So You Want to Start a Biotech Company Ralph Chris Christoffersen Partner, Morgenthaler Ventures Bio

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So You Want to Start a Biotech Company?Ralph
(Chris) ChristoffersenPartner, Morgenthaler
VenturesBiobootcamp 2009April 30, 2009
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Company Value Building
Lab Experiments/Invention/Patent Application
(Angels/Seed Funds)
Seed Financing
Key Experiments Bus Plan Mgt Team
Lead Venture Capital Firm
Due Diligence (Scientific, Business, Management)
Series A Investment (5M7M part of syndicate)
Milestones
(4-6 years)
Series B Investment (10-30M part of syndicate)
Milestones
Pivotal Clinical Trials Liquidity Event (IPO,
Sale of company)
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Building the Company Getting Started

• Hire key employees
• CEO, VP RD, Controller, Scientists/Associates
• VP Bus Dev, CFO
• (Virtual Company Alternative)
• Rent lab/office space
• Lease equipment

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Sources of Capital

• Angels
• Grants
• Venture Capital
• Debt
• Partnerships

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Sources of Capital

• Angels
• Relatively small amounts of money seed
  financing typically wealthy individuals or state
  seed funds
• 50K - 1M
• Grants
• NIH SBIR Phase I Grants (150 750K)
• SBIR Phase II Grants (1M)
• Translational Research Grants
• Mostly useful for preclinical and early
  manufacturing support
• Foundations Gates, Other
• Mostly useful for orphan diseases, third world
  diseases
• Variable amounts can be large (multi-million )

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Sources of Capital

• Venture Capital
• Different kinds
• Independent, limited partner based
• Corporate
• Different focus
• Early Stage (incubation, Series A)
• Later Stage (Series B, C, Mezzanine, PIPES)
• Therapeutics
• New paradigms
• Specialty pharma
• Technologies
• Drug Delivery
• Devices
• Diagnostics
• Health Care Services

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Sources of Capital

• US Biotech Venture Capital Firms
• ( 50M under management)
• 134 Firms
• 147B under management
• 53 Early stage investors
• 68 Various stages
• 13 Later stages

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Raising Money

• When?
• Whenever its available cash is King
• Best effect on valuation if significant milestone
  has just been reached.
• How Much?
• At least enough to get to next significant
  milestone with 6 months of cash left.
• Valuation
• Market driven (comparables)
• Todays market (Company-specific within general
  guidelines)
• Pre-Money Valuation
• Start-up 5M
• Pre-clinical 10M
• End of PI 10-12M
• End of PII 20-35M
• End of PIII 75-90M

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Board of Directors

• Typically 5 members initially
• 3 VCs
• Domain experience
• Active in company/value added
• CEO
• Outside Director
• Communication from CEO
• Often no surprises no punishment for bad news
• Should provide slightly more info than can be
  processed

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Outside Advisors

• Scientific Advisory Board
• Founder(s)
• Experts in technology/therapeutic areas of
  interest
• Important initially usually become less
  important over time
• Clinical Advisory Board
• Form on product-by product basis
• Academic MDs, who may be clinical investigators
  for company products
• Avoid conflicts of interest

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Alliances and Collaborations

• Important for
• Validation
• Cash
• Expertise
• Issues
• Valuation
• Timing of Cash Payments
• Control of progress

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Valuation Milestones

• Patent Allowances
• Pre-clinical Proof of Principle
• Cell culture
• Animals
• Clinical Proof of Principle
• Phase I Safety PK
• Phase II Initial efficacy demonstration
• - Biological activity
• - Disease activity
• Phase III Large Scale clinical trials
• Study initiation meet enrollment deadlines
• Meet FDA endpoints
• File NDA
• Corporate Partnerships

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Rocks In the Road

• Down-Round financings
• Founder transitions
• VC meddling
• Lack of liquidity opportunities

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Odds of Getting Started

• Morgenthaler example
• 2.8 billion under management
• New 400M venture fund (Nov 2008)
• 12 partners (Life Sciences, Info. Tech., Buy
  Outs)
• Each partner invests about 50M per fund
• About 1 1.5 investments/year (10-20M/company
  in total)
• Typically lead the Series A investment
• Have significant reserves for follow-on
  investments
• Look at about 100 companies for each investment
• Say No 99 times out of 100.