Insight and Forecast Generation and Raising Capital
The pharmaceutical and biotechnology industry is inherently risky, with many products failing pre-launch, making it difficult to identify optimal investors. Evaluating capital generating opportunities is crucial to securing the necessary funding to commercialize any start-up’s asset. Prior to securing the necessary funding, a start-up will need to develop a robust forecast by gathering insights from key stakeholders and aligning on a variety of assumptions. Each company’s needs are unique and their approach to securing funding is heavily dependent on the type of asset, therapeutic area, and current stage in their commercialization journey.
Evaluating capital generating opportunities is crucial for any new start-up, as there will be many expenditures to consider pre-launch. Prior to securing funding, startups should gather insights through primary and secondary research on the therapeutic area, product, and unmet need. These insights will help generate a robust forecasting model that can demonstrate the opportunity for the asset to potential investors.
- Conduct qualitative primary and secondary research with key stakeholders (HCPs, Patients, and Payers) to gather relevant insights related to the product, therapeutic area, unmet need, and competitors
Forecast development – In-depth insight generation will support the creation of a robust forecasting model that can demonstrate the opportunity to potential investors:
- Based on market research, define demand and pricing assumptions, and develop a preference share model to inform revenues and Net Present Value (NPV)
- Summarize insights, revenue and NPV projections in final forecast
- Gain alignment from leadership team and board of directors (if applicable)
Once a fully vetted forecast is created, a start-up has the following options to generate funding
Government grants – Receiving a grant can jump-start investing from private investors, as it demonstrates the proof of concept for the potential product.
- The National Institutes of Health (NIH) contributed over $100 billion to research that contributed, directly or indirectly, to the 210 drugs approved between 2010 and 2016⁶'⁷
Private investors and seed funding – There are numerous biotechnology-focused angel investors and venture funds. Identifying the right partners is critical for securing the seed funding needed to be successful at launch.
Institutional funding – A long-term, milestone-driven funding strategy is the gold standard for securing the necessary capital to launch a product. Pharma and biotech start-ups attracted $17.4 billion, or 13.3% of the total Venture Capital (VC) investments in 2018.⁵ Institutional or VC funding typically consists of a series of milestone-driven rounds of funding:
- Series A funding – Typically Pre-NDA. Funding used to build the commercial organization
- Series B funding – Between NDA and PDUFA. Funding used to execute a Disease State Education campaign and company roadshow
- Series C funding – Post-approval. Scale commercial and sales organizations to drive demand for product
Initial Public Offering (IPO) – A potential long-term strategy to generate sustained funding for a current asset and its future indications or products. There was a surge in pharma and biotech IPOs in 2017 (41 total) and 2018 (79 total)⁸, potentially due to lower federal interest rates and higher returns demanded by institutional investors.⁹