Nutter McClennen & Fish LLP
Attorneys at Law
MTTC Early-Stage Life Sciences
Technology Conference IX
Life Science Venture Investing
Trends and Thoughts
Jeremy Halpern
Partner, Nutter McClennen & Fish LLP
Jeremy Halpern
› Nutter, McClennen & Fish, LLP - Partner; Director of Biz Dev, Emerging Companies Team
• Full service law firm
• Top tier life science practice
› MTDC– Director & Investment Committee Member
• The Venture Arm of the Commonwealth-- catalyzing innovation in Massachusetts by
providing seed and early stage venture funding to high growth technology startups.
› The Capital Network – Director; Past Chairman
• Providing education, resources and community to high growth entrepreneurs and
angel investors as they navigate the early stage capital process.
› Tufts University; Adjunct Professor of Entrepreneurial Leadership
• Educating students in the art and science of leading ventures with limited resources.
› Entrepreneurial Experience
› UC Berkeley, B.A. (Go Bears!); UCLA School of Law, J.D.
Nutter’s Emerging Companies Group
As a full service firm with a dedicated team of lawyers in the Emerging Companies Group, Nutter supports
ventures across the innovation economy:
• Biomedical Devices
• Biotechnology
• Pharmaceuticals
• Life sciences
• Software
• Hardware
• Information Technology
• Cleantech
• Mobile
• Consumer Products
• Analytics
• New Media
• Robotics
We provide entrepreneurs will the full spectrum of support that they need to build their businesses and realize
their visions:
• Entity Formation
• Founders Agreements
• Financing Strategy and Key Introductions
• Angel & Venture Capital
• Debt Financing
• Private Equity
• Initial Public Offerings
• Private Placements
• Strategic Partnering
• Mergers & Acquisitions
• Employment support
• Equity Compensation
• Tax Strategy
• Litigation
• Licensing
• Distribution
• Manufacturing
• Supply Agreements
• Electronic Commerce
• Patent and Trademark Strategy & Prosecution
Numbers that matter: National 2012
VCs invested $26.5b into 3,698 deals
= 10% decrease in $; 6% decrease in deals
VCs invested $4.1b into 466 deals in Biotech
= 15% decrease in $; flat on volume
VCs invested $2.4b into 313 deals in Medical Devices
= 13% decrease in $; 15% decrease in deals
VCs invested into 135 new companies in 2012
= lowest level since 2005
Numbers that matter: New England Q4 2012
› Seed: $16m in 7 deals (all verticals)
› Early Stage: 339m in 54 deals (all verticals)
› Biotech: $207m in 28 deals (down from $386m in 28
› MedDevice: $138m in 11 deals
National Trends: 2012
› Seed stage deals declined 31% in $ and 38% in deals
› Early stage deals decreased 11% in $; but increased
5% in deals
= more deals with less capital per deal coming at a
later stage
Contributing Factors - Biotech
› Gross revenues and margins are declining on products
› Development costs for biotech/pharma continue to rise –
Average cost = $1b
› Phase II success rate declined to 22% for trailing 5 years (a 12%
› Increased pressure from generic therapeutics
› Increased regulatory pressure from FDA around comparative
› 2nd and 3rd world markets declining to protect patent status
thereby reducing margins and penetration
› Uncertainty around ObamaCare impact and implementation
Contributing Factors - MedTech
› Continued regulatory uncertainty from FDA around
comparative effectiveness (2012: 48 devices approved; a 5%
decline from 2011)
› Uncertainty around ObamaCare impact and implementation
› Acquisitions happening later in venture life cycle (post market
adoption and sales traction)
› Reduces exit volumes
› Reduces capital efficiency and creates the assumption of capital compression
› Increases execution risks
› Fewer acquirers reduces auction environment which depresses
exit prices – lowering ROI expectations for investors
Is there Hope – Biotech?
› FDA product approvals for biotech at 16 year high:
39 new molecular entities
› Most venture deals were uprounds in 2012
› iShares Dow Jones U.S. Medical index continued to climb from
~$34 in 2009 to $76 in 2013
› Increased price pressure for therapeutics will drive acquirers to
favor cost saving technologies
› Acquirers looking to fill pipeline and stay competitive
Is there Hope – MedTech?
› Big Data + Health IT + MedTech producing an entirely new
category of diagnostic and data products
› Companies using new business models to increase adoption
and create early and recurring revenues.
› Costs of building MedTech infrastructure continue to decline
(incubators, IT infrastructure, prototyping, talent etc.)
› Existing mobile platform technologies are decreasing costs
and increasing adoption
› Overhang from 2008 VC investments may be ending
› Acquirers looking for high margin products that will still save
payers long term costs
Investment Trends: Biotech – Single Asset
› Supporting single asset virtual development with a
capped investment amount
› Typically not more than $20m (thinly capitalized at all moments)
› Outsourced talent and CROs
› Red Light/Green Light milestones: Research, In-Vitro POC, In
Vivo, (Veterinary), Preclinical, Phase Trials
› 2011: Exit at Phase II (or IIb) for Upfront + Milestone payments
› 2012: Some appetite for earlier exists at lower prices (allowing
investors to distribute upfront $ and “play with house money”)
› Unclear if this will replace robust B rounds
Investment Trends: Biotech – Platform
› Platform Development
Repeatable and scalable ability to produce drug candidates
Larger infrastructure including full management team
Disruptive technology
Larger and unfixed capital raising strategies
First product identified and in progress to market
Investment Trends: Terms
› Fewer deals tranched to milestones
› Nearly all lifesci deals have weighted average antidilution rather than full-ratchet
› Participating preferred is on the rise, but many deals
have caps resulting in an effective price adjustment
› Lower Seed/A Round Values may better position a
company for success
Investment Trends: Crowdfunding… sigh
› Crowdfunding may supplement seed/angel/micro VC deals
› Cause Marketing tie-in (“finding a cure for ________”)
› Cannot replicate or replace the experience, judgment and
relationships brought by traditional angel investors.
› May damage ability to get follow on financing
› Massive risk of lifesci investing may not be a good fit for crowd
› Increased risks of litigation
› Even worse ability of investors to diligence LifeSci investments
› Mechanisms and Portals still not approved
Nutter McClennen & Fish LLP
Attorneys at Law
Jeremy Halpern
Director of Business Development
Emerging Companies Team
Nutter McClennen & Fish LLP
T: (617) 439-2943
M: (617) 905-1893
[email protected]
MTTC Early-Stage Life
Sciences Technology
Conference VIII:
Life Science Venture
Investing Trends
and Thoughts

Life Science Venture Investing