Justin Chakma

Asia's Ascent — Global Trends in Biomedical R&D Expenditures

In recent years, industry has reduced its investment in U.S. biomedical research and development by billions of dollars, while increasing investment in Asia–Oceania. Thus, boosting U.S. government funding alone may be inadequate for retaining long-term R&D leadership.

Life sciences venture capital in emerging markets

195 in-licensed by the firm (see Supplementary Tables 1 and 2 for a full list of Chinese and Indian firm descriptions). We exclude manufacturing and traditional medicines, which occur overwhelmingly in China, for a consistent and fair comparison of countries across regulated products that require R&D and clinical trials for approval. Including such firms focusing on traditional medicines or manufacturing would bias our analysis of relationships between VC and PE investment and other factors, such as government financing of biomedical R&D. For funds with international investments, we required that the firm had an R&D presence in one of the emerging markets. We validated our data set by surveying 25 VC funds that collectively participated in half the historical life sciences deals in these countries and verified them with independent databases, including Zero2IPO, VentureIntelligence and DowJones VentureSource. In contrast to the widely held perception that life sciences VC and PE investment activity is booming in emerging nations12,13, our data suggest that innovative life sciences VC activity has been muted. Overall, we report a total of 116 VC-backed firms financed by 148 deals. Of these, 76 firms report public equity rounds totaling ~

Venture funding for science-based African health innovation

1.065 billion (Fig. 1). Extrapolating from these data, we estimate that since 2000, VC and PE firms To the Editor: Emerging markets, such as Brazil1, China2, India3 and South Africa4, are increasingly recognized as placing great emphasis on innovation in the life sciences. Expanding research expenditure and capacity driven by rapid economic growth and repatriation of scientific talent has led to rising numbers of peer-reviewed publications5, patent filings6 and international scientific collaborations7,8. A simultaneous surge in investment has reportedly accompanied this research activity in terms of foreign direct investment flows by large multinational pharmaceutical firms9, biotech firm formation recorded by industry association data and billion-dollar annual life sciences private equity (PE) investment levels10 (Table 1). Yet, data on sources of venture capital (VC) that are supporting such innovative biotech startups are unclear because existing investment metrics include not only innovative enterprises but also manufacturing or service firms lacking R&D capability. The quality of published data is also poor, with only one study on healthcare VC activity in China providing data for a single quarter in 2008 and it does not separate innovative ventures11. Here, we present a data set of life sciences VC in emerging markets to inform government innovation policy and VC investment strategy. Our data suggest that life sciences VC activity is low in the emerging economies we studied, despite growing levels of activity in that sector and in those regions. Furthermore, VC investments in emerging economies are disproportionately concentrated in a small set of funds historically selecting oncology assets (~78% of therapeutics). What’s more, these investments are supported by syndicates and investment-round sizes that are substantially smaller than those seen in the United States or European Union, forcing both domestic and foreign VC investors to develop novel investment strategies to mitigate countryspecific risk. We conducted a comprehensive search for innovative, VC-backed investments related to human healthcare from January 2000 to August 2012 in key emerging markets, specifically Brazil, China, India and South Africa (Supplementary Methods). We selected these countries because we were able to validate the quantitative data with qualitative reports from our prior relevant fieldwork. For the same reason, we excluded important emerging countries, such as Singapore, because we were unable to reconcile data with qualitative reports. This validation is critical, given the lack of access to high-quality data. We use the term innovative to characterize biotech firms developing products for humans, such as therapeutics and vaccines, based on new, proprietary technology invented or Life sciences venture capital in emerging markets

Is it virtuous to be virtual? The VC viewpoint

BackgroundWhile venture funding has been applied to biotechnology and health in high-income countries, it is still nascent in these fields in developing countries, and particularly in Africa. Yet the need for implementing innovative solutions to health challenges is greatest in Africa, with its enormous burden of communicable disease. Issues such as risk, investment opportunities, return on investment requirements, and quantifying health impact are critical in assessing venture capital’s potential for supporting health innovation. This paper uses lessons learned from five venture capital firms from Kenya, South Africa, China, India, and the US to suggest design principles for African health venture funds.DiscussionThe case study method was used to explore relevant funds, and lessons for the African context. The health venture funds in this study included publicly-owned organizations, corporations, social enterprises, and subsidiaries of foreign venture firms. The size and type of investments varied widely. The primary investor in four funds was the International Finance Corporation. Three of the funds aimed primarily for financial returns, one aimed primarily for social and health returns, and one had mixed aims. Lessons learned include the importance of measuring and supporting both social and financial returns; the need to engage both upstream capital such as government risk-funding and downstream capital from the private sector; and the existence of many challenges including difficulty of raising capital, low human resource capacity, regulatory barriers, and risky business environments. Based on these lessons, design principles for appropriate venture funding are suggested.SummaryBased on the cases studied and relevant experiences elsewhere, there is a case for venture funding as one support mechanism for science-based African health innovation, with opportunities for risk-tolerant investors to make financial as well as social returns. Such funds should be structured to overcome the challenges identified, be sustainable in the long run, attract for-profit private sector funds, and have measurable and significant health impact. If this is done, the proposed venture approach may have complementary benefits to existing initiatives and encourage local scientific and economic development while tapping new sources of funding.

Turning science into health solutions: KEMRI’s challenges as Kenya’s health product pathfinder

volume 27 number 10 october 2009 nature biotechnology The venture investors we interviewed emphasized the importance of staffing virtual companies with execution-oriented CEOs and with experienced senior operating executives. Investors often seek CEOs or COOs who have had extensive clinical trial experience in large pharmaceutical companies or CROs. In the words of one survey respondent, “If given an A team with a B plan or a B team with an A plan, we’d take the A team with a B plan every time.” Compared with traditional ventures, leadership, organizational and communication skills are even more critical in virtual biotechs, where outsourced resources may be in disparate locations and motivated by slightly different incentives. Tim Walbert, a successful serial CEO and now CEO of Horizon Therapeutics (Northbrook, IL, USA), observes: “You can’t be in a situation where you just hand off the work. Company leadership should drive the strategy and bring in consultants to execute under strong guidance.” And one early-stage life sciences investor, Kevin Harter, who is senior vice president of business development at Life Sciences Greenhouse (Harrisburg, PA, USA), told us: “The day-to-day entrepreneurial focus that comes with a team being in the same room together allows you to drive business day in and out, to determine what the urgent things are that day and on a real-time basis. Without a cohesive internal staff, things can move very slowly. You need a business developer who can work independently, who is a self-starter that can tackle logistical issues of being maybe a time zone or half a world away.” Investors also often face challenges in identifying and recruiting individuals for virtual ventures who are proficient at project leadership—at navigating the CRO ecosystem and integrating external resources—and who have relevant domain-specific knowledge. Most venture capitalists interviewed indicated that their management teams approach large CROs very selectively and that prior experience and relationships with a given CRO influence which organization is chosen to run a virtual biotech’s clinical trials. Doug Given at Bay our survey respondents, Canaan Partners (Menlo Park, CA, USA), for example, sees an important role for outsourcing in the strategy of its biologics companies, noting that manufacturing firms in India are creating greater capacity for the outsourced manufacture of biologics. Atlas Ventures (Waltham, MA, USA) also employs the virtual model for enterprises in its biotech portfolio, developing monoclonal antibodies and peptide therapeutics. Respondents to our survey cited several advantages of the virtual model over the traditional biotech business model (Table 1 and Supplementary Data). Capital efficiency is clearly one benefit. David Collier at CMEA Capital (San Francisco) goes as far as to state that the traditional biotech model with 30 employees running 1–2 trials is a waste of resources because a good clinical team should be able to run 5–6 clinical trials. “The only reason [biotech companies are] running 1 to 2 instead of 5 to 6 programs is because they just don’t have the money for it. There’s inherent inefficiency built into the traditional drug development model. The outsourced system allows you do the same development with much smaller teams and many more products simultaneously.” Although capital efficiency is often cited as the primary reason for promoting a virtual structure, another advantage is the speed with which virtual companies can reach commercial milestones. According to Brent Ahrens, partner at Canaan Partners, “in a defined time period, either through a return or determining viability, the primary consideration may be that a virtual model is quicker.” Other advantages relate to easier governance and management of resources within a virtual company (Table 1). Despite these potential advantages, virtual biotech companies can also be challenging enterprises to lead (Supplementary Data). To the Editor: A Commentary in the August issue by Bruce Booth1 highlights the importance of the virtual business model as an increasingly important facet of strategies for making biotech companies more capital efficient. In a previous study examining the portfolio companies of his venture capital (VC) firm, Booth also provided evidence that companies with fewer full-time employees are markedly more productive than peer companies with more employees2. Other venture industry insiders have also commented on the fact that investors are favoring companies that keep a “laser sharp focus,” and that “employ virtual and semi-virtual models to maximize cash efficiency”3. To characterize the present state and future potential of virtual biotech, we conducted semistructured interviews with representatives from 25 leading life sciences VC firms and four leading contract research organizations (CROs). Twenty-five of the 30 VC firms (83%) we contacted agreed to be interviewed (Supplementary Data). The firms were all located in North America, with fund sizes ranging from

Case study: India's billion dollar biotech.

200 million to >

Can incubators work in Africa? Acorn Technologies and the entrepreneur-centric model

2 billion. We supplemented interview data with quantitative and qualitative data from Scale Venture Partners (Foster City, CA, USA), a leading investor in virtual biotech companies, and New Enterprise Associates (Chevy Chase, MD, USA), one of the largest venture capital funds worldwide. On the basis of the feedback in our survey, outsourcing—once limited to big pharma developing small molecules—is now widely exploited in the biotech sector. Indeed, Covance (Princeton, NJ, USA) reports that currently >60% of the business at most CROs comes from small to medium-sized biotechs rather than large biotechs or big pharma. Outsourcing is also not limited to work with small molecules. One of Is it virtuous to be virtual? The VC viewpoint c o r r e s p o n d e n c e

Global biomedical R&D expenditures.

BackgroundA traditional pathway for developing new health products begins with public research institutes generating new knowledge, and ends with the private sector translating this knowledge into new ventures. But while public research institutes are key drivers of basic research in sub-Saharan Africa, the private sector is inadequately prepared to commercialize ideas that emerge from these institutes, resulting in these institutes taking on the role of product development themselves to alleviate the local disease burden. In this article, the case study method is used to analyze the experience of one such public research institute: the Kenya Medical Research Institute (KEMRI).DiscussionOur analysis indicates that KEMRI’s product development efforts began modestly, and a manufacturing facility was constructed with a strategy for the facility’s product output which was not very successful. The intended products, HIV and Hepatitis B diagnostic kits, had a short product life cycle, and an abrupt change in regulatory requirements left KEMRI with an inactive facility. These problems were the result of poor innovation management capacity, variability in domestic markets, lack of capital to scale up technologies, and an institutional culture that lacked innovation as a priority.However, KEMRI appears to have adapted by diversifying its product line to mitigate risk and ensure continued use of its manufacturing facility. It adopted an open innovation business model which linked it with investors, research partnerships, licensing opportunities, and revenue from contract manufacturing. Other activities that KEMRI has put in place over several years to enhance product development include the establishment of a marketing division, development of an institutional IP policy, and training of its scientists on innovation management.SummaryKEMRI faced many challenges in its attempt at health product development, including shifting markets, lack of infrastructure, inadequate financing, and weak human capital with respect to innovation. However, it overcame them through diversification, partnerships and changes in culture. The findings could have implications for other research institutes in Sub-Saharan Africa seeking to develop health products. Such institutes must analyze potential demand and uptake, yet be prepared to face the unexpected and develop appropriate risk-mitigating strategies.

Indian vaccine innovation: the case of Shantha Biotechnics

By focusing on an unmet medical need, providing a cost-efficient solution and reinvesting the resulting revenues into R&D and state-of-the-art manufacturing, Shantha Biotechnics was able to build one of Indias first biotech successes.

Avoiding capital punishment.

BackgroundIncubators are organizations that support the growth of new and typically technology-based enterprises, by providing business support services that bring together human and financial capital. Although the traditional role of incubators has been for economic development, they may also be a useful policy lever to tackle global health, by fostering the development and delivery of local health innovation.Given its high disease burden, life sciences incubators hold particular potential for Africa. As the most industrially advanced African nation, South Africa serves as a litmus test for identifying effective incubator policies. The case study method was used to illustrate how one such publicly funded incubator founded in 2002, Acorn Technologies, helped to catalyze local health product innovation.DiscussionAcorn helped to support twelve biomedical device firms. One of them, Real World Diagnostics, was founded by a trainee from Acorn’s innovative internship program (Hellfire). It developed rapid strip diagnostic tests for locally prevalent diseases including schistosomiasis and HIV, and reported