The Ohio Valley Affiliates for Life Sciences Group (OVALS) will host it’s 6th Annual regional conference  “Transformational Research: A Bridge to Building Economies” on April 14-15, 2008, at the Historic Brown Hotel in Louisville, KY. 

Topics Include:

Future trends in the biotech industry and factors that will shape it
A close-up view of NC: key elements, impact and lessons
Partnering with foundations
Changing landscape of universities and industry working together
OVALS regional assets: what do we have - how can they be used
Congressionally mandated programs as a source of funding

Register here.

An optional program this year is the Business Bootcamp for Scientists and Engineers.  This includes sessions on IP, marketing, start-up and funding.  (Note: Advanced registration required)

Posted February 14th, 2008 by Stephen Albainy-Jenei in Bioventures
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About Biotech talks about Biotech Business Models this week, such as the Platform, Product and Vertical models for early-stage biotech companies. In all cases, patents and IP rights are noted to be at the core of any venture. Noteably is that the Platform business model has persevered, combined with contract research and services for the generation of revenue.

However, the Fully Integrated Pharmaceutical Company (FIPCO) model is making a comeback. The Ernst & Young Beyond Borders: Global Biotechnology Report 2007 has been released and provides a good outlook of unprecedented financing totals and deal activity that indicates a continuation of the strong growth trend that appeared in the 2006 report.

According to a press release by E&Y, the global increase in capital raised was reported to be 42% and double-digit increases in revenues were reported in Canada, the USA and Europe. In addition, the outlook for the biotechnology industry in 2007 is exceptionally good saying that the biotechnology sector “is comfortably on track to become a $100 billion revenue industry before the end of the decade.”

The revenues of publicly traded U.S. bio-tech companies grew by over 14 percent in 2006. Public companies’ research and development (R&D) grew by 38 percent, and net loss increased by 151 percent, from $1.4 billion in 2005 to $3.5 billion in 2006. However, these swings resulted largely from some very significant acquired in-process R&D (IPR&D) charges related to large acquisitions. Factoring out the impact of these deal-related charges, which totaled in excess of $4 billion for the industry, R&D expense would have grown by about 14 percent, essentially keeping pace with top-line revenue growth. If the biotech industry had kept R&D flat during 2006, it would have made money.

The number of alliances more than doubled compared to 2005, and their total value reached an all-time high of $23 billion — a 69 percent increase. M&As also soared, reaching the second highest total recorded in the industry’s history.

This was also a banner year for biotech financing. U.S. biotech companies raised a total of $20.3 billion, making this the best year on record, excluding the bubble year of 2000. Venture capital financing set a record at $1.9 billion. Worldwide, venture capital reached $5.4 billion. The initial public offering (IPO) markets remained challenging for many companies. For the third year in a row, the vast majority of IPOs failed to go public within their desired price ranges.

The U.S. had another strong year for product approvals, with 36 product approvals, including 25 New drug applications (NDA) and biologic license application (BLA) approvals. This compares favorably with 2005, when the industry secured 33 approvals, including 21 NDAs and BLAs.

The biotech industry employs directly about 191,000 people (public companies only), 69% in the U.S., 21% in Europe, 4% in Canada and remaining 6% are in Asia-Pacific.

Posted September 26th, 2007 by Stephen Albainy-Jenei in Bioventures, Biotech News
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Peter Zura’s Two-Seventy-One Patent Blog has an interesting note about the valuation (or, overvaluation, as the case may be) of Biotech patents. Zura points to an article from Dominique Patton, questioning whether the current onslaught of high profile patent litigation is causing excessive valuations of the Intellectual Property Rights (IPRs) of technology companies. But, one of the biggest problems with intangible assets is that there are few fundamental accounting norms for actually calculating a patent’s value.

Pointing to high-profile, high-value lawsuits, Patton believes this only increases the urge to count every patent as a winner. But, as she notes, “not all patents are valuable, and very many are worthless” and unless companies differentiate the wheat from the chaff, the currently excessive valuation of intellectual property could turn out to be the bubble of this decade.

Currently, intangible assets make up about two-thirds of corporate market value in the US with biotech firms typically showing IP as 60% of their market value. Yet, intangible assets can evaporate into thin air - witness that Enron’s intangibles were once estimated to be worth $60 billion.

Patton writes:

Experts have long warned about the inadequacy of existing accounting norms in capturing the monetary worth of patents. Those that are generating licensing revenue and royalties can be valued on a discounted cash-flow basis. A further slice is deemed valuable because of the competitive threat it prevents.

In the food, pharmaceutical and biotech industries, for instance, where it is now commonplace to seek to block out an entire market space with a patent barricade, some 11 per cent of the patents filed are subsequently contested. A patent battle, alone, is the first mark of real value, according to some commentators.

Elsewhere, within some companies, the monetary value of patents is deduced by looking at what it would cost to license in the same notional technology. This provides a theoretical basis, but little real data to work with.

Yet the most striking fundamental of patent valuation, overall, is how few fundamentals there are. Companies themselves struggle to evaluate their own intellectual property.

For those managing both patent applications and granted patents it is essential to know the value of each sufficiently accurately if one is to make well-founded decisions about their management. Since only a small proportion of patents turn out to be of extraordinary value, methods which lead to a better understanding of the value of given patent applications or patents are necessary.

The problem in the case of patents is particularly complex due to the, sometimes lengthy and certainly complex, application process involving initial uncertainties about both the technical and commercial success in competitive markets of the underlying technology as well as uncertainties about the legal challenges which can occur both during the application and subsequent enforcement.

Several methods for valuing patents are in common use. Among the most popular are the cost method, the income method, the design around method, the comparable transactions method, and the discounted cash flows method. There are also some less popular methods of patent valuation, including relief from royalties, real options, and various rules of thumb. However, these methods are less popular because they tend to be complex and unreliable.

The cost method values a patent at the cost of developing the patented technology. The cost method may place a lower limit on the valuation, since the patent owner generally wants to at least recoup development costs. However, it does not account for the ability of a patent to generate profit. However, valuation methods based on the historic costs of acquisition make no allowance for the future benefits which might accrue from the patent. They are of no help other than in historical cost based accounting systems or where taxation methods dictate their use and not useful for making business decisions.

The income method involves some element of forecasting the future cash flows. However, it is only with the addition of trying to account for the elements of time and uncertainty in future cash flows that these valuation methods gain a solid foundation. The key issue in these methods is how the forecast cash flow is derived.

The design around method values a patent at the cost of designing around the claims of the patent. The design around method may place an upper limit on the valuation, since it usually doesn’t make sense to pay more for a patent than it would cost to develop an alternative product.

The comparable transactions method uses the sale of a comparable patent as a basis for valuation. However, this is only useful when comparable patents exist. It can be very difficult to find comparable patents. Even if there are benchmarks, there is no assurance that the purchase price of the comparable patent properly took into account an appropriate value (i.e., it the comparable transaction may have been over- or undervalued).

The discounted cash flows method attempts to account for the profit that a patent can generate and is the method most often used for patent valuation. However, this method relies upon company specific profit projections and the use of a risk premium, which make the valuation far too subjective.

As you can see, a patent is not a simple investment project involving initial costs and near certain future returns but a complex series of possibilities each involving costs and actual benefits or potential future benefits. These factors only are revealed over time with considerable uncertainty as to the final outcome.

Just be careful out there in case the bubble bursts.

Posted December 14th, 2005 by Stephen Albainy-Jenei in Bioventures, Biotech News, Current Affairs
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The biotech industry’s has been putting on pressure to let biotech companies owned by venture capitalists qualify for federal small-business grants. Through the SBIR program, 2.5 percent of the outside research and development budgets of 10 federal agencies is set aside for small businesses, defined by SBA as those with fewer than 500 employees.

Specifically, the NIH hands out about $600 million per year under the Small Business Innovation Research (SBIR) program, which is overseen by the Small Business Administration. Nine other agencies award another $1.4 billion combined.

The program has three phases. Phase I contracts are valued up to $100,000 (different at each agency) and are awarded for research efforts lasting approximately six months. Each project addresses a topic area identified in an agency solicitation. Phase I awards help determine the feasibility of a new technology. The required proposal to win a Phase I SBIR contract is kept short and simple to help encourage participation. It is limited to 25 pages and must comply with explicit, easy-to-follow instructions spelled out in the solicitation.

Phase II contracts are only awarded to successful Phase I contract winners and are valued up to $750,000 (again, different at each agency). Awards for Phase II contracts are based on Phase l results and the scientific and technical merit of the Phase II proposal. Besides the scientific quality of the Phase II proposal, the potential of the concept for commercial applications is given careful consideration.

Phase III involves private sector or federal agency funding (outside of the SBIR program) to commercialize the technology.

Now, the SBA will no longer give these grants to companies that are majority owned (51 percent) by venture capitalists. The way the rules are constructed, a venture capital firm can have up to 49 percent ownership in a venture awarded an SBIR grant. A venture group can have a majority stake in a biotech if the venture firm is 51 percent owned by individuals and has no more than 500 employees.

The irony of this whole thing is that the companies that are successful — and thus, able to attract venture capital — are then barred from getting additional SBIR grants. But problems came up in a gray area common for biotech start-ups: What happens when several venture capitalists have minority stakes, say 15 to 20 percent each, that collectively form a majority stake?

This has a lot of ramifications in the biotech world since many startup and emerging biotech firms rely on SBIR grants for seed money to fund early stage research. Apparently, most biotech companies raise between $5 million and $15 million in their first round of venture funding, an amount that usually results in venture capitalists owning more than half the company. They typically require $800 million and 10 to 15 years of research and risky clinical trials in many cases to market one product, according to BIO statistics.

Biotechnology Industry Organization (BIO) says this has resulted in a dumbing-down of the quality of science in grant applications from small biotechs. CEO James C. Greenwood wrote in an op-ed article in the July 13 Washington Times that many small biotech and other technology companies are “victims” of the SBA’s “new interpretation” of venture funding in applicants for SBIR grants.

Not all small biotechs agree this is a problem, though. On the flip-side, allowing venture-backed companies to get the SBA money naturally siphons off dollars that could have gone to emerging biotechnology companies without another source of revenue. If the purpose of the grants is to get companies to being venture-eligible, then restricting the money seems to make sense.

The SBA is currently reviewing written comments from dozens of companies, associations such as BIO and educational institutions, and from a series of hearings. The agency is due to report on any possible changes to grant eligibility rules by the end of the year.

At least two bills on the issue have been introduced in Congress. Rep. Sam Graves (R-Mo.) introduced the Save America’s Bio Technology Innovative Research Act of 2005, H.R. 2943, which would allow companies that get majority funding from venture capital to be eligible for SBA programs. Sen. Kit Bond (R-Mo.) has introduced similar legislation. The bills have at least four Democratic co-sponsors.

For more information, see here and here.

Posted August 19th, 2005 by Stephen Albainy-Jenei in Bioventures
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The Cincinnati Enquirer ran an article about a new a state-created venture fund charged with raising $100 million and steering at least half of it into Ohio startup companies. The new company, Buckeye Venture Partners, will be headed by a unit of Western & Southern Financial Group of Cincinnati.  Buckeye Venture Partners will serve as administrator of the newly created Ohio Capital Fund based in Cincinnati.  Of the money entrusted to venture capital firms, no less than 75 percent must go to Ohio-based funds. And of the money invested in companies, no less than 50 percent must go to those based in Ohio. Ohio-based funds that receive OVCA money must match it with an equal amount of their own funds.

Running adjacent to this was an article detailing the decline in venture funding in the Midwest.  The article showed reports indicated that the venture capital market nationally grew by 10.5% in 2004 but Ohio received 20% less in 2004, making Ohio’s share of U.S. venture capital 0.3 percent, down from 1.1 percent in 2002.  While some think this has more to do with the Midwest lagging in the recovery or that the Midwest is not a favorable business climate, it seems to indicate a continued bias towards investments on the coasts.  More often than not, we’re seeing venture deals that require a move out of the Midwest to a location on the coast, generally close to the VC’s home.  I guess no one wants to travel anymore.

Finally, Business 2.0 ran an article stating that they expect it to be raining cash in the coming months as much of the money raised in 2000 is in funds that will be closed to new investments after 2005, so VCs have to use that money now or return it to investors. VC’s do not like losing control over funds - they’d lose the 2 percent management fees and they’d have to go raise more money again. This could mean a good window of opportunity for all sectors and regions to obtain some venture capital. It will be interesting to see what portion, if any, makes its way to the Midwest.

See the entire article here.

Posted February 2nd, 2005 by Stephen Albainy-Jenei in Bioventures
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The San Francisco Chronicle reported that venture capital funding rose for the first time in four years in 2004.  Venture investments totaled $20.41 billion last year, up 8 percent from 2003.  While the total number of financing rounds fell by 1.2 percent to 2,067, the size of the investments rose increased from $18.91 billion in 2003 to $20.41 billion last year.

No surprise, most of the money went to information technology firms, which got $11.34 billion, but the biggest percentage increase was in health care, where startups got $6.58 billion, up 11 percent. This is another positive signal we’ve seen since the great dot-crash that things are rebounding.

See the whole article here.

Posted January 21st, 2005 by Stephen Albainy-Jenei in Bioventures
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France is considering a biotech tax cut believing that tax reform will boost innovation, but I’m not so sure that companies decide on starting or relocating to one country over another based on some tax cuts.

The proposal is for special tax status for “young listed companies” (“jeunes entreprises cotees”) that would help companies after initial public offering (IPO), expanding on a program that now helps companies before IPO. The plan would give investors and shareholders in companies with less than ?150 million (USD $195.4 million) in annual revenues and with fewer than 2000 employees breaks from capital gains taxes, inheritance taxes, wealth taxes, retirement, and other “social” costs 8 years after a company goes public.

Like the Midwest, I think France needs more aggressive researchers and venture capitalists specialized in biotech before they need tax cuts. It’s interesting to see how various governmental agencies all wring their hands at trying to develop a plan to be the Silicon-valley for biotech whenever that boat’s sailed.

See more at:

J. Burgermeister, “French scientists plan protest,” The Scientist, January 10, 2005.

S. Pincock, “Life sciences centers compared,” The Scientist, June 11, 2004.

Posted January 19th, 2005 by Stephen Albainy-Jenei in Bioventures
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According to a new survey, US universities increased the number of licenses and options executed by over 20% between fiscal years (FY) 2001 and 2003. However, the number of startups created from such licenses dropped 17%. The Association of University Technology Managers (AUTM), released its latest annual licensing survey, which covers FY2003. AUTM sent questionnaires to the licensing offices and 236 institutions responded.

The survey showed that the number of startups created in FY2003 was only 374, much less that the 424 two years earlier. The shift of licenses to more established businesses is is seen by the decrease in number of licenses to startups and small firms, which decreased from 69% in FY2002 to 65.5% in FY2003, while those to large companies increased from 31% to 34.5%.

Much of this would seem to be due to the overall drop in technology investing in early-stage companies and parallel drop in the stock market.  We’ve  seen a gradual increase in interest by investors in starting up companies and a more aggressive approach by big-pharma and bio companies to look to universities and start-ups for products to fill their pipeline.

Posted January 19th, 2005 by Stephen Albainy-Jenei in Bioventures
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