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Venture Capital in Life Sciences (I): Personalized Medicine for Cancer Therapies

Life Sciences VCOver the past decade, the genomics revolution has led to the emergence of numerous groundbreaking personalized medicine as well as multiple diagnostic and therapeutic targets. Take the area of cancer therapies for instance, due to great inter-personal difference and mechanism of drug sensitivity in patients, cancer is one of the diseases that have lowest productivity and rate of success in drug development. Personalized medicine, unlike traditional approaches, will not categorize tumors by tissue type; instead, it focuses on the characteristics of cancer genome to guide the R&D process, the so-called “stratified medicine.” The substantial efforts in studying personalized medicine will improve therapeutic effectiveness and cost effectiveness, reduce side effects of drugs, and ultimately enhance the overall outcome of cancer therapies.

In 2013, the sales of global cancer drugs were over $100 billion; the costs associated with R&D reached approximately $15 billion. Firms that engage in cancer drugs development and clinical research activities have a huge market share. My firm is at the final-phase due diligence on a start-up company (XYZ) that is dedicated to personalized anti-cancer medicine, and personalized diagnostics and clinical treatment. As of the due diligence date, there are five shareholders, two individuals and three institutions. The founder and CEO of XYZ was born in 1979, postdoc in molecular and cellular biochemistry. Before officially establishing XYZ in December 2011, he self-studied all the MBA courses including finance and accounting, elements of investing, sales and marketing, management science, and human resources. The core management team also has a scientist in building the platform for primary cell culture and genomic data processing, a scientist in Big Data analysis utilizing a variety of biology, bioinformatics, and computational biology methods, and a scientist in researching the mechanism of cancer drugs.

Business Model: B2B and B2C

XYZ divides its business into the research and development of personalized anti-cancer drugs (B2B) and the clinical application of personalized cancer therapies (B2C).

Personalized Anti-Cancer Medicine

By looking for biomarkers and adopting biomarker-driven clinical trials will substantially improve the overall response rate (ORR) of cancer drugs. This innovated approach is the main focus of global pharmaceutical giants. It is not exaggerating to say that whoever masters the core techniques of developing the bio-markers of cancer drugs with shortest timeframe and at lowest R&D costs will have the biggest market opportunity. A firm that has such a B2B business can be very attractive to big pharmaceutical companies as a strategic partner, or it can grow to a new drug manufacturer.

Since 2012, global pharmaceutical giants have applied a variety of approaches in this field, including finding new uses for abandoned drugs. The reuse of such abandoned compounds in R&D is built on the previous studies, the known drug formulation and detailed safety information; therefore, compared with new drugs, these drugs can be put into clinical trials much faster, which accelerates the research process.

Personalized Cancer Therapies

The fundamental goal of personalized cancer therapies is to analyze a patient’s reaction and diagnose his or her sensitivity and resistance to a certain anti-cancer drugs, in order to effectively choose the most appropriate therapy plan while avoid adverse effects. Personalized cancer therapies started in February 2005 when Aretha, a drug targeting at molecular portrait in non-small cell lung cancer, was officially listed in China. Aretha indicated a milestone in cancer therapeutics. In recent years, this field has seen more in-depth research efforts.

The success of personalized medicine will depend on research centers’ ability to collect patients’ samples with various diseases; hence it is critical to increase the types and quantities of cancer cell proliferation in predicting effects and side effects of anti-cancer substance and choosing the most suitable personalized clinical therapy for a particular patient, since one’s tissue samples can be directly used to grasp genomic expression patterns.

Core Technical Advantages of XYZ

Compared with established economies and research centers of global pharmaceutical giants, XYZ has an absolute advantage – its resources which enables it to collect patient samples; taking liver cancer cases for example, over 50% of the incidence is in China, and XYZ is able to collect 10% of the samples from local hospitals. Beyond that, the company’s core technical advantages also include high content screening technology:

  1. High-throughput lentiviral shRNA and miRNA library and analysis: In China, XYZ owns the largest system for high-content lentiviral shRNA preparation, wrapped high-content connectivity, transformation, identification, and rapid procedure for isolation and extraction. It can complete the identification and construction for 2,400 clones in a week.
  2. High-throughput screening technology for functional genomics: This advanced technology is to build and integrate the screening platform for high-content RNAi and miRNA, with the analytic platform for systematic biology analysis, in order to identify the gene functions at a larger scale.
  3. High-throughput drug-target construction technology: XYZ uses RMCE, targeting modeled cell proliferation. It single-copies site-specific integration of exogenous fragment, without destroying the endogenous genes.
  4. Next-generation-induced expression system: XYZ owns the first third-generation Tetracycline-inducible expression system based on virus system, which will dramatically reduce the background conditions for expression and enhance the efficiency of response.
  5. The technology for modeling adenovirus-related infections and constructing transgenic animals as models for human disease: XYZ has realized four-packaging plasmid, in which the highest titer can reach 1013IU/ml.

More on Investment Rationale

As a venture capitalist, XYZ is one of my firm’s sweetest spot. Although the project is at such an early stage, and the field of genomic sequencing is yet mature globally. At the second-round financing, XYZ has a very clear and well-thought strategic goal; as a value add, my team can help with management particularly financials and at the product and business marketing level. We can foresee its rapid while sustainable growth within the next three to five years. Its leadership position in the life sciences particularly in cancer drug research and personalized cancer clinic therapy, on the other hand, will be irreversible in the next one and a half to two years.

Due to the market demand for anti-cancer drugs and treatment, there are many exit strategies for us venture capitalists. First, at the most visible and glamorous form, XYZ is expected to realize IPO during 2017-2018; an alternative is that XYZ can be sold through an M&A event by 2017; another ideal option is recapitalization, i.e., the equity and debt mixture of XYZ can be reorganized – our VC exchanges its equity for cash, XYZ’s management team will gain equity incentives, and the firm will be positioned for future growth.


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