Strategic Financing in Biotechnology

Private & Confidential 1

strategy

execution

success

strategy

Strategic Financing in Biotechnology

execution

success

MaRS BioEntrepreneurship Lecture Series

May 14th, 2007

Roman Roman MasleyMasley, P.Eng MBA, P.Eng MBA

Managing DirectorManaging Director

SHI CapitalSHI Capital


strategy

execution

success Agenda

Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGYPart I: INTRODUCTION TO FINANCING BIOTECHNOLOGY

1.1. About SHI CapitalAbout SHI Capital

2.2. Success Factors in Biotech FinancingSuccess Factors in Biotech Financing

3.3. Different Sources of Capital in BiotechnologyDifferent Sources of Capital in Biotechnology

Part II: STRATEGIC FINANCING MODELSPart II: STRATEGIC FINANCING MODELS

1.1. Venture Philanthropy, Gov. Grants and Tech. TransferVenture Philanthropy, Gov. Grants and Tech. Transfer

2.2. AngelsAngels

3.3. Venture CapitalVenture Capital

4.4. Venture Debt and Royalty FinancingVenture Debt and Royalty Financing

5.5. Funding a Public Company:Funding a Public Company:

a) Initial Public Offering (IPO) a) Initial Public Offering (IPO)

b) b) Private Placement in Public Entities (PIPE)Private Placement in Public Entities (PIPE)

c) Follow-On Public Offering (FOPO) c) Follow-On Public Offering (FOPO)

6.6. Strategic AlliancesStrategic Alliances


strategy

execution

success Agenda

Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGYPart I: INTRODUCTION TO FINANCING BIOTECHNOLOGY

1.1. About SHI CapitalAbout SHI Capital

2.2. Success Factors in Biotech FinancingSuccess Factors in Biotech Financing

3.3. Different Sources of Capital in BiotechnologyDifferent Sources of Capital in Biotechnology

Part II: STRATEGIC FINANCING MODELSPart II: STRATEGIC FINANCING MODELS

1.1. Venture Philanthropy, Gov. Grants and Tech. TransferVenture Philanthropy, Gov. Grants and Tech. Transfer

2.2. AngelsAngels

3.3. Venture CapitalVenture Capital

4.4. Venture Debt and Royalty FinancingVenture Debt and Royalty Financing

5.5. Funding a Public Company:Funding a Public Company:

a) Initial Public Offering (IPO) a) Initial Public Offering (IPO)

b) b) Private Placement in Public Entities (PIPE)Private Placement in Public Entities (PIPE)

c) Follow-On Public Offering (FOPO) c) Follow-On Public Offering (FOPO)

6.6. Strategic AlliancesStrategic Alliances


strategy

execution

success Agenda

Part III: Case StudiesPart III: Case Studies

1.1. KuDOS KuDOS Pharmaceuticals: Pharmaceuticals: Success Story of a Success Story of a Drug Discovery CompanyDrug Discovery Company

Presented by Presented by Frédéric Frédéric Sweeney, SHI CapitalSweeney, SHI Capital

2. 2. Chlorion PharmaChlorion Pharma: : Seed and Start-up FinancingSeed and Start-up Financing

Presented by Dr. Jeff Presented by Dr. Jeff CoullCoull, SHI Capital and CEO , SHI Capital and CEO Chlorion PharmaChlorion Pharma


strategy

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success

strategy

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success

SHI Group combines multidisciplinary expertise and perspectivesSHI Group combines multidisciplinary expertise and perspectives

through a group of interlinked companiesthrough a group of interlinked companies

Strategy through ImplementationStrategy through Implementation

•• Consulting servicesConsulting services

•• Transactional servicesTransactional services

•• Operational servicesOperational servicesSHI

Consulting

PortfolioCompany/

Client

SHI Link

SHICapital

SHI Group Company Business Model


strategy

execution

success

strategy

execution

success

SHI Capital addresses aSHI Capital addresses a key unmet need in the life sciencekey unmet need in the life science industryindustry

SHI Capital

TraditionalTraditional

Consulting firmsConsulting firmsTraditionalTraditional

Investment BanksInvestment BanksSHI CapitalSHI Capital

Strategy Oriented

Transaction oriented

Value Added

•Due Diligence•Management•Strategy

Value Added

•Financial•Deep Network•Transactional


strategy

execution

success

strategy

execution

success SHI Capital Track Record

Selected SHI Capital completed andSelected SHI Capital completed and current dealscurrent deals

Private Placement

Advisor in a $22.5M privateplacement for a public mAboncology company

Funding

Advisor for an Ontarioimaging facility.

Venture Capital Sourcing

2M$ source financing for aQuébec AgBio company

Venture Capital sourcing

Advisor in a 9.5M$ venturefinancing round for a Québeconcology company

Equity financing

Advisor in a $750k placementin a private nutraceuticalOntario company.

Equity financing

Advisor in a $400k placementin a public mAb oncologycompany

Business and Strategic Advisor

Neuropathic pain company in Vienna,AustriaCapital Sourcing

$5M capital sourcing for a medical devicecompany, San Francisco, U.S.Capital Sourcing

$20M capital sourcing for a diagnosticscompany, New Jersey, U.S.Capital Sourcing

$5M capital sourcing for a nutraceuticalcompany, Florida, U.S.Capital Sourcing

$5M capital sourcing for a vaccinecompany, Singapore

InternationalInternational


strategy

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success

RE

AL

Un

me

t N

ee

d

Value to Patient Population

strategy

execution

success The Value of a Biotechnology Company

“There are too many science projects masquerading as companies…”-Karen Bernstein, Ph.D., Chairman & Editor-in-Chief, BioCentury Magazine

Great ScienceProjects

Great BiotechCompanies

Biotech BubbleCompanies

GenericCompanies


strategy

execution

success

strategy

execution

success Essential Elements for Successful Biotechnology Companies

Successful Successful biotechs biotechs possess an impressivelypossess an impressively diverse skill setdiverse skill set

Innovative Science

• Milestone focused, do not reinvent itself every 6 months!

• Deep network with the top scientists in the field (academia and industry)

Strong Intellectual Protection

• IP is not an asset anymore, it’s a necessity

• Innate corporate culture of promoting and protecting intellectual property

Ingenious Financial Strategies

• Flexible, open-minded financial strategies: Think beyond “Angels --> VC --> IPO”

• Comfortable with strategic alliances (“letting go” and seeing the big picture)

Solid Management Team

• “Infectious” people with a deep knowledge of their respective area

• Complementary skills, “in” for the long-run

• Deep network in their respective area of expertise


strategy

execution

success

strategy

execution

success Essential Elements for Successful Biotechnology Companies

Failure to Communicate = Failure of the CompanyFailure to Communicate = Failure of the Company

Science Management

Financing

***

*

• Respect of each others expertise• Efficient communication (Good AND BAD news)

• Ability to “let go” sometimes

Science Management

Financing

COMMUNICATIONDEFICIENT

ManagementFinancing

MICRO-MANAGEMENT

Science


strategy

execution

success

strategy

execution

success Financing a Biotechnology Company

A thorough knowledge of all financing opportunitiesA thorough knowledge of all financing opportunities is criticalis critical to succeedto succeed

FinancingPartners

! When/How to approach them?

! How much do they give? How much do they take?

! Current Trends

! Who are they?


strategy

execution

success

Venture Capital (Seed -->

Mezzanine)

Angels

strategy

execution

success Different Sources of Financing in BiotechnologyA

mount ($

)

Stage

Grants/T.T/Philantro.

Venture Debt and Royalties

Initia

l P

ublic

Offering (

IPO

)

PIPEs

Strategic Alliances

FO

PO

Private & Confidential

strategy

execution

success The (multi)Million Dollar Question

“Life science startups are the only companies that areforced to define their corporate strategy as a functionof their financing rather than to gather financing inaccordance to a previously well-defined corporatestrategy.”

-Steven G. Burrill, Stanford Technology Ventures Lecture Series

How to define a clear and efficientHow to define a clear and efficient

strategic financing plan for astrategic financing plan for a

biotechnology company ?biotechnology company ?


strategy

execution

success

strategy

execution

success Philanthropy, Government Grants and Tech. Transfer Offices

Venture Philanthropists

“Non-profit organizations' growing support for the industry of drug development does

more than fill a funding gap. It brings disease knowledge, patient access and an

understanding of the end market that few traditional VCs can offer.”-Start-Up Magazine, Windhover Business Intelligence

They areThey are::

•• Network of wealthy individualsNetwork of wealthy individuals

•• Non-For-Profit foundationsNon-For-Profit foundations

They provideThey provide::

•• Capital ( Capital (non-dilutivenon-dilutive))

•• Expertise, access to patients Expertise, access to patients

•• Network Network

•• Mentorship Mentorship


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO


strategy

execution

success General Trends: Venture Philanthropy

Venture PhilanthropyVenture Philanthropy is now filling an importantis now filling an important seed-fundingseed-funding gapgap

Source: Windhover Business Intelligence


strategy

execution

success

strategy

execution


Government Grants


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

POThey provideThey provide::

•• Small amount of $ ( Small amount of $ (non-dilutivenon-dilutive))

HoweverHowever: :

•• Available VERY early (still in the lab) Available VERY early (still in the lab)

e.g.: CIHR POP grants e.g.: CIHR POP grants


strategy

execution

success

strategy

execution


Technology Transfer Offices

They areThey are::

•• Part of academic institutionsPart of academic institutions


•• Small amount of seed $ ( Small amount of seed $ (non-dilutivenon-dilutive))

•• Help with the IP process Help with the IP process

HoweverHowever: :

•• Not always efficient Not always efficient

•• Use with caution Use with caution


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO


strategy

execution

success

strategy

execution

success Technology Transfer Offices

How to approach your technology transfer office

•• Have a general idea of what you intend to do with your technology.Have a general idea of what you intend to do with your technology.

(start-up, out-license, etc..)(start-up, out-license, etc..)

•• Look at the track-record of your technology officer.Look at the track-record of your technology officer.

•• Carefully weight-in the pros and cons of dealing with your tech. transfer.Carefully weight-in the pros and cons of dealing with your tech. transfer.

Things to look out for:

•• Are there more attractive options in order to get IP protection?Are there more attractive options in order to get IP protection?

•• Do you have a good relationship with your tech. transfer officer?Do you have a good relationship with your tech. transfer officer?

(You need things to move(You need things to move……quickly)quickly)

•• What are the other advantages of going through tech transfer?What are the other advantages of going through tech transfer?

(IP matching, seed $, etc.)(IP matching, seed $, etc.)

•• What is the credibility/expertise of your tech transfer officer in the field?What is the credibility/expertise of your tech transfer officer in the field?


strategy

execution

success General Trends: University/Tech Transfer

Source: Source: WindhoverWindhover’’s s PharmaceuticalPharmaceutical Strategic Alliances, Strategic Alliances, Vol Vol XVIIXVII

RecentRecent University/Tech Transfer Alliances (U.S. -- June University/Tech Transfer Alliances (U.S. -- June ‘‘05-June05-June’’06)06)


strategy

execution

success

strategy

execution

success Angel Investors

Angel Investors

They areThey are::

•• Wealthy individuals (or groups)Wealthy individuals (or groups)

•• Interested in high returnsInterested in high returns

•• Usually, they are from the industryUsually, they are from the industry


•• Small to Serious $Small to Serious $

•• MentorshipMentorship

•• Deep NetworkDeep Network

•• CredibilityCredibility

HoweverHowever::

•• Closed circle, hard to reachClosed circle, hard to reach

•• Conflicts between AngelsConflicts between Angels

•• Too involved in the CompanyToo involved in the Company


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO


strategy

execution

success

strategy

execution


Angel Investors

Angel Capital FundSeed $Actively Involved

Regional Angel GroupsSerious $Formal Organization

Small Angel Groups Start-up $Community decisions

Individual AngelsGive-it-a-try $More involved than you wish!


strategy

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success

strategy

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Angel Investors

•• Boutique Investment Banking and NETWORKBoutique Investment Banking and NETWORK

•• Business plan competitionBusiness plan competition

•• Typically from $15,000-$1,000,000Typically from $15,000-$1,000,000

•• Geographical restrictionsGeographical restrictions

1.1. How to get in touch with them ?How to get in touch with them ?

2.2. How much do they give?How much do they give?

3.3. How much do they want?How much do they want?

•• Be actively involved, e.g.: seat on the BoardBe actively involved, e.g.: seat on the Board

•• Equity in the companyEquity in the company


strategy

execution

success General Trends: Angel Investors

Angel investmentAngel investment is strong in the life science sectors (U.S. Data)is strong in the life science sectors (U.S. Data)

" 26.5B $ in disbursements in 2006 " 10.8% increase in disbursements from 2005

" 7.5% increase in average # of deals from 2005" Founded 51,000 entrepreneurial ventures

Quick FactsQuick Facts::

Source: Centre for Venture ResearchSource: Centre for Venture Research

Analysis: SHI CapitalAnalysis: SHI Capital

YieldYieldRateRate


strategy

execution

success General Trends: Angel Investors

Individual Angels

Small Angel groups

Regional Angel groups

Angel Capital Fund

Angel investors demand (and obtain) high return on investmentAngel investors demand (and obtain) high return on investment

Source: Chart from Ottawa Angel Alliance PresentationSource: Chart from Ottawa Angel Alliance Presentation


strategy

execution

success

strategy

execution

success Venture Capital

Venture Capital

They areThey are::

•• Investors for a group of Limited PartnersInvestors for a group of Limited Partners(LPs)(LPs)

•• Most common way to finance biotechMost common way to finance biotech

•• Often have an industry backgroundOften have an industry background


•• Various amount of $ ($0.5M-$20M+)Various amount of $ ($0.5M-$20M+)

•• Management expertiseManagement expertise

•• CredibilityCredibility

HoweverHowever::

•• Finance 1:100 opportunitiesFinance 1:100 opportunities

•• Very Very ““exit-orientedexit-oriented””


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO


strategy

execution

success

strategy

execution

success Stages of Venture Capital Financing

Seed Funding < $500,000

Expansion or Series B $2,000,000-$15,000,000

Mezzanine or Series C $2,000,000-$20,000,000+

Start-up or Series A $500,000-$1,000,000

Bridge $2,000,000-$20,000,000+

• Clinical discovery stage, strong IP

• Solid science combined with a compelling business plan (maybe an angel on board)

• Demonstrated significant milestone achievements

• Close to generating revenues (out-licensing, partnering)• e.g.: IND filed, ready to go to clinical trials or already in Phase I

• Demonstrated excellent milestone achievements• Completed some strategic alliances with a clear exit strategy• e.g.: a couple of pre-IND, IND and Phase I/II compounds, close to acquisition or IPO

• Demonstrated efficiency, business driven, strong management team

• Significant progress since inception of the company

• e.g..: Discovery --> Lead Optimization or first molecules from a technology platform

• Provide some cash before an IPO (in 6-12 months)


strategy

execution

success

strategy

execution

success Getting a meeting with VCs

Getting a meeting with a VC

•• Credibility + NetworkCredibility + Network

•• Talk about your technology, create curiosity around your productTalk about your technology, create curiosity around your product

•• Be politely persistentBe politely persistent

3:13:11:11:1Stakeholder to the Fund (LPs or Portfolio CEOs)Stakeholder to the Fund (LPs or Portfolio CEOs)

3:13:12:12:1Current and Future InvestorsCurrent and Future Investors

5:15:1

20:120:1(MUCH (MUCH hhigher iigher iff you you win win a prize)a prize)

100:1100:1

1000:11000:1

Getting $Getting $(assuming you did a(assuming you did a GREAT pitch)GREAT pitch)

3:13:1Professionals with Fund Relationships (SHI Capital)Professionals with Fund Relationships (SHI Capital)

15:115:1Venture Fairs, Financing Forums, and otherVenture Fairs, Financing Forums, and otherIndustry EventsIndustry Events

50:150:1Unknown/Unlicensed Agents (i.e.: POSERS)Unknown/Unlicensed Agents (i.e.: POSERS)

100:1100:1Unsolicited SubmissionsUnsolicited Submissions

Getting aGetting aMeetingMeeting

StrategyStrategy

Source: Sean Wise, Source: Sean Wise, ReportonBusinessReportonBusiness.com.com


strategy

execution

success

strategy

execution

success The Pitch to VCs

The Pitch: Guy Kawasaki’s 10/20/30 Rule

10 Slides10 SlidesTitle

Problem

Solution

Business model

Underlying magic

Marketing/sales

Competition

Team

Projections

Status and timeline

20 Minutes20 Minutes

More doesn!t mean better

Leave time for chatting

and questions

It demonstrates that youare clear and concise

30pt Fonts30pt Fonts

Not 12pt fonts

Source: Guy Kawasaki, The Art of the StartSource: Guy Kawasaki, The Art of the Start


strategy

execution

success

strategy

execution

success Common Mistakes when Talking to VCs

DODOCompelling idea that you already fell

in love with!

Strong team that you have worked

with previously

Clear market opportunity

Great science

Significant competitive advantage

Credible financial projections

Follow-up, ask for feedback

DONDON’’TTIgnore the red flags

Underestimate the time it takes to

raise capital

Go to a meeting alone

Target the wrong audience

(know your investors, do your homework)

Poor understanding of the financials

Underestimate the value of a great

management team

Be NDA-obsessed


strategy

execution

success Final thoughts: Venture Capital

TheThe Entrepreneur-VC Dating GameEntrepreneur-VC Dating Game

First Date

Dating

Long TermRelationship

• Make sure that you know the investor and vice versa (no blind dates!)• Be clear about your intentions• Establish trust• Follow-up

• Plan for an exit strategy, be open-mind about it• Share the good and most importantly the bad news (no surprises)• Remember: You are together ‘till M&A or IPO

• Work together• Share the good and most importantly the bad news (no surprises)• Discuss about future plans often• Accept feedback and be ready to compromise


strategy

execution

success

“Unlike other countries, which have built vital and growing biotech sectors,the down cycle for Canadian!s industry has remained in effect since 2002.”

-Burrill & Co, 2007 Annual Report on the Life Science Industry

General Trends: The Situation in Canada

Source: CVCA, NVCA and Source: CVCA, NVCA and PwC MoneyTreePwC MoneyTree



strategy

execution

success General Trends: The Situation in Canada



Canadian VCs disburse significantly less on a deal-per-deal basisCanadian VCs disburse significantly less on a deal-per-deal basis


strategy

execution


Canadian VCs are closing a disproportionate amountof deals relatively to U.S. VCs

Canadian VCs close more deals than they canCanadian VCs close more deals than they can afford toafford to




strategy

execution


Source: CVCA, NVCASource: CVCA, NVCA


Poor Performance for the Canadian VCs (Poor Performance for the Canadian VCs (Net IRR as of Q3 2006)Net IRR as of Q3 2006)


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Venture Debt

Venture Leasing/Lending

•Venture Leasing provides financing in return for equipment lease payments

•Venture Lending is an alternative to traditional lending from financing institutions

• Enhance existing funding round(no equity dilution)

• Bridge between financial rounds(may improve the terms)

• Financial “Buffer”

• Financial credibility

Why get Venture Debt?


strategy

execution

success

strategy

execution

success Venture Debt

VentureVenture debt can extend cash runaway withoutdebt can extend cash runaway without eating-up equityeating-up equity

16M $16M $Series CSeries C

4M $4M $VentureVenture

DebtDebt

6 Months6 MonthsCashCash

RunwayRunway


strategy

execution

success

strategy

execution

success Venture Leasing and Venture Lending

VentureVenture debt are availabledebt are available at every stage of the companyat every stage of the company’’s growths growth

Venture Leasing

Venture Lending

What:• Credit Line: $1-$10 Millions• Collateral: Variable and fixed asset (IP, receivables, etc…)

Who:• Large companies: Close to raising capital, strong management, supportive investors

What:• Lease payment on fixed assets• Collateral: The asset

Who:• Start-up and Series A companies: VC-backed, need $ to buy large assets


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Royalty Financing

They offer:

• Fund future product development, product acquisition, product launch costs• Minimizes dilution• Transactions may also be customized• Delays out-licensing• Diversify risk• Offer matching grants for research

They areThey are::

•• Investors offering cash in Investors offering cash in exchange for license royalty exchange for license royalty paymentspayments

Royalty Financing


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.


Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Initial Public Offering (IPO)

Initial Public Offering

They areThey are::

•• A regulated process by which a publicA regulated process by which a publiccompany issues public shares for thecompany issues public shares for thefirst timefirst time


•• CapitalCapital

•• Alternative to acquisitionAlternative to acquisition

•• Reimbursement of venture debtReimbursement of venture debt

•• Major shareholders control the companyMajor shareholders control the company

HoweverHowever::

•• Very sensitive to market conditionsVery sensitive to market conditions

•• Stock price is VERY milestone sensitiveStock price is VERY milestone sensitive


strategy

execution

success General Trends: IPOs

Source: Source: Burril Burril & Co, 2007& Co, 2007

The IPO market is slowly recovering from the 2000-2001The IPO market is slowly recovering from the 2000-2001 bubble bustbubble bust


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.

Venture debt and Royalties

Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Private Investment in Public Entities (PIPEs)

Private Placement in Public Entities

They areThey are::

•• Small group of investors buyingSmall group of investors buyingcommon shares of a public companycommon shares of a public companyat discounted priceat discounted price



•• Not a lengthy process like IPO or FOPONot a lengthy process like IPO or FOPO

•• Can be done quickly by Investment BanksCan be done quickly by Investment Banks

•• Not market sensitiveNot market sensitive

HoweverHowever::

• A large amount of securities are being offered to a limitednumber of investors

--> Investors might want to play an active role in the company


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.

Venture debt and Royalties

Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Follow-On Public Offering (FOPO)

Follow-On Public Offering (FOPO)

They areThey are::

•• An offering of shares to the publicAn offering of shares to the publicafter the company has already goneafter the company has already gonethrough an IPO.through an IPO.



HoweverHowever::

• Can be interpreted as a “red flag” indicating thatthe company is strapped for cash.


strategy

execution

success


Mezzanine)

Angels

Am

ount ($

)

Stage

Grants/T.T/

Philantro.

Venture debt and Royalties)

Initia

l P

ub

lic O

ffe

rin

g (

IPO

)

PIPEs

Strategic Alliances

FO

PO

strategy

execution

success Strategic Alliances

Strategic Alliances

They areThey are::

•• Variation of different deals in order toVariation of different deals in order toin/out-license, co-developed or co-in/out-license, co-developed or co-market productsmarket products



•• ProductsProducts

•• Access to expertise (CRO, sales, marketing, etcAccess to expertise (CRO, sales, marketing, etc……))

HoweverHowever::

• Requires planning, vision and a detailedstrategic approach


strategy

execution

success The Innovation Gap


LowLow drug approval rates create an innovation gap for Big drug approval rates create an innovation gap for Big PharmaPharma


strategy

execution

success Current Trends: Buying Discovery (late)

Big Big Pharma Pharma is breaking the bank to fuel their clinical pipelinesis breaking the bank to fuel their clinical pipelines

Source: Source: WindhoverWindhover’’s s Strategic IntelligenceStrategic Intelligence SystemSystem

Source: Source: Burrill Burrill & Co, 2007& Co, 2007


strategy

execution

success General Trends: Mergers/Acquisitions


Recent industry M&A activity statisticsRecent industry M&A activity statistics


strategy

execution

success Agenda







strategy

execution

success

strategy

execution

success Case Study: KuDOS Pharmaceuticals

KuDOS at a glance

UK Oncology drug discovery company

Founded in December 1997 (3 people)

Brought 3 drugs to clinical trials

Raised over 40 Million £ in venture capital

Acquired for $210M US (cash) by AstraZeneca in December 2005 (75 people)


strategy

execution

success

strategy

execution


KuDOS Pharmaceuticals relied on strong and stable management teamKuDOS Pharmaceuticals relied on strong and stable management team

J. Barrie Ward PhD, CEO (1999-2005)

Prof. Stephen Jackson PhD, CSO/Founder (1997-2005)

Graeme Smith PhD, Research Director (1999-2005)

Richard Onyett, Commercial Director (2002-2005)

Peter Harris MD, Technical Director (2001-2005)

• Former senior head scientist at GSK

• Deep network in Big Pharma combined with proven managerial experience

• World expert on DNA repair with deep network in the scientific community

• Post Doctoral fellow in Steve Jackson Lab

• Extensive experience in pharmacology and small molecule drug discovery

• Past life in marketing as well as very experienced in business development

• Deep experience and network with small biotechs

• Ex, Amgen, AstraZeneca, Cobra Therapeutics

• Experienced oncology drug developer within Big Pharma and Biotech


strategy

execution

success

strategy

execution


ScienceThe inhibition of DNA repair as an innovative cancer therapy

KuDOS Pharmaceuticals relied on innovative science to build the companyKuDOS Pharmaceuticals relied on innovative science to build the company

Classical cancer chemotherapy involves using DNA damaging agents to killrapidly dividing cells (like cancer cells)

Prior knowledge:

Cancer cells quickly gain genotypic variations increasing DNA repair efficiencyRESITANCE TO CHEMOTHERAPY

Long term exposure to chemotherapy (long and repeated sessions) are haveDEBILITATING SIDE EFFECTS

The problem --unmet need:


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KuDOS is developing small molecule inhibitors of thecellular DNA repair response

DNA repair inhibitors given as first line therapy:

1. Increase efficiency of chemotherapy CANCER CELLS CAN’T REPAIR DNA

2. Require shorter chemo. treatment LESS SIDE EFFECTS

“KuDOS’ novel scientific approach to cancer therapy willprove to be paramount in its success”

KuDOS Pharmaceuticals relied on innovative science to build the companyKuDOS Pharmaceuticals relied on innovative science to build the company

Source: Source: GenEngNews.comGenEngNews.com


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Initial Strategy

• Already dominate the DNA repair scientific field• Develop small molecules and out-license• Get venture capital financing

Developing Strategy

• In-licensed pre-clinical compounds to “get on the map” (help of the CRT)• Acquired a medicinal chemistry unit instead of starting from scratch• Maintain same investors throughout the life of the company (relationships)

KuDOS Pharmaceuticals relied on flexible financing strategies to build the companyKuDOS Pharmaceuticals relied on flexible financing strategies to build the company

Significant Milestones

• Brought 2 in-licensed compounds to clinical trials• Out-licensed one of these compounds• Brought a first in-house product to clinical trial


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1. Seed Funding Dec 1997

2. IP Protection

3. “IP matching” to enhanceKuDOS Portfolio (in-licensing)

Provided KuDOS with:

Owned by Cancer Research UK(World’s largest independent cancer fund)

Exclusive rights to Steve Jackson (CSO)Cancer Research UK funded research

Source: Source: www.cancertechnology.co.ukwww.cancertechnology.co.uk


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1998 2006

Strategic Deals

Acquisition of Med.Chem. Unit

In-Licensing ofAQ4N from BTGPharma

In-LicensingPaTrin-2 from CRT

Out-LicensingAQ4N to Novacea

Cash deals

350k £

5M£

CRT3i

AdventSV Life Sciences

210M USD

8M£

29.5M£CRT3iAdventSV Life Sciences

Euclid SRCRT3iAdventSV Life SciencesBankInvestLSPJ&J

AstraZeneca

CRT


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KuDOS pipeline (at time of acquisition)

KuDOS Pharmaceuticals now have a diverse pipeline of in-house and acquired productsKuDOS Pharmaceuticals now have a diverse pipeline of in-house and acquired products


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KuDOS business competitive advantage

Long and stable relationship with investors

Strong and stable management team

Key strategic moves in tech transfer, licensing, alliances

KuDOS scientific competitive advantages

Strong scientific expertise and great network

Novel therapeutic approach vs. platform of “me too” compounds

Very focused, goals and milestones oriented, didn’t reinvent itself


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success The value of a Biotechnology Company

KuDOS is bridging the gap between greatscience and commercial success

Great ScienceProjects

Great BiotechCompanies

Biotech BubbleCompanies

GenericCompaniesR

EA

L U

nm

et

Ne

ed

Value to Patient Population

The Study of DNA Repair


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Special thanks toDr. Graeme Smith for sharing the

history, trial and tribulations ofKuDOS Pharmaceuticals


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success Case Study 2: Chlorion Pharma

Overview of Company and FinancingOverview of Company and Financing

" Chlorion Pharma is a start-up drug discovery company that focuseson the advancement of novel therapeutics for the treatment of painand epilepsy.

" Chlorion was founded in 2004 and is currently based in Quebec City.

" From the summer of 2005 until now, Chlorion’s R&D operationswere supported wholly by grants – for the most part from a $150KCIHR POP grant.

" Recently, Chlorion secured a series A investment of >$5M from asyndicate of Quebec-based venture capital firms. Proceeds fromthis equity investment will be used to progress one small-moleculecompound through phase I development.

" Chlorion worked for three years to secure this capital, andapproached over 40 venture capital firms.


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The Top Ten Facts I Wish I had Known Three Years AgoThe Top Ten Facts I Wish I had Known Three Years Ago……

Case Study 2: Chlorion Pharma

10. Expect the quest for capital to take 2-3 times longer than you thinkit will.

9. A start-up biotechnology company will rarely fetch a valuationgreater than $2 to $3M, regardless of the base technology.

8. To a VC, “pre-money valuation” is effectively defined as the totalvalue of all outstanding shares + total value of all stock options.Hence, on paper all non-investors will hold $2M worth of sharesonly at the end of the financing period.

7. Sourcing capital is a time-consuming exercise that can not beperformed only during evenings and weekends.

6. Your chances of finding a VC that will be interested in yourtechnology (and to seriously considering an investment) are about1 in 20.


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The Top Ten Facts I Wish I had Known Three Years AgoThe Top Ten Facts I Wish I had Known Three Years Ago……

Case Study 2: Chlorion Pharma

5. Know the “right” answers to questions posed by VCs, even if these arenot necessarily the “true” answers.

4. If you are able to identify a VC that is truly interested in your project,spend 80% of your time trying to secure a commitment from this VC,and 20% of your time identifying other VCs that might be truly interestedin your company.

3. Be optimistic about your timelines, but never deceitful. Understand thatVCs don’t typically want to invest in a drug discovery company unless it“12 months from the clinic”.

2. VCs want to invest in start-ups with a straightforward, single R&Dprogram – not multiple programs.

1. When a VC says “no” to you, what they really mean is “not now”. Truly.


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The SHI Capital team combines strong finance and scientific experienceThe SHI Capital team combines strong finance and scientific experience

SHI Capital, Team

162 Cumberland Street, Suite 310Toronto, Ontario, M5R 3N5

CanadaTel: 416.236.1054

www.shicapital.com

Roman Roman MasleyMasley, P.Eng MBA, P.Eng MBA

Managing DirectorManaging Director

Jeffrey Jeffrey CoullCoull, PhD, PhD

Senior AssociateSenior Associate

John McGraw, PhDJohn McGraw, PhD

AssociateAssociate

Frédéric Frédéric Sweeney, PhD CandidateSweeney, PhD Candidate

AnalystAnalyst