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- The Timing of Ideas

The VentureCapital Disconnectin Biotechnology

EDI A

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Background – Balfour LLC

Founded by Rory Riggs, Balfour LLC is engaged in entrepreneurial activities in healthcare and biotechnology. Since its inception, Balfour has been involved in the creation of over a dozen successful new companies: SUGEN, Selectide, Fibrogen, Royalty Pharma, GeneNews, Cibus, Medrium and eAppeals are examples in healthcare and biotechnology. Mr. Riggs was a managing director in mergers and acquisitions in the 80’s and started Balfour when he left Wall Street. He has been a founding director and major shareholder in most new ventures in which Balfour has been involved. In addition, he was President of Biomatrix, Inc, a New York Stock Exchange listed biotechnology company (NYSE:BXM). At Biomatrix, he oversaw the launch of its lead product Synvisc, a leading product for osteoarthritis, in over 70 countries. Biomatrix was acquired by Genzyme Corporation in December 2000.

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Topic: Structure of Capital Markets is Changing Early Stage Biotech

Problem: The current structure of financial markets is changing the nature of early-stage bio-technology development.

Implication: These changes in financial markets threaten both the ongoing development of new biotechnology co.’s as well as potential new bio-tech clusters.

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The Timing of Biotechnology Innovation is the Issue

Issue: Different Technologies Innovate in Different Time Cycles.

- Example: Information technology; ongoing, ~ Time to market: less than 5 years.

~ Typical age of technological founder: 20’s

- Example: Biotechnology; every decade or more, ~ Time to market: greater then 15 years.

~ Typical age of technological founder: 60’s

Implication: Time required to develop biotech products does not match the time frame required for VC funds to have a “liquidity” event.

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is an Icon that Depicts the Phases of Innovation

Phase: A differentiated period of activity within a cycle.

- The concept behind was to identify and categorize the innovation process into specific phases (or, differentiated periods);

- The process of IDEA will be used to show the timing issue in biotechnology versus other technologies.

EDI A

EDI A

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The IDEA Icon Depicts Four Unique Phases of the Innovation Process

I – Information enabling innovation process;

D – Discovery enabling development process;

E – Entrepreneurship enabling an commercialization process;

A – Application enabling additional advancements and adaptations.

E

D

I

A

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Together, I.D.E.A. Depicts a Process of Two Cycles; Each with Two Phases

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Information

Technology Cycle Product Cycle1 2

I

ED

A

Discovery Entrepreneurship

Application

The Innovation Process

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Each Phase has completely different risks, funding and valuation issues.

Basic Research, Proof of Principal; Needs: Access to expensive research equipment and supplies at affordable costs. Intellectual property legal advice. Capital or favorable investment environment to stimulate investment.

D Pre-clinical validation processes; Needs: Access to animal facilities, information networks at affordable costs. Capital or favorable investment environment to stimulate investment.

E Clinical and Regulatory Processes; Needs: Emphasis on affordable clinical populations and information infrastructure. Access to broader venture capital markets to fund commercial studies.

A Commercial Processes. Needs: Distribution and access to the many world markets.

E

D

A

Phases in Bio-tech have Pronounced Breaks that are Unique and Sequential

I

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Differences in Innovation Timelines can be Looked at through 3 Start-ups

Below are three businesses in which Balfour LLC has been involved in the development of the original plan and the organization to execute the plan. The following will look at the timing of innovation of each business based on its underlying technology.

eAppeals

Technology – Biotech: The development of new therapeutic modalities addressing the medical pathology known as fibrosis.

Technology – Molecular Diagnostics: The development of new molecular diagnostics based on blood-based approaches in functional genomics.

Technology – Healthcare Services: The digitization of healthcare appeals process separate and apart from healthcare claims.

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Each Company’s Innovation Timeline Differs by Technology

Estimated Time to Complete Each Phase

EDI A

3-6 Years

2-3 Years

1 Year

3-5 Years

2-3 Years

1-2 Years

6-8 Years

2-6 Years

1-2 Years

Total Yearsto “A”

12-19 Years

6-12 Years

3-5 Years

Note: All estimates are based on experience and observations of Balfour LLC

eAppeals

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Biotechnology Innovation Timelines are too Long for VC’s

Problem – Venture Capital Funds Have Finite Lives. ~ Typically these funds need liquidity in less than 10 Years.

Implication – Early stage Bio-tech funding is very difficult in the current environment.

~ Unless liquidity timelines can be solved, early stage will become harder and harder.

~ Limited early stage funding impacts the entire innovation process: universities, new clusters.

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3rd Party Funding Models:

1) “Evergreen Funds” where investments are funded in an ongoing basis.

2) Continued Growth of Royalty Funds as an alternative source of capital .

3) Corporate structure: trend to pass-through vehicles in early stages.

Government Support Funding Models:

4) Early-stage government operations funding such as R + D rebates.

5) Development of government supported venture capital.

6) “Cluster Developments” that provide high-end equipment. - Equipment is made available on an as needed basis: no capex!

EDI A

Conclusion : Early Stage Biotech Needs New Funding Paradigm

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