In the first part of this article, I detailed how pharma and biotech companies, along with the federal government, provide the majority of funding for biomedical research in the U.S. In this second part, I’ll turn my attention to a number of other sources, both for-profit and nonprofit, that also provide the capital that drives drug discovery and development work.
Venture Capital on the Ropes, but New Models Emerge (Funding Level: $3.7 billion invested in biotech in 2010)
The venture capital (VC) industry is shrinking, the net result of a negative return on investments (in all areas, not just biotech) over the past 10 years. Many firms have gone out of business, and many fewer deals are getting done. Despite this, VC remains a significant source of innovation funding, with some $21.8 billion being invested in 2010 ($3.7 billion invested in 460 biotech deals). However, different approaches to funding companies are being explored in the ongoing search for a better investing model. For example, Eli Lilly is putting $50 million (and up to 20 potential drugs) into three separate funds covering different therapeutic areas, with a goal of raising an additional $250 million per fund from VC firms. Externally generated molecules acquired from academics or biotechs will also be investigated using these finances. The concept behind this funding is simply to increase the number of molecules being examined and speed up the development process. Lilly will have “preferential access” to reacquire molecules from these funds.
Other financing approaches abound. The Column Group is focusing on a “big idea” concept by only investing in transformative technologies that have the possibility of generating multiple products. Allied Minds has a similar philosophy in supporting “innovations with significant transformative possibilities”. Rather than start new companies, venBio has adopted the tactic of investing solely in existing companies. Another approach, a single asset, infrastructure light LLC model, is being tried that terminates a company and distributes its assets as a result of an ultimate licensing transaction. We shouldn’t expect any future Amgen or Genentech’s out of this investing strategy. Venture capital firms aren’t the only organizations making equity investments in biotech companies. The Bill and Melinda Gates Foundation recently made such an investment in the biotech company Liquidia. Whether any of these new models (or others) will be any more successful (either medically or financially) than ones used in the past remains to be seen. Changes in current tax laws may be helpful in reinvigorating investor’s interests in venture capital firms.
Disease Charities are Funding Many Drug Development Projects (Funding Level: Greater than $100 Million)
There are a number of disease-focused charities that raise money to fund researchers; their ultimate goal is finding treatments for various diseases. One of the first groups to do this was the March of Dimes, founded during Franklin Roosevelt’s administration to find a cure for infantile paralysis, more commonly known as polio. Its current mission is to prevent birth defects and reduce infant mortality. Traditionally, organizations such as the American Cancer Society, the Muscular Dystrophy Association, and the Leukemia and Lymphoma Society fund academic investigators at research universities. More recently, these and other charities have stepped up to the plate to fill the gaps caused by industry cutbacks. For example, The Michael J. Fox Foundation has some 38 active industry collaborations, as well as partnership arrangements with Elan Pharmaceuticals and Merck Serono. The Juvenile Diabetes Research Foundation is funding, through its Industry Partnerships, some $71 million of work at 30 companies. The Multiple Myeloma Research Foundation awarded $11 million recently through its Biotech Investment Awards Program and Research Consortium.
Non-Traditional Private Companies Enter the Clinical Funding Arena (Funding Level: Tens of Millions)
These companies represent an unusual (and not very widespread) source of capital that is being focused on specific disease targets. Billionaire and philanthropist John Kluge made his fortune as a television industry mogul prior to his death in 2010. Metromedia, his privately held broadcast and communication’s company, recently established a biosciences unit to fund a clinical cancer trial. Metromedia Bio-Science LLC has put $50 million into a clinical trial at New York’s Rogosin Institute to test
