Early-stage companies are finding growing alternatives to venture capital.
In February 2012, Celgene made a strategic investment in Boston-based biotech
Acetylon Pharmaceuticals, which was developing promising treatments for multiple
myeloma and other diseases. The Big Biotech paid $15 million for preferred
shares of Acetylon. The investment did not include any technology rights or
license option rights. By then, the barely four-yearold startup had already
raised $40 million to finance its programs without taking any money from
traditional venture capital sources.
Acetylon was started in 2008 to build out a technology platform for a new class
of selective histone deacetylase (HDAC) inhibitors that hold promise for causing
tumor cell death without the severe side effects associated with the first class
of HDACs on the market. Initial funding came from Marc Cohen, Acetylon's
chairman and a trustee at Dana Farber Cancer Institute where the technology was
developed. Along with some friends, he put up approximately $400,000 in seed
capital to start the company and brought in Walter Ogier, Acetylon's president
and CEO, as its only employee to run it.
By July 2009, Acetylon received $7.25 million from a group of angel investors,
hired some staff, and advanced its research and development. When its lead drug
candidate was ready for human testing, Acetylon turned to the Leukemia and
Lymphoma Society, which is providing approximately $6 million in nondilutive,
milestone-based, and conditionally repayable funding, representing half of the
projected costs of the clinical trial. Acetylon went on to close a $27-million
second round of financing from its existing venture philanthropists plus other
private investors two months before the Celgene funding.
Acetylon's story is being played out among many life-sciences startups as they
look for funding beyond traditional venture capital to angel investors, venture
philanthropy, non-profit organizations, and foreign government funds looking for
innovative technology to develop for their countries. In some cases, these other
entities are filling the void left by venture capitalists that have moved away
from early-stage financings.
Companies taking advantage of the different sources of capital led to a 22.8%
increase in the total amount raised by privately held life sciences companies
globally in 2012 to $12.4 billion compared with the $10.1 billion raised in
2011. Although many decry the lack of funding for early-stage life sciences
companies, capital is available.
TOUCHED BY AN ANGEL
One source of capital of increasing importance to early-stage life-sciences
companies is angel capital. Jeffrey Sohl, director at the University of New
Hampshire's (UNH) Center for Venture Research, notes that since 2007; the
venture universe has seen an enormous "culling of the forest" as the number of
active venture capitalists has shrunk to approximately 400 from 1200. That,
along with the hesitance of the remaining firms to invest in early-stage
life-sciences companies, has left a substantial funding gap that is being
addressed by syndicates of angel investors. Angel investment in healthcare,
biotechnology, and medical devices and equipment startups accounted for 36% of
total angel investments in the first half of 2012, according to UNH Center for
Venture Research.
