Live from BIO: What do biotech VCs want?

CHICAGO - A perennial hot topic in biotech is figuring out how to raise funding. And on day two of the BIO 2010 convention, a panel of five venture capitalists gave audience members a chance to ask questions about how best to position their companies to raise capital.

Eva Jack of MedImmune Ventures noted that, aside from a strong management team and great science, venture capitalists look for companies that are able to differentiate their products from others on the market and in the clinic. "One thing to bear in mind is that if you assume an IPO isn't an exit, then you have to consider an acquisition," noted a panelist from Roche. But Big Pharma and Big Biotech don't want just any compound to fill their pipelines, and if there are five similar drugs in development, it's going to be difficult to raise capital or find an exit.

Jack recommended that biotechs be as efficient as possible with capital and learn to "fail fast" to avoid costly late-stage failures--a suggestion that Ernst & Young also made in their presentation at BIO yesterday. In addition to efficiency, Jack said venture capitalists are attracted to companies open to different funding mechanisms, including non-dilutive financing, and ones that pursue creative collaborations. Finally, venture capitalists want to see management teams that think about reimbursement sooner in the development process rather than later. In the age of healthcare reform, getting approved isn't enough--knowing your drug will be reimbursed is almost more important.

Joe Regan of Canadian VC GrowthWorks Capital noted that he was interested in imaging because it's becoming increasingly important in planning clinical trials for successful outcomes. Medical technology, he added, has supplanted therapeutics in his venture firm, and in a few years it will represent 50 to 75 percent of investments made in med tech. Regan added that GrowthWorks is also pursuing stem cell therapies. "There's no doubt there's going to be radical changes in the world because of the promise of stem cells," he said. One caveat is the timeline for approval of a therapy. VCs want to know how long they're on the hook for funding a project, and it's not clear yet what the time frame is for stem cells technology.

Steve Elms of Aisling Capital emphasized the importance of figuring out how companies can become self-sustained. With the IPO market still fickle and fewer VCs ready to invest, he advocated a capital-preservation model, particularly for firms with later-stage projects. "It's important to do things with fewer employees and less infrastructure" to keep costs down, noted Elms.  

The panelists also spent a good deal of time discussing the virtual biotech model. All agreed the virtual model is attractive, but the panelists shied away from virtual companies with a single product. Instead, they look for what they called a "hybrid model"--a virtual company with multiple products, or a technology platform.

One final piece of advice? "Smart CEOs aren't focused on diliution right now. They just want to get to the next step," said one panelist.