. My company focuses on efficient
leveraging of capital, with the objective being to get to human proof of concept on less than a $15 million stake, at which
point we can seek out partners. Then there is the challenge of keeping those partners on board. Ten years is the basic limit
of tolerance to yield a payout and the time scales on commercialization are out of sync with that.
Other sectors have it easier. In the technology business, you can put a few hundred thousand dollars to work and create something
in your garage, shop a prototype, refine it, launch it, and start producing revenue—all in a matter of a year or so. That's
a blink in our business. And given the long lead times, we have to anticipate what the payer environment will be like in 10
to 15 years, at which time the market might have changed so dramatically there is no need for your invention.
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