OnBioVC continues to illuminate a deeply concerning financing trend observed over the last several years of aggregated data; one may term the resultant effect of this discernable development as an erosion in U.S.-based biomedical innovation. The metric invoked to quantify such bold nomenclature is simply the decline in first-time, Series A, institutional financings. With fewer and fewer early deals getting done (observed, 2H07-present) such a trend may yield, based upon industry standard probabilities, a marked reduction in the volume of potential products who can eventually make it to the steps of the FDA to submit their NDA (or equivalent regulatory approval process) for review. The input side of the biomedical innovation funnel is constricting – considering the diverse basket of risk factors faced by potential new biomedical products (be they therapeutics, devices, diagnostics and even IT-based healthcare products) – and given a reduction in risk capital (on a relative basis) allocated to first-time institutional financings is potentially quite alarming.

But don’t take OnBioVC’s word for it. While recently attending the Rocky Mountain Life Science Investor Conference (where over thirty managing directors representing corporate and venture funds were in attendance) one unnamed prolific investor bluntly stated, “We are not financing innovation, we are [instead] transaction oriented.” This sentiment is similarly echoed up and down the national conference hallways, from BIO to J.P. Morgan.

Granted there is a sort of perfect storm brewing occurring; with the near eradication of the public markets as a potential path to liquidity for equity investors, the IPO window is stuck closed and now with years of paint accumulated on the jam it is as difficult as ever to somehow unstick and wiggle open. It is always a confluence of variables that culminate in a perfect storm. Add to this list of variables the funds who have exhausted their resources who too are unable to reload their capital. When returns to limited partners are disappointing it comes as no surprise when the next vintage fund cannot be raised, closed and deployed, but when folks such as Prospect Venture Partners, who have been one of the largest (funds) and most successful bioscience investors (IRR), suddenly throws in the towel and gives up on fundraising and walks away from the near-term potential for any new investing in the sector, well that should certainly sound the concern alarm. Yes, Prospect is only an n of one, but with $150M already committed in their fundraising bag we may never really know the true cause for PVP to bail out on their fund close and thus give up on any new investing in the life sciences. Given some recent fund formation data one may present too that the rate of evaporation of funds is greater then the rate of new fund formations.

There are always three ways to look at the glass, friend, mentor-from-afar and Partner at Atlas Venture, Bruce Booth, D. Phil., digs into the data on his blog Life Sci VC (if you have not subscribed to his feed yet you certainly should!) in the recent post Early Stage Biotech Financing: Fewer, Leaner and Better? where he presents the glass half-full perspective.

More honey for the bioscience bears comes in an industry survey conducted by the Medical Innovation & Competitiveness Coalition who recently reported, in not so subtle language, in a joint press release with the National Venture Capital Association that U.S. Medical Innovation is at Risk: Fewer New Companies and Therapies Are Receiving Funding. Here is the link to the data from their survey of more than 150 VCs who identify a potpourri of factors, that have, and in their opinions shall continue to drive investment away from the early-stage entity (shoot me an email arubenstein@everettabbott.com if you have trouble accessing the slides).

The current investor climate then begs the question of who will finance innovation if private capital sources are waning? The funding mechanism du jour is a triage approach, where a one or more combination of governmental granting agencies, philanthropic donors, visionary angels and entities such as the Colorado Institute for Drug, Device and Diagnostic Development (CID4) are bearing more of the burden of catalyzing innovation and de-risking early-stage technologies. I am proud to be part of the CID4 team who continues to bring an innovative approach to aiding early-stage biomedical companies.

What innovative approaches can you derive to help ensure that novel approaches for the treatment and eradication of disease can be supported and developed? Do not all of us bear such a responsibility?

In memory of Steve Jobs, 1955-2011, I find this perspective to be rather timely and eloquently stated,

“I have looked in the mirror every morning and asked myself, ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been “No” for too many days in a row, I know I need to change something…almost everything – all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose.”

Note: Apologies if you received this post twice, it was due to a technology hiccup on Friday 7 Oct.