JULY 2022LIFE SCIENCES REVIEW8IN MY OPINIONaising money for early stage bio¬tech companies, especially those that come out of universities and research organisations, is tough. And even when you do raise funds, the odds are stacked against you.Developing new drugs is a long hard road and there is a high failure rate. There are lots of reports and publications that talk about the probability of successfully developing a new drug, with statistics cited of 1 in 10,000 molecules making it through from discovery, through clinical development, regulatory approval and market launch.Even after a lead drug is selected, the probability of completing the subsequent stages of development is also low with a cumulative probability of approval from Phase 1 of around 9%.To further complicate this, attrition rates vary depending on the clinical indication (e.g. 100% failure at phase 3 for Alzheimer's Disease drugs in the clinic; and a 6% success for psychiatric RBy John Kurek, Investment Manager, UniseedRAISING CAPITAL FOR EARLY STAGE BIOTECH START-UPSdrugs entering the clinic), so it's not surprising investors tread warily.Unfortunately, most drug development projects arising from research organisations are not at the clinical development stage, so the chances of success and corresponding chance of raising venture funding are even lower.However, it should be noted that the model for most venture investors is not to take the drug to the market but rather do a deal with a pharmaceutical company at the end of Phase 1 or Phase 2 clinical trials. This improves the equation a little.As an example, the Uniseed commercialisation/venture fund operating in Australia typically invests at the lead selection/optimisation stage, with 3 notable successes:- Fibrotech, with an initial investment round in 2008 at the lead selection and optimisation stage, went on to complete a Phase 1 study of its lead kidney fibrosis drug FT-011, and then did a deal with Shire plc in 2014 for US$75 million up-front and around US$500 million in milestone payments.- Spinifex, with an initial investment round in 2005 at the lead selection and optimisation stage, went on to complete a Phase 2a trial of its lead drug EMA-100 in neuropathic pain, which led to a deal with Novartis in 2015 for US$200 million up-front and around US$500 million in milestone payments.- Hatchtech, with an initial investment round in 2001 at `hit to lead' stage, went on to complete a full clinical program and submit an NDA to the US FDA, which led to a deal with Dr Reddys Laboratories in 2015 for US$200 million combined up-front and milestone payments.These deals highlighted the time needed to get from early stage investment to deal, with 8-14 years in the above examples. As VCs generally have 10-year closed funds, only doing new investments in the first 3-5 years, this highlights that investing at the lead optimisation stage of development is not a viable proposition, and therefore most university generated technologies are too early and too risky for many VC funds.Unfortunately, this means that many drug discovery projects at research organizations will not receive VC investment. This does not mean that it is not excellent science, but John Kurek
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