The Hitchhiker's Guide to Venture Capital
Romans' VC blog with musings and stories related to venture capital, growing value and M&A. Author of McGraw Hill August 2013 published book - THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL: Inside Secrets from the Leaders in the Startup Game - available on Amazon, Barnes & Nobel, iTunes and other online and offline stores. Translated and published in Chinese, Japanese and Russian languages. Full blog posts are posted to http://rubicon.vc/blog/.
The Biotech Industry is facing a Patent Cliff and True Disruption – Biotech Part 3 of 6
In February of 2011, Pfizer announced the closing of its R&D center in Sandwich, Kent, United Kingdom. That center of excellence was a core part of the company’s drug development program. It employed 2,400 people, covered 80 acres and became known as the “the home of Viagra.” While Viagra was home grown and not venture backed, the closure of the Pfizer campus signaled a paradigm shift migrating big pharma, in-house R&D to satellite / outsourced drug discovery. Many of these companies are virtual and have a lean management, contractors doing much of the work and VCs playing a critical role forming and managing these companies. R&D spending for the pharmaceutical industry fell to $61bn in 2011, down from $68bn in 2010, down again from $70bn in 2009 and 2008 annually. Over 110 products in the key US market will lose exclusivity between 2012 and 2014. The industry is facing a patent cliff when branded drugs will fall in price to generic levels. Ian Read, the new CEO of Pfizer, the world’s biggest drug maker, announced they would slash their R&D budget by 25%. Although much of the biotech venture community has failed to deliver satisfactory returns to investors, such a restructuring looks like an opportunity for smart venture capitalists.
The too-big drug companies are shifting from being Lucent with Bell Labs to being Cisco with Silicon Valley. Moving $60bn from one end of the hourglass, big pharma, to the other end, private startups in Silicon Valley and other tech corridors, is a seminal investment opportunity for venture capital. Beyond the opportunity for absolute returns there is a moral imperative as a society to focus a meaningful portion of our collective efforts on healthcare life science related technology development such as drug discovery and medical devices. In addition, the healthcare system in the US is so inefficient and ineffective it just begs for IT entrepreneurs to make improvements to the care we receive and to the lowering of costs to delivering better care with better outcomes.
Not long after the launch of The Founders Club, biotech and medtech VCs and CEOs contacted me, saying that our model was a perfect fit with the biotech industry and the Food and Drug Administration’s (FDA) binary approval or rejection of medical devices. The VCs put their chips down on a portfolio of different colored squares on the craps table in the healthcare & life science casino. The Founders Club enables CEOs and founders of the top VC backed healthcare companies, individuals who have all of their chips on one colored square, to take 2% to 10% of their chips and distribute them over ALL of the colored squares. Now roll the dice!
At first, though, The Founders Club team needed some diversification. With an IT and MBA background but no medical or pharma background, I personally was a little intimidated by the science. But as we built our team of industry experts, we came to realize that biotech and medtech was a lot like classic IT and Internet entrepreneurship. It’s all about management, management, management and market. It’s about mature leadership in a very capital-intensive industry, where the essential access to that capital is based on good projects and trust relationships. Having a high volume of the best deal flow, coupled with good relationships within big pharma, is critical to making this work. Other members of The Founders Club healthcare & life science advisory board include Mike Sheffery, founder and general partner of the largest dedicated healthcare VC firm in the world, OrbiMed Advisors. Seven other top healthcare focused VCs are also on the advisory board. We have a growing set of member companies whose founders and CEOs add to our sector insights.
One example of a Club member, BioMedix (whose CEO just happens to be my brother), is a kick-ass healthcare IT company that raised angel funding from prolific entrepreneur and investor, Tom Fogarty, then VC funding. The company has been nearly doubling its revenues three years in a row. BioMedix offers a cardiovascular diagnostic device that can select for the best treatment and cure, sending the test data not only to the local doctor and medical team, but also to remote experts who can interpret the data, collaborate to provide the patient with much faster and more expert advice without the need for the patient to travel or pay for extensive expert advice. This telemedicine data is indexed and housed on BioMedix’s platform, ensuring a coordinated repository of patient info for medical experts in multiple locations, assuring the best downstream care for that patient episode and tracking outcomes. The company is on track to reach $100m revenues with 200 employees, 100 of whom are full time sales people. We expect a healthy multiple on revenue when the company IPOs or is bought.
Three more parts to this series on healthcare life science coming; so stay tuned. If you are a VC, angel investor, CEO or cofounder of a VC backed healthcare life science company, we'd like you to attend our demo day event during the J.P. Morgan Healthcare Conference in San Francisco. Please email us with some background on yourself and your company if you wish to join us. You must be on the list to get in the door. Over 100 delegates confirmed.
Founders Club JPM Demo Day at Wilson Sonsini Goodrich & Rosati (WSGR)
January 8, 2013, San Francisco, California
4:00 pm: Registration & networking
5:00 pm: Company pitches
6:00 pm to 7:30 pm: Cocktails & networking
WSGR San Francisco / Soma
139 Townsend Street
San Francisco, California 94107