Aligning interests: finding the right financing in a challenging environment

At the Seed Showcase, Andrew L. Strong, partner in the Hogan Lovells mergers and acquisitions practice area and a self-described start-up lawyer, joined a panel moderated by Ben Johnson, Head of Early Stage for Silicon Valley Bank and joined by Grace Colon, former CEO of InCarda Therapeutics; Peter Young, Venture Partner for Pappas Capital; and Zaki Salanti, Senior Director, Head of Search & Evaluation at Novo Nordisk, to discuss how to navigate funding challenges and opportunities in the current economic climate.

Describing how a Seed-stage company goes through its funding progression, Mr. Strong emphasized that the main obligations that companies have at an early stage are to have a compelling story to tell investors in order to raise capital, to advance and de-risk their technology, and to fully comprehend and appreciate the competitive race they are running. Particularly in the context of personalized medicine and other technologies with long development timelines, Mr. Strong noted, in a challenging market, the “story has to be solid”. Increasingly, the right funding requires using relationships to find the Seed capital in the current economic climate of scarce resources and increased competition. Reflecting back to the not-so-distant past where money flowed more freely, Mr. Strong cautioned that a lot of mistakes were made in structuring financings in those days, with founders unnecessarily giving away rights or taking money from investors with whom they were not adequately aligned, which can cause problems in future financing rounds, particularly as competition for funds increases.

This theme of alignment was also highlighted as the panelists discussed non-dilutive funding opportunities. Naming several U.S. federal and state organizations which start-ups should consider approaching, Mr. Strong also pointed out that sometimes the grant application process can be beneficial in itself, by forcing early-stage companies to have a long game, to think carefully about what the money is needed for, and on what timeline. While there are many opportunities for early-stage companies to make mistakes, Mr. Strong cautioned, by taking the time to set their cap table up right, founders can keep funding opportunities open down the line even beyond the Seed stage.

Mr. Strong also recently gave his tips for funding and early valuation to help start-ups advance their technology to the clinic, available here: JPM2023 Trendspotting: funding and early valuation - Hogan Lovells Engage. At the time of launch, the right velocity and trajectory are critical.

The IRA and biotech innovation: now what?

Meanwhile, at the Biotech Showcase, Alice Valder Curran, partner in the Hogan Lovells health practice, participated in a panel moderated by Simone Fishburn, VP and Editor-in-Chief, BioCentury and joined by Alex Harding, head of BD at CRISPR Therapeutics; Paul Hastings, President and CEO of Nkarta Therapeutics and Chair of the Biotechnology Innovation Organization (BIO); Jeff Myers, Managing Director and Founder of RareRe Partners, LLC and former President and CEO at Medicaid Health Plans of America; and Peter Rubin, Executive Director of No Patient Left Behind, to discuss impacts of the Inflation Reduction Act of 2022 (IRA) on innovation in the biopharma industry.

Kicking things off, Ms. Valder Curran was asked to provide her key message to the audience. In response, Ms. Valder Curran emphasized that the IRA matters to all players in the industry, even those at development stages as early as Phase I trials, and that the industry needs to “learn it” to really understand the implications for their particular enterprise. She noted that industry players must grapple with several key questions, including:

• What impact will the IRA have on your molecule, pipeline, and portfolio?
• What impact will the IRA have on your competitors (because this will indirectly impact you)?
• What impact will the IRA have on your market overall (because this will also impact your business)?

The panelists discussed how the upcoming Part B and D inflation rebates will impact all manufacturers, regardless of size. In addition, even for products and players who are currently small, Ms. Valder Curran pointed out, there is a reasonable expectation that today’s early development and pipeline products will be impacted by the IRA’s Drug Price Negotiation Program (DPNP) once they are commercialized.

In the post-IRA world, the panelists noted a key takeaway for drug developers: the concept of a “clock” triggered by FDA approval, which many companies are effectively viewing as a loss of exclusivity event. In short, for start-up companies and established pharmaceutical companies alike, a product’s first FDA approval starts a potential nine- (New Drug Application (NDA)) or 13- (Biologics License Application (BLA)) year clock for price controls.

The panelists also discussed the importance of stakeholder engagement and advocacy on the impact of the IRA on product development and innovation.

Ms. Valder Curran also recently wrote on the impacts of the IRA that early stage companies should be prepared to discuss with their investors, and provided a Market Access Road Map to guide these conversations, available here: JPM2023 Trendspotting: portfolio valuation in the aftermath of the IRA - Hogan Lovells Engage.

Digital medicine: a sea change in the patient user experience

Finally, at the Digimed Showcase, Jodi Scott, partner in the Hogan Lovells Medical Devices & Technology practice and co-leader of the firm’s Digital Health Working Group, moderated a panel comprising Martin Akerman, CTO & Co‐founder, Envisagenics; Walter Greenleaf, Distinguished Visiting Scholar, Stanford University’s MediaX Program; Ekaterine Kortkhonjia, Senior Director, Early Innovation Partnering, Johnson & Johnson Innovation; and Eddie Martucci, Akili Interactive, regarding the state of digital therapeutics (DTx): how we got here and what the future will hold in this exciting space. The panel explored the barriers to digital technologies, and how these have been addressed across the performance of trials with digital technologies, regulatory approvals, implementation with doctors, and hurdles that still remain in overcoming inertia to successfully incentivize insurance payments, in order to better reach patients.

In discussing the improvements that DTx have made in directing the right treatments to the right patients, Ms. Scott echoed the comments of panelist Korkhonjia, noting that digital therapeutics have, in many ways, revolutionized the approach to the practice of medicine. The idea that the way medicine is traditionally practiced, of taking first, second, and third line therapies and progressing patients down this path, Ms. Scott opined, may not be necessary with the implementation of computational tools that allow the opportunity to start certain patients on the right therapy for making progress without a traditional trial and error process. Ms. Scott also noted that, perhaps, a silver lining to the pandemic was in the acceleration of at-home care, including patient adoption of wearables and other digital technologies, with resultant improvements in the patient care experience. The panelists also discussed how patient empowerment will demand a change in their user experience, which will continue to encourage innovations to layer on top of the existing structures in place for conducting the business of medicine.

Looking to the future, Ms. Scott reminded the audience of the power of good, robust data and implored developers to be thoughtful about the fields implemented and level of detail required in developing “gold standard” databases to lay the foundation for the robust analytics of the future. Developers must also be mindful to future-proof their measurements to ensure compliance with evolving standards.

Responding to an audience question, Ms. Scott noted that with respect to FDA’s Center for Devices and Radiological Health (CDRH), it is industry’s role to educate and inform regulators of what the product for which industry is seeking approval does, why it does it, why it is safe, and why the clinical data being proposed are sufficient to show this safety. She noted that each approval can improve the overall regulatory experience, with the ultimate goal of bringing these life-changing technologies to patients.

Ms. Scott also recently wrote about steps that companies in the DTx area can take to show the value of their technologies to help reach patients, available here: JPM2023 Trendspotting: commercializing digital therapeutics - Hogan Lovells Engage.