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Forecasting in Forgotten Markets

In this article, Anthony Woodhead, Business Development Manager for Black Swan Analysis, discusses the challenges facing innovators in markets like Dementia, which has attracted significant investment over time but has delivered very little success. Could the recent surge in new investment concepts like crowdfunding be able to deliver the much need new sources of capital to these forgotten markets?
Two recent healthcare events supported by the One Nucleus biotech network, has nicely highlighted some of the challenges facing healthcare companies and investors that are looking to bring innovative solutions to these markets that have had limited historically success and subsequently attracted  limited investment. One of these industry events was focused on the recent developments in Dementia (http://www.onenucleus.com/onenucleus-events?id=968) , hosted by Eli Lilly in their UK offices. The other event was focused on the use of crowdfunding to facilitate investment in the life sciences sector. Though vastly different topics, both meetings included presentations on new approaches to help kick start research in markets.  

The Dementia market has been a challenging one for big pharma. From 2000 – 2012, 244 compounds were tested in 413 clinical trials with only one ultimately approved for use. With failure rates of over 99%, (compared to the 80% seen in Oncology) it’s understandably made companies shy away from large scale investment. From a scientific perspective, the jury is still out on the root cause of these conditions and whether the current hypothesis around the involvement of Amyloid and Tau proteins in different stages of this disease can be confirmed.  
 

To help address a lack of investment in novel dementia science a new £100M Dementia Discovery Fund (http://theddfund.com/ ) was launched towards the end of last year. This charitable fund represents collaboration between the Department of Health, Alzheimer’s Research UK (http://www.alzheimersresearchuk.org/) and a number of Big Pharma companies. Managed by SV Life Sciences the fund is focused primarily on Phase I and II research and aims to help share the risks associated with early drug discovery whilst reducing duplication of efforts.
 

From a Phase III perspective, advances in real world trial design are being applied to help investigate improvement initiatives from early stages. The European Prevention of Dementia Consortium ( http://ep-ad.org/) has collated a register of 24,000 patients deemed at risk, from these 6000 patients identified as being of high risk will undergo standardised testing and follow up in over 30 centers. Ultimately they intend to enrol around 1500 patients in ongoing early stage adaptive clinical trials where new patients are added as old ones drop out. Such methodologies hope to both reduce the costs of traditional randomized controlled trials (RCTs) whilst allowing for far longer follow up of participants and allowing for patients within the trial to be moved from one compound to another more easily.
 

Another modern approach that is hoping to foster new development is Crowdfunding, which aims to open up early stage investment opportunities to the general public via the internet. It is much more common in consumer product development, where prototypes can be visualised and it’s applicability to Life Science Markets has been questioned as it is difficult to evaluate markets without specialist scientific skills.  

To date around 30 Life Science companies have secured funding, with 80% of those doing so via Syndicate Room (https://www.syndicateroom.com/ ), a financially regulated organisation that applies a lead investor business model. Here, the primary investor, typically a smaller VC, Business Angel or Family Fund fronts around 25% with the rest coming from individual “sophisticated" investors who are able to purchase shares at the same price and on the same terms via a nominee who manages a group of investments. The minimum investment allowed is £1000 and Syndicate Room charges companies 4% of the capital raised.
 

It’s early days for this approach but there does appear to be some advantages.  From the Entrepreneurs perspective, Crowdfunding can allow them to digitise their pitch, disseminate it to anybody with an internet connection whilst saving on search costs associated with traditional methods of sourcing investment. A new CEO I spoke with hoped this would allow him to spend more time focused on growing their business, whilst still benefitting from commercial expertise of their primary investor. With average investments of around £0.5M, Crowdfunding seems to have found an early niche in the Valley of Death, helping top up investment opportunities that are too large for Business Angels but too small for traditional Venture Capitalists.
 

It remains to be seen how more fundamental risks in Crowdfunding markets will be successfully mitigated however. The Syndicate Room hopes some risks of due diligence are also reduced with an investor lead share scheme. Though primary investors will be understandably reluctant to share their research for a number of reasons, including their wish to avoid such moves being seen as promotional, it is hoped that the very fact they have decided to invest will signal to the market some degree of legitimacy in the venture. Also, by being financially regulated and offering shares on the same terms to all investors they aim to limit the risks of predatory behaviour by larger investors, such as negotiating better deals through priority share schemes, whilst guarding against the potential of pyramid schemes to be created within their own funds. I was personally encouraged by the open forum virtual chat rooms on their site where answers to questions posed by potential investors could be viewed by all.  

Here at Black Swan we’re watching all these new approaches with much interest and hope to see some innovative companies grow as a result. To support companies who find themselves on this growth trajectory, we have developed our new EpiomicTM Insights Series reports. (https://www.epiomic.com/subscription/epiomic-insights ). These are single page reports for a specific disease available at a low cost-effective price that is aimed at Entrepreneurs and Biotechs who require snapshots of the eligible patient populations for all the key global markets.
 

If a more detailed breakdown of the patient numbers is required, we have the information available in a more extensive report that includes other conditions related to the specific disease or syndrome. However when the challenge is to look at a combination of new or existing opportunities at the same time, we also have a portfolio analysis tool that uses scorecard techniques to rank both commercial and technical attractiveness.  

Do get in contact with us if any of these Black Swan Analysis (www.blackswan-analysis.co.uk ) offerings would be of interest.  We would welcome the opportunity to support your commercial decision-making in such forgotten markets. 

10th April 2016

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