As In Vivo blog noted last week, asset-centric project financing in biotech is everywhere. As they said: “looking at the biopharma newsflow, you would think the entire industry was restructuring itself to find, develop and sell single products”
But they also noted that a small, but growing, minority of VC investors are not interested in asset-centric investing. They go on to quote a number of them:
“Selectively appealing. Need[s] more human capital.”
“This strategy requires additional caution.”
The article is a useful review of the advantages and disadvantages of the asset-centric approach – but its flaw is that it pitches the asset-centric model against the full-built company investing model, as they are in some kind of competition. As if an investor must either favour one or the other. As though we are witnessing the replacement of a conventional model with a new and improved model. But doing so reveals a fundamental misunderstanding: asset-centric project financing is just one more tool in the biotech investors toolbox, and its the right tool only in the right circumstances.
Unfortunately, the In Vivo blog does not provide a facility to comment directly on the blog. But even from the perspective of a Venture Partner at Index Ventures, where asset-centric investing originated in 2005, many of the principle concerns about the model appear valid:
1. Its about the returns. The jury has to remain out regarding the utility of the asset-centric investment model (at least as its been applied in the past) until there are enough exits to compare with the “old model”. The theory behind asset-centric investing is strong, the early trends encouraging, but no more than that so far. In Vivo highlights the sale of the PanGenetics asset in 2009, but there have been other successful transactions of asset-centric companies even within the Index Ventures portfolio – most recently the sale of Profibrix to the Medicines Company last month for a total of $230m.
2. It only works for certain types of assets – those that can achieve a meaningful proof-of-concept usually in Ph2, with a fixed amount of capital (say $25m or so). That precludes many areas, such as Alzheimer’s Disease, from ever being approached by asset-centric investors. No-one ever said it was a replacement for the conventional model, but just one more tool in the investors tool bag – that needs to be applied to the RIGHT assets. When applied to the right assets, the increased stringency of decision-making and relentless focus on capital at risk there is considerable potential to improve returns. But other assets, and in particular paradigm-shattering platform technologies, …
The Cambridge Partnership is the only professional services company in the UK exclusively dedicated to supporting companies in the biotechnology industry. We specialize in providing a “one-stop shop” for accountancy, company secretarial, IP management and admin services. The Cambridge Partnership was founded in 2012 to fill a gap. Running a biotechnology company has little …