Facing Limited Early-Stage Funding Opportunities, Diagnostics Companies Turn to Crowdfunding
Facing decreasing access to capital, life science companies and researchers are turning to popular crowdfunding sites to reach out to lay audiences to promote their ideas in hopes of generating financial support. Experts say that crowdfunding for biotech projects, including diagnostics, remains in the early stages, and while some projects’ successes at raising funds are […]
Facing decreasing access to capital, life science companies and researchers are turning to popular crowdfunding sites to reach out to lay audiences to promote their ideas in hopes of generating financial support. Experts say that crowdfunding for biotech projects, including diagnostics, remains in the early stages, and while some projects’ successes at raising funds are encouraging, it remains too soon to measure the ultimate viability and success of the platform for furthering the diagnostics industry. There are several varieties of crowdfunding. Some, especially for mainstream technology ideas, include product giveaways in which backers are rewarded with early versions of the product. Life science projects are usually backed by philanthropic supporters. In this case there is no tangible product reward, just knowing that they contributed to research they care about. Finally, there are emerging equity-backed platforms, which are awaiting final rules from the U.S. Securities and Exchange Commission (SEC). “The spirit of crowdfunding is to break down barriers and open the curtains—to let the public take some ownership [of funding] previously reserved for the elite few,” says Fazila Seker, Ph.D., director, technology and venture development, MaRS Innovation (Toronto), who herself was involved with an ultrasound-based breast cancer monitoring technology that raised funds on Indiegogo. Life science researchers and companies have faced enormous challenges in recent years obtaining funding. These challenges arise both from cuts from granting agencies, like the National Institutes of Health, as well as a pullback among venture capitalists, who are reserving limited capital for deployment in later-stage companies that are closer to commercialization, thereby shrinking their risk and building the likelihood of creating a positive return for investors. “There is a huge constriction of early-stage capital broadly in the life sciences, especially for seed stage or Series A rounds,” says Paul Grand, managing director of RCT Ventures, which actually specializes in this early-stage funding. “Crowdfunding is definitely going to grow. These platforms are filling a gap.” Seker adds that for life sciences and medtech companies it has been really tough to get funding in that stage beyond initial proof of concept. She says that the innovation cycle has four phases of development: discovery, feasibility, optimization, and commercialization. “Discovery and feasibility stages don’t cost quite as much and have [access to] smaller pots of grant funding. But the valley of death phenomenon, when they really fall off the cliff, is between feasibility and optimization where there is a need for huge amounts of money for clinical trials to show the regulatory bodies that the technology is safe for the general population,” Seker explains. “This takes tens of millions of dollars and there isn’t readily available grant funding or that much immediate interest from the investment perspective. There can be great ideas but it is tough to cross that chasm.” “The big question is how to measure success given it is such a new platform,” says Seker. “The community is in flux. It is a global experiment. While crowdfunding has been picking up for the past few years, last year was a turning point with data coming out to start analyzing.” Ethan Perlstein, Ph.D., a crowdfunding scientist conducting research on precision orphan drug discovery, conducted analysis of 115 science projects (“fitting the academic profile”) that together raised $5,082,028 from 47,958 donors. He found that the median project goal is $3,029, and the median number of project donors is 39. The $100 donation per project was consistent across projects, regardless of goal. “There is a ceiling between $25,000 and $35,000 above which Microryza [Experiment] and RocketHub science projects don’t go, but above which Kickstarter and Indiegogo science projects do boldly go. What’s causing this separation?” asks Perlstein in a blog post. “Briefly put: tangible rewards shift the average donation size higher than people might spontaneously donate.” Critics are concerned that while crowdfunding allows the public to become more involved in science, not all of these potential funders have a strong understanding of science, and some scientifically questionable research may be funded because of a compelling YouTube pitch. “Once the metrics are better established the bar is going to be raised,” believes Seker. “Once success is defined, certain standards will be established. Life science companies will have a better sense of how to do this and it will become a more standard part of the funding toolkit to supplement grants.” But Grand says the ultimate measure of crowdfunding success will be in the longer term whether or not the funded projects can use the funds toward the goal of commercialization and generating returns for investors in equity-based platforms. “Ultimately you need exits to define success in terms of returns. With any new funding platform you have to look at returns,” says Grand. Takeaway: Life science researchers and early-stage companies are turning to popular crowdfunding platforms to fill funding gaps. However, the platform remains too young to have demonstrated long-term success in terms of the commercial viability of funded companies. Side Box: Diagnostics Companies, Researchers Actively Crowdfunding Below is a sampling of diagnostics companies and researchers seeking support on crowdfunding sites. These examples demonstrate the variety of projects seeking support both in terms of research area and stage of development. Indiegogo is a general crowdfunding platform. A recent search uncovered two prostate cancer diagnostics: a test spun-off from an Italian public research agency that discovers a patient’s proneness to develop prostate cancer and to provide a further measure to quantify its advancement, and Cellanyx Diagnostics (Boston), which uses advanced microfluidics to analyze molecular, biophysical, and phenotypic biomarkers to guide therapy for patients in all stages of treatment. Additionally, a London-based group is raising funds to perform proof of concept for a rapid celiac disease diagnostic device, and a woman is seeking funds to open her own clinical laboratory. Experiment (formerly Microryza), initially launched in April 2012, uses a donation-based crowdfunding platform for research scientists to fund their projects from interested lay people. Experiment evaluates projects using three criteria: if the projects answer a scientific question (is it actually research), if the goals are within the capabilities of the researcher, and verification of the researcher’s identity. No clinical diagnostics were currently listed on the platform, but according to Forbes, during beta testing Experiment funded over 80 projects in a wide variety of research topics ranging from cancer research to marine biology, raising over $600,000 from over 5,000 individuals. AngelList is a hybrid platform (between lay crowdfunding and traditional venture capital) for startups to meet qualified individual investors. It launched in January 2010. Some diagnostics-based companies seeking support include Prime Genomics (breast cancer screening through salivary samples) raising $4 million, Station X (improving genomics understanding) raising $2 million, Lazarus Bioscience (cancer molecular diagnostics) raising $750,000, and EvaGen (library preparation for next-
generation sequencing) raising $100,000.