Halloweenie

Those of you familiar with the jargon of drug development know the phrase, “Valley of Death,” used to describe the transition a candidate drug faces between its preclinical and clinical stages.  The gist is that many wanna-be drugs vanish in the valley after promising studies in animals but before proof-of-concept studies in human demonstrate a possibility of a therapeutic effect.  Cause of death is lack of funding due to the large uncertainty of animal to human extrapolation and the high cost of clinical testing.  For the big pharma companies, it’s a question of allocating resources to internal programs, and their current approach is “fail fast and often” o get their trickle of candidates.  For biotech companies, funding to cross the valley typically comes from a $10-20 million Series B round from current or new investors, or, with good selling skills, finding a big pharma for a “structured deal” (a rare option, see Bruce Booth’s blog) or, with lots of luck and chutzpah, going to the public market (very rare, see FierceBiotech special report).  For companies that have used up their Series A funds or academic groups or not-for-profit orphan drug or global health product development programs (PDPs), the valley looms large.

Last week though, I saw mention of a new program to help companies in the diabetes space cross the valley.  The Juvenile Diabetes Research Foundation (JDRF) and PureTech, a Boston-based venture company, announced the initiation of T1D [Type 1 Diabetes] Innovations, “a novel venture-creating entity designed to accelerate the development of innovative T1D therapies” (JDRF press release).  T1D Innovations is essentially a fund started with $5 million from JDRF that PureTech will manage and use to identify a promising T1D preclinical programs and, after sprucing them up, use as the bases for start-ups.  PureTech will then round up additional funding from “other leading not-for-profit, strategic, and financial investors” (none are named in the press release) to move a company and its therapy through to trials.  The release lacked additional details on T1D Innovations, but Alex Lash writing in In Vivo Blog noted that, to access the JDRF funds, PureTech must raise at least a matching amount with a goal of about $30 million which the principals estimate will allow the funding of 10 companies (In Vivo Blog).

The founding of T1D Innovations is an important step for the JDRF which is a powerhouse in raising money for and funding diabetes research.  JDRF is currently sponsoring $530 million in research including about $25 million granted to 22 companies through its Industry Discovery and Development Partnership program (IDDP), but it has not been an investor in companies.  As for PureTech, the release noted that T1D Innovations is part of the company’s “Valley of Life” initiative, a new program to me.  Web pages for PureTech and the Valley of Life offer general statements (“The Valley of Life is a new funding vehicle dedicated to developing cures by enabling foundations to make mission-driven investments alongside strategic and financial partners ….”) but few specifics, e.g., investment criteria and selection process.  The program apparently started in 2012 with PureTech’s David Steinberg as primary manager.  He provided a quote on the program’s mission in a Nature Biotechnology article: “Our whole idea is to enable new technologies to escape that academic orbit … To close the venture gap, you have to go out and proactively create new companies.” (Weintraub 2012).

PureTech is an early-stage company specialist, calling itself a “venture creation” company rather than a venture capital company, the difference being that it has been willing to put small amounts of money (seed capital in the 100s of thousands of dollars range) into multiple academically-based projects over several years until the technology-to-product path is clear and before bringing in more substantial funding from VCs and other investors.  Over its more than ten years of operation, PureTech has started about 15 companies in a range of areas (pharma, drug delivery, diagnostics, digital, consumer; see PureTech Pipeline), and at least four have attracted wider funding.  According to a 2011 Xconomy interview with CEO, Daphne Zohar, PureTech reviews about 800 academic projects and forms two-four companies each year (Xconomy interview).  PureTech and David Steinberg were also the founders of another unique venture platform, Enlight Biosciences.  At the time of its initiation in 2008, Enlight was focused on founding start-ups developing drug discovery technologies that were to be accessed by its big pharma corporate funders and collaborators, initially Eli Lily, Merck and Pfizer (Xconomy article, Xconomy article).  Enlight has been successful in that it has added five more corporate partners and has spun out five companies (Enlight portfolio), although it has broadened its purview beyond drug discovery to general health technologies, like video games for treating cognitive impairment.

It is too early to tell if PureTech and T1D Innovations will succeed in generating start-ups that can attract additional OPM (other people’s money), but I’m interested in it as a model for engaging foundations in investing in early-stage global health product development companies.  I posted previously on how the Bill & Melinda Gates Foundation may be slowly moving into funding venture funds (“More Not Less”) and how the Gates has been instrumental in starting a mezzanine fund for companies with global health clinical stage products (“Tossed from the Balcony” ).  A “GH Innovations” entity would have the advantage of providing a buffer between foundations and start-up companies and, with the participation of a company like PureTech, would bring in professionals with company formation skills and credibility.  But unlike T1D Innovations, it would have a tough sell convincing investors that there is an exit and ROI at the end of the valley.  GH Innovations could leverage the billion dollars or so the Gates Foundation and other entities have put into research for global health over the past ten years and could increase its chances for success by focusing on products that may have both developed and developing world markets.  Additionally, it could go after investment by the big pharmas that have internal global health/neglected disease programs and believe that start-up/spin-out companies are needed to commercialize products.  Clearly, I need to look at both the investor and the investee sides to see if this skeleton has any legs.  Maybe someone at PureTech has some ideas.

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