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
Biography
› 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.
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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
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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
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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
deals)
› MedDevice: $138m in 11 deals
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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
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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%
drop)
› Increased pressure from generic therapeutics
› Increased regulatory pressure from FDA around comparative
effectiveness
› 2nd and 3rd world markets declining to protect patent status
thereby reducing margins and penetration
› Uncertainty around ObamaCare impact and implementation
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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
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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
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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
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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
11
Investment Trends: Biotech – Platform
› Platform Development
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›
›
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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
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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
13
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
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Nutter McClennen & Fish LLP
Attorneys at Law
Jeremy Halpern
Partner
Director of Business Development
Emerging Companies Team
Nutter McClennen & Fish LLP
T: (617) 439-2943
M: (617) 905-1893
jhalpern@nutter.com
@startupboston
www.linkedin.com/in/jdhalpern
MTTC Early-Stage Life
Sciences Technology
Conference VIII:
Life Science Venture
Investing Trends
and Thoughts