Biotech VCs Shift Away From Chronic Diseases

February 09, 2015

Brian Gormley,

c) 2015 Dow Jones & Co. Inc.

Biotechnology venture capital is shifting away from treatments for diabetes and other common conditions and is flowing increasingly to drugs for rare diseases, an industry report shows.

Venture investment in treatments for prevalent conditions such as diabetes and heart disease has fallen in recent years, according to an analysis of venture funding of private U.S. drug companies by the Biotechnology Industry Organization , a trade group. The report categorized $38 billion of investment across more than 1,200 companies from 2004 through 2013.

BIO\\\'s report compares five-year periods before and after the financial crisis. From 2004 through 2008, for example, venture capitalists pumped $675 million into drugs for the most common form of diabetes, Type 2. That total declined 28% to $488 million in the more recent five-year period of 2009 through 2013, the report said.

Drugs for diseases in other large markets are also attracting fewer dollars. Investment in cardiovascular therapies slipped 27% to $1.02 billion in the most recent five-year period, compared with the $1.4 billion deployed in them from 2004 through 2008, for instance.

Meanwhile, rising interest in rare diseases is drawing dollars to drugs aimed at thousands of patients instead of millions. Venture firms invested more than $500 million in rare-disease therapies in 2012 and in 2013, respectively, according to the report. In the years 2004 through 2008, the highest yearly total for rare-disease drugs was in 2004, when nearly $400 million was invested.

The report also found that cancer medicines capture more funds than drugs in any other field. The $9.12 billion invested in oncology medicines from 2004 through 2013 is nearly double the $4.61 billion wagered on products in the next-largest category, neurology.

Venture investors\\\' interest in a wider range of diseases was shown by a recent VentureWire study of venture financings. That analysis of Dow Jones VentureSource data found that market pressures and technological advances were driving VCs to invest across the human body more broadly, rather than concentrating on diseases affecting the brain, heart and skeleton.

Oncology and rare conditions appeal to investors for multiple reasons. Research advances are improving understanding of molecular pathways involved in cancer and many rare diseases. In addition, biomarkers are emerging to help predict which patients will respond to drugs for these indications. This gives companies confidence that they can demonstrate their product\\\'s effectiveness in modestly sized clinical trials. In addition, drugs aimed at well-defined populations often deliver substantial benefits for patients.

Progress hasn\\\'t been as rapid in diabetes and some other common conditions, according to Jonathan Leff, a partner with Deerfield Management.

\\\"If you look at large chronic diseases, Type 2 diabetes, even Alzheimer\\\'s, there\\\'s not the same level of scientific understanding of the disease pathways and how to design drugs that impact [those] pathways,\\\" Mr. Leff said.

As a result, the effect of new medicines for these diseases is more modest, and larger trials are needed to demonstrate their benefits. In Type 2 diabetes, U.S. regulators are also asking companies to run cardiovascular-outcomes studies to ensure that the products are safe. This also adds to the time and cost of drug development, Mr. Leff said.

BIO\\\'s report also examined other aspects of biotech venture financing. One finding was that Series A financings have declined even as biotech investment has rebounded in recent years. The peak in initial Series A financing was in 2006, when 89 companies received their first Series A funds, the report said. That compares with 63 companies in 2013, a 29% drop from the peak.

This is partly because some venture investors exited biotech after the financial collapse. But it also has to do with venture firms\\\' ability to find entrepreneurs, scientists and executives who are qualified to lead a biotech startup, said Bruce Booth, a partner with Atlas Venture. Firms often look for people who have apprenticed at a large drug company, and only a handful clusters, such as Boston, San Francisco and San Diego, have a deep pool of pharmaceutical-industry talent to draw upon, he said.

With a limited number of startups being formed, those that do attract investors are more likely to be well-financed. This should enable them to run more robust clinical studies that give them a stronger chance to succeed, according to Jim Healy , general partner of Sofinnova Ventures.