Crowdfunding gaining momentum in life sciences

Crowdfunding has emerged in 2015 as a viable source of funding for biotech companies in the early stages of drug development, but should be approached with caution...

The investment approach – which allows the public to invest in ventures via sites such as Kickstarter, indiegogo or gofundme, as well as dozens of small platforms – is already widely used by medical charities such as Cancer Research UK, which operates its own MyProjects platform.

Increasingly, however, it is being seen as a way for biotech companies raise critical early cash before turning to business angels or venture capital groups, particularly from individuals or organisations with a particular interest in a disease area.

Certainly, the number of companies adopting this approach is growing fast, suggesting that early concerns that crowdfunding is not compatible with the high-risk, capital-intensive and lengthy timelines for drug discovery and development projects may be unfounded.

Earlier this year, for example, French medical diagnostics company EyeBrain raised €1.3 million via Anaxago, while Welsh company Cell Therapy – founded by stem cell pioneer and Nobel Prize winner Sir Martin Evans and developing a therapy for heart disease – raised £691,000 on CrowdCube. Meanwhile, device manufacturer Oval Medical Technologies raised £1.1 million last year on SyndicateRoom.

At the other end of the scale, Scottish start-up Parkure picked up around £84,000 from an equity crowdfunding campaign on Sharein, joining other UK biotech companies including QuantuMDx which raised $18,000 on indiegogo last year to help fund clinical trials of a malaria diagnosis and drug resistance assay.

The advantages of the approach can be that companies can generate a broad shareholder base early on and reduce the risk that a single investor might come in with enough control to tinker with management's strategic plans.

As a relatively new phenomenon in investing, crowdfunding can also help attract attention for a start-up and show there is interest in a project, making it easier to establish contact with larger investment groups.

According to Lysimachos Zografos, chief executive of Parkure, equity crowdfunding allowed it to boost its bank balance at a time when its programme was formed enough to attract grant funding, but not yet at the stage when it could attract early-stage investors in the pharma industry.

Parkure is focused on the discovery of drugs that can slow down or prevent the progression of Parkinson's disease and was set up to exploit an animal model, based on transgenic Drosophila fruit flies, that can be used to screen compounds for activity.

The flies express the effector molecule in Parkinson's, called alpha-synuclein, and develop the characteristic motor symptoms and neurological changes that are seen with the disease, and Parkure is hoping to take its own compounds through early development and then partner with a larger pharma company thereafter.

"These investors usually want preclinical data in mice, which is often not available in companies with technology-driven platforms," he told pharmaphorum. Meanwhile, angel networks are unlikely to invest in the earliest stages because of the long timeframes and the fear that their stake may be diluted down the line if and when large institutional investors come on board.

The investment route can also be a boon for companies based outside the biopharma 'golden triangle' extending between London, Cambridge and Oxford in the UK, which can sometimes struggle to grab the attention of early-stage investors as well as pharma companies.

For a small company it is important not to end up with a very large number of backers, however, as this can be an administrative headache, according to Zografos.

Parkure set a minimum investment of £500 to help keep numbers down and raised £69,000 during the course of the campaign, with another £10,000 investment from an individual backer – prompted by the round – coming just after it closed. A second latecomer took the tally up to £84,000.

All told the campaign attracted 60 backers (which compares to around 300 for Cell Therapy's round) consisting of private individuals, biotech investors and charitable trusts, who could get a return if and when Parkure strikes a deal with a future partner.

Nevertheless, Zografos believes that equity crowdfunding (rather than reward-based schemes) is only going to gain pace around the world, particularly in the wake of the 2012 Jumpstart Our Business Startups (JOBS) Act in the US. Prior to this, investors were limited to donation-based financing in the US, rather than taking a minority stake in a company.

"From next year we will see amazing things," he predicted.