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The San Diego Story


Pharmaceutical Executive


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
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
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
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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