BIO 2010 - Funding Trends for Biotechs

May 8 2010

While VC funding hasn't entirely disappeared, economic realities are motivating biotech entrepreneurs to seek creative alternatives to financing. As one entrepreneur put it, it is "unsustainably expensive" for an early stage company to develop drugs.

Partnering with big companies that have deep pockets has been around for quite some time, but now big pharma's support has become more strategic, namely as a path to selling more of their own products (Product Development Partnerships or PDPs), rather than to push back the frontiers of "research." This is the basis for the growing risk-sharing model of partnering.

Partnering with non-profits has also seen growth, some of which have provided in-kind contributions, such as facilities. Foundations for specific diseases, such as Alzheimer's and diabetes, are also increasingly supporting promising research in their areas of interest. Some of these foundations, such as that of Bill and Melinda Gates, focus on prospects for improving global health.

Incubators fill an important role in providing space, management and administrative support and fund raising (rather than taking an equity position themselves in the start-ups).

As to exit strategies for investors in biotech, the IPO route is becoming increasingly rare. This has caused an increase in M&A (merger and acquisition) activity transactions.

In another post, we'll talk about pratical approaches to potential investors.