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How to use in-human data as an investment strategy

Ari Aminetzah, MBA, PhD cand.

In an ideal world organizations could start developing every new drug they discover with no limitations except solid science. Nevertheless, we all understand that this simplicity is merely a fairytale in every scientists’ head. In reality, developing a new drug for the market requires just as many business resources, especially financial ones, as it requires scientific capabilities. It is exactly this that makes drug development a whole different game, because now you need substantial funding to bring your compound to the market.

In this article we will share an investment strategy that can be implemented by Life Sciences companies to raise capital for their drug development. This strategy involves in-human microdosing, a concept to quickly generate in-human data at an early stage of clinical development.

Positive or negative in-human data.

In short, microdosing can be used to show the efficacy of a tested drug based on on- and off-target data. On-target refers to what extent the tested drug binds to the intended target tissue, such as a tumour, inflammation, infection or other disease processes. Respectively, off-target indicates the uptake of the drug in healthy tissue. Based on these two factors microdosing data either represents a negative or positive result:

  • A negative result – the drug shows (almost) no binding to the target tissue and/or has a high uptake in healthy tissue. In this case the program should be terminated or adapted.
  • A positive result – the drug has a high uptake in the target tissue, but a low uptake in healthy tissue. The program shows that the compound has a high potential to succeed in humans.
positive or negative microdosing data

From a scientific and business perspective a company with positive in-human data benefits from a more efficient drug development process. Namely, a microdosing Proof of Concept (PoC) study makes the need for large animal toxicity studies obsolete. Additionally, in most cases the number of study volunteers for Phase I-III studies can be reduced based on the retrieved PoC imaging data. Both these factors save drug developers time and monetary resources.

Nevertheless, there is one even larger advantage to conducting a microdosing study, especially for small and medium sized drug developers. Namely, positive in-human data de-risks future investment into the drug. In other words, positive data significantly lowers the risk for an investor to invest into the drug, as the developer shows that their drug has a high likelihood to succeed in humans. In turn, this not only makes the fundraising process easier, but it also allows the drug developer to use microdosing as an investment strategy.

How to use in-human data as an investment strategy.

In order to illustrate the microdosing investment strategy we will use a fictive company called BIOFARX. BIOFARX has discovered a (to believed) highly promising New Molecular Entity (NME) that it wishes to further develop and bring to the market. They expect that they will need $10M to complete Phase I. Further, it is important to note that the current pre-money valuation of BIOFARX is $2M. BIOFARX decides it wants to use a microdosing study to generate early in-human data.

To conduct a microdosing study with their compound BIOFARX needs $2M. This is a significant lower amount than the initial stated $10M. However, after the microdosing study, BIOFARX will need (at least part of) the remaining $8M to further develop its compound. There are two fundraising strategies that BIOFARX can implement.

Firstly, BIOFARX can use the microdosing study as a milestone in its term sheet with investors. More precisely, BIOFARX should ask investors for an initial investment of $2M to conduct the microdosing study that if successful, meaning it generates positive data, is followed by a second investment ($8M). Alternatively, if the results of the microdosing study are negative the investor does not have to make a second investment. A second strategy is for BIOFARX to first raise $2M for the microdosing study. BIOFARX would then have a consequent fundraising round for the remaining investment.

The benefits of microdosing as an investment strategy.

Again, for both strategies, conducting a small low-cost PoC study first significantly reduces the investment risk of BIOFARX’s compound. Namely, the initial investment is lower, and thus, the risk is lower. Further, positive microdosing results indicate that the compound is expected to be effective in humans. Consecutively, this means that any further investment will most likely lead to a return on investment.

However, most importantly, positive in-human data will significantly increase BIOFARX’s valuation before Phase I. Its pre-money valuation will, for example, have increased from $2M to $8M. As BIOFARX had a post-money valuation of $4M (pre-money of $2M + $2M microdosing investment) this is a doubling of their valuation. Further, the growth from $2M to $8M means that investors have a 300% growth of their investment. This makes BIOFARX’s position stronger and ensures less dilution in next fundraising rounds. Additionally, If BIOFARX uses the same investors for the next phase they can give these investors a discount on the new pre-money valuation (e.g., 10% or more). In other words, they will receive a higher ROI as an rewards for believing in BIOFARX from the start.

Key takeaways.

  • A microdosing study can be used to show the efficacy of a tested drug based on on- and off-target in-human data. This is either positive or negative.
  • Early positive in-human data makes the drug development process more efficient (e.g., no animal toxicity study and less volunteers).
  • Positive in-human data significantly lowers the risk for an investor to invest into the drug, as the developer shows that their drug has a high likelihood to succeed in humans.
  • Microdosing can be used as a milestone in a term sheet with investors.
  • By conducting a small low-cost PoC study first the investment risk is reduced, as the initial investment is lower.
  • Positive in-human data significantly increases a company’s valuation at an early stage in the drug development process (/before Phase I).

Contact us at info@tracercro.com If you would like to know more about how in-human data can simplify your fundraising efforts.

 


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