Finding The Funding: Investments In The Life Sciences

By Suzanne Elvidge

Before drug development companies can reach the point that they can rely on an income stream from marketed products, they need to fund R&D and everyday running costs, and one route is through seeking investors. These can range from individual private investors to global investment companies with millions or billions of dollars available. One example of the latter is Abingworth, an international investment company with offices in London and the East and West Coasts of the United States (Boston and Menlo Park, CA).

It was founded in 1973 and has funds under management of more than $1.25 billion, investing $20 to 80 million in each company, generally over three to eight years. Abingworth focuses on investing in life sciences and healthcare companies, mostly in Western Europe and North America, but with modest investments in China. Its investments include therapeutics, devices, and diagnostics companies. “We have a broad charter — we can invest in any region, in any therapeutic area, and at any stage of development, from seed to public company,” says Stephen Bunting, Ph.D., managing partner at Abingworth. Currently, the company has active investments in nearly 40 biopharma companies. Companies seeking investment and those just looking to survive and grow through tough economic times can learn from Abingworth’s approach to investment.

Your Relationship With Your Funding Partner
As well as simply providing funding, an investment partner can provide access to a rich resource of people and expertise, useful to companies throughout their life cycles. These will vary from investment company to investment company. Abingworth has people on its team with experience in life sciences, intellectual property, business development, recruitment, mergers and acquisitions, extensive corporate legal expertise, and finance. Portfolio companies are able to bring people in from Abingworth to help on specific projects, and in some cases, interim executive roles are taken on a temporary basis but only if absolutely necessary. “Abingworth’s network helped us build our team and get deals,” says Thierry Bogaert, Ph.D., founder, managing director, and CEO, Devgen, one of Abingworth’s portfolio companies.

The life sciences field is a capital-hungry field, requiring long-term investment. Abingworth invests at all stages, from venture capital to get a company started, through growth equity to fund expansion, acquisition, recapitalization, or buyout, to investment in underfunded public companies. Its investments can, in some cases, last for 10 or more years, even after an IPO. Investment in public companies comes from Abingworth’s venture funds, as well as through Abingworth BioEquities (ABE), an open-ended fund targeted only at public life sciences companies. Quoted holdings at Abingworth account for over $350 million including the venture investments that have gone public.

An investment company’s levels of involvement will vary between portfolio companies, and as companies grow and change, the relationship between investor and portfolio company will alter as well. For example, investors can support companies through restructuring – Joseph Anderson, Ph.D., lead investor and partner at Abingworth joined the board of Amarin, one of Abingworth’s portfolio companies, and advised on the recent major restructuring, as well as encouraging the company towards a more capital-efficient model.

Once companies go public, the relationship with an investor will inevitably change. Abingworth generally continues to retain an investment in its portfolio companies, even after flotation on the stock market. Its involvement may include taking a seat on the board, or working with the company to support its recruitment and strategy and closely monitoring the progress of the company and the CEO.

“We adjusted our relationship with Abingworth after Ablynx went public — they are still always available, but now that we are public, the relationship has evolved,” says Edwin Moses, CEO, Ablynx, another of Abingworth’s portfolio companies. “However, they remain committed to us and are not exerting any pressure to realize their investment.”

Another example of Abingworth’s investment in a public company is the Norwegian company Algeta, which is developing alpha-emitting therapeutics for the treatment of bone metastases. This was Abingworth’s first VIPE (venture investment in public equity — an investment in a public company through a private placement), and the investment company says that it is seeing some good opportunities following the introduction of its VIPE strategy. “We continue to be active in Algeta even though it is a public company, and this includes sitting on its board of directors and chairing its remuneration committee. We saw a significant increase in Algeta’s share price following our investment, despite the significant downturn in the market,” says Bunting.

What Investment Companies Look For
Funding is hard to find, especially for smaller companies, and there is a lot of competition for the money that is available. Though the requirements will differ somewhat from investor to investor and are not set in stone, companies seeking funding from any investor can learn from Abingworth’s requirements.

Before looking at the details, companies have to be able to say yes to three key questions to attract Abingworth or any other investor of note:

1. Can the product or technology do something that others cannot?
2. Can the product or technology get IP protection?
3. Is the product or technology scientifically and commercially important?

Therapeutic Area
Abingworth usually invests in companies developing therapeutics for acute rather than chronic disorders. “Therapeutics for chronic disorders affecting large numbers of patients tend to require longer-term data which is costly, and regulatory bodies appropriately are less forgiving on safety issues than therapeutics given for acute conditions,” explains Bunting.

Strengths In Science And People
Abingworth invests in companies at all stages of development and has invested in more than 100 unquoted life sciences companies, with 2/3 going on to flotation, merger, or acquisition. Especially for early-stage companies, it looks for those with particular strengths in their management or good potential in their technology. “We look for high-quality management, ideally with a proven track record. We also look for excellent technology, but we don’t expect everything to be ready-made, and we are prepared to take the route of strengthening the management at a later stage if necessary,” says Bunting. “We are open and honest with companies about their management — if we feel that the team isn’t quite right, we will make this clear. However, the change doesn’t have to be immediate. Ultimately, it is the responsibility of the board to look after the interests of the employees and shareholders. It is the survival and success of the company that comes first and not the ego of the founder or CEO. Most sophisticated entrepreneurs understand this, but this does not always mean it is an easy transition when a founding CEO has to take on a different role.”

Bunting describes Abingworth as being driven by the science, citing Solexa as an example. Abingworth worked with a group of scientists from Cambridge, United Kingdom, to create Solexa, an instrument company based on a next-generation DNA sequencing technology. “The development of the company was an extremely challenging technical process and took more than eight years, but we were around four years ahead of other VC-backed companies in this space,” says Bunting. Abingworth had confidence in the science despite the risks, which paid off when Illumina bought Solexa for stock, and the Illumina share price then more than doubled in value in what was at the time a deteriorating market. Today, Solexa technology dominates the sequencing market.

Company Location
While the location of a company is not the primary factor for an investment decision, Abingworth’s investments tend to be in Western Europe and North America, because of the local scientific, technical, business, and funding infrastructure. According to Bunting, the key science and technology hubs worldwide are in the United States (Boston, San Diego, and the San Francisco Bay Area), Oxford and Cambridge in the UK, Medicon Valley in Denmark, Martinsreid in Germany, and Ghent in Belgium. “We will work in other regions, but because the infrastructure is not there, it just makes things harder, and we have to look at whether this additional effort is worth it,” says Bunting. One success story in another region is Ribopharma, founded in Northern Bavaria, Germany. As a biopharma company, it was geographically rather isolated, but its IP in RNA interference (RNAi) was very significant, and within six months of funding, Ribopharma merged with the U.S. company Alnylam.

Capital Requirements
Abingworth is more likely to invest in companies that have already received funding or have a low burn rate business model. It is less likely to become involved in companies, such as publicly listed therapeutics companies, that would need a large amount of capital ($100 million or more), especially if there would be further refinancing required to get to the next stage of growth or development.
“We tend to look toward companies that have technologies that can convert quickly to products. Ablynx’s Nanobodies are a good example of this. We will also invest in companies even if most of the value lies in a single product, if this is high-profile and important, for example, Algeta’s Alpharadin,” says Bunting. Alpharadin is a radiopharmaceutical based on radium-223 in phase III development for the treatment of bone metastases.

Abingworth’s guidelines seem to be proving successful. “Out of over a hundred deals that we have invested in over the years, we have had fewer than eight companies fail in the 23 years. Most of these have failed due to lack of available funding in difficult financial times.”

What You Should Look For From An Investment Firm
Companies seeking investment need to look at what they need from the relationship before beginning the investment process — is it simply a search for funding, or would more in-depth support help? “Some companies just look for ‘someone who will give me the money and not annoy me,’ but we wanted investors that were knowledgeable and experienced, with good networks that could help us grow the business and establish partnerships,” says Declan Doogan, M.D., interim CEO at Amarin, an Abingworth portfolio company. “We are working with Abingworth and our other investors to make sure that we run the company in as cost-effective manner as possible.”

It’s important to be certain that both the investor and the company seeking funding are looking for the same thing. “Venture capital has gotten a bit of a bad name for being too short term-focused without caring what happens to the company. There are different kinds of investors — it’s important to make sure your expectations meet up with theirs,” says Doogan. “You need to know whether your investor is in it for the long haul or is looking for a three-fold return in a year.”

The investors can provide a dispassionate view of the science, which can be particularly useful for start-up companies headed up by the people who discovered the products or technologies. “It’s easy to get lost in the technology or the business plan, and it’s important to be able to take a step back and look at your company — why are you different? The search for funding is very competitive, and you need to consider what you can offer the investor, as well as what they can offer you,” said Moses.

The location and international reach of the investment company is also worth considering. According to Bogaert, it is important to create an investor base that includes both local and international investors, as one validates the other. Moses adds that local investors are useful for networking. “Local investors often know key executives — for example, our original Dutch CSO was known to our Dutch VC. They will also know other investors locally that they can bring into syndicates to support investment. We found that financial institutions are given confidence if a reputable VC from their country has invested. And finally, their local knowledge is useful for finding things like new facilities.”

By choosing the right investor, companies can find that it validates their technology and makes them more attractive to other investors. “We knew that if we managed to secure investment from Abingworth, we would be able to attract other investors,” says Doogan. “Abingworth is a very well-known name internationally, and its reputation validates our company and technology,” added Moses. Investors also need to be confident that the investment company can maintain its contribution through multiple rounds of funding.

A Word To The Wise — Advice From Some Of Abingworth’s Portfolio Companies

• The financial climate is harder than it has been – tell your story as effectively as you can.
• Pick a high-end investor to validate your technology or product.
• Go for the best, but if you cannot attract investment from one of the leading investor groups, think hard about the viability of your business.
• You have to be different. Why should they choose your company?
• Be flexible and creative with applications of your technology.
• When you start, you can use all the help you can get, so take it, and be prepared to listen.
• Don’t fall in love with your science — be dispassionate.
• Find investors that know about your disease or drug area.
• Know what kinds of returns the investors are looking for.
• Strike a balance between investor guidance and company control on the board.
• Think about what is imperative to deliver and what is nice to have.
• Above all, be realistic.

Investment is hard to find at the moment, but for the right company with the right technology or product and a vision for the future, it is out there.

Astex Therapeutics Case Study

Astex (Cambridge, UK) is a world leader in the use of fragment- based drug discovery to develop novel small molecule therapeutics with a focus on oncology. The company has three products in the clinic and two in preclinical trials. Astex discovered and developed all of these using its proprietary technology. In addition to its research programs, Astex’ productivity in lead discovery has been endorsed through partnerships with major pharmaceutical companies, including collaborations with GSK (November 2009) and Johnson & Johnson (June 2008) worth more than $1 billion in total if all milestones are met.

Abingworth was a founding investor in Astex in 1999 and led the Series A investment. Abingworth’s Stephen Bunting was chair from 1999 until 2002 when he handed over the job to Peter Fellner, who remains in this role today.