5 Factors for Evaluating Investments in the Retina Space
As noted in a previous installment, innovators in the retina space sometimes utilize ex-US partnerships for financing the expensive process of taking drugs and devices all the way through development. But innovators must consider a number of other critical factors – five to be exact: whether to work with a small or a large investment firm; the regulatory pathway; where to do the early trials; biomarkers beyond ocular outcomes; and the eventual exit strategy. This second installment from the OIS@ASRS 2019 session on financing retina innovation explores those five factors.
- Small versus Large Investment Firm
- Regulatory Pathway
- Where’s the Early Trial?
- Exit Strategies
The size of an investment firm plays a role in what indications the firm seeks as investments. Smaller firms have difficulty financing an expensive clinical trial, but Ron Weiss, MD, managing partner at InFocus Capital Partners and founder and owner of Chicago Eye Consultants, points out some companies may “carve out a niche” to let smaller firms participate in funding.
Firas M. Rahhal, MD, partner at ExSight Ventures and partner and executive at Retina Vitreous Associates Medical Group in Southern California, says that even though smaller firms don’t have as much capital as larger firms, they may have more expertise, and can share diligence and find ways to work together.
For larger firms with more money available, greater unmet need means greater opportunity. Available clinical data become part of the decision – robust data can give a greater comfort level for a larger investment than preliminary data.
OIS@ASRS co-chair Emmett T. Cunningham Jr., MD, PhD, MPH, senior managing director at Blackstone Life Sciences, said ophthalmology benefits from having mature therapeutic indications, like age-related macular degeneration (AMD) and diabetic macular edema, and active companies that have their own internal programs. “I think you have to have very compelling data to be approached by an acquirer or to go public early in ophthalmology,” he said.
Dr. Rahhal noted that much of ExSight Ventures’ early concern and diligence revolve around whether or not the company and its management team have an understanding of the regulatory pathway, and a plan to negotiate it successfully.
Michael Keyoung, MD, PhD, managing director and head, North America, at CBC Group (formerly C-Bridge Capital) agreed. “For the [venture capital] world, the management team is the most important thing, and the management team’s ability to understand the regulatory landscape is huge,” he said.
Another consideration is whether a company is holding Phase I and Ib studies outside the US or Europe. Ex-US trials can be less expensive, but they must be done in a way that will meet the standards for the regulatory pathway inside the US as well.
Moderator Pravin Dugel, MD, managing partner at Retinal Consultants of Arizona, said newer indications will be targeting outcomes other than vision, such as ocular blood flow. “How do you take into account all these other biomarkers that we have now that may not have the same validation as vision?” he asked.
Dr. Rahhal said biomarkers are useful, especially for doing early diligence on an asset, to apply scientific clinical judgment to the quality of the asset.
“When we’re looking at preclinical data, in many instances with an uncertain regulatory path, one of the things we hang our hat on is looking at clinical surrogates,” said Ash Khanna, PhD, venture partner at Pivotal bioVenture Partners. “Is there a competitor that’s ahead that has provided some degree of validation?”
Dr. Weiss noted that although the Food and Drug Administration hasn’t yet clearly defined non-typical endpoints, the agency has let it be known that it is open to considering them for an indication such as dry AMD, for example.
Added, Dr. Cunningham, “If you’re going after an indication where there’s no predicate and you have to have a negotiation, you should have that negotiation early so you know what that validated endpoint needs to be.”
The panel concurred that for most investments, a life cycle of three to five, or four to six years, is typical.
InFocus Capital Partners is agnostic when it comes to whether an opportunity goes public or is acquired, Dr. Weiss said. “For us it’s more about timeline to monetize, and return on investment, especially for a newer fund, based on performance.”
Dr. Rahhal said ExSight Ventures favors partnerships because they dilute the firm’s holding less than series funding, and the company’s model is more aligned with quicker exits.
With an M&A, CBC Group wants to make sure it’s the best commercial partner and capital situation, Dr. Keyoung said. “An IPO for us is not an exit, but is a financing event to really drive the R&D,” he added. “Hopefully it’s a good financing event that carries the company to its inflection point.”
Pivotal bioVenture Partners dual tracks M&A and IPO once clinical data are available, Dr. Khanna said. “If you have the IPO option always on the table, it keeps the strategics honest as well,” he said.
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