Ebb & Flow

Biotech venture investing hit record levels in the first quarter, totaling nearly $2 billion. That exceeds the previous high of more than $1.7 billion in the fourth quarter of 2000. VCs cited two reasons for the robust deal flow: the heightened need to get companies through Phase II proof-of-principle data, and an abundance of capital.

Getting through Phase II has been perceived as a requirement on the path to an exit for several years, but David Mack of Alta Partners said the expectations for the construction of Phase II trials also have been stepped up, in part due to a string of Phase III disappointments.

"There have been six or eight Phase III failures in the public and private sector in the last six months. It's been pretty ugly," Mack noted. "How are we making the mistake from Phase II to Phase III?"

In addition, satisfying pharma's high expectations for how clinical trials should be executed is playing a bigger role, as M&A looms larger as an exit strategy.

"It used to be that biotech and pharma weren't aligned in their standards for clinical trials; biotech was seen as too fast and not rigorous enough," said Mack. "But now that pharma has stepped up acquisition, we need to make sure what they're seeing meets their standards."

Luke Evnin of MPM Capital agreed. "We are looking to sell these products to pharma. There is a convergence of what it means to have a really robust data set that will allow them to move on without having to go back and redo trials."

Paying for Phase II

The desired Phase II results are also not just about basic proof of concept and safety any more, but have expanded into more detailed testing for things like drug interactions, as well as testing in specialty populations such as children or the elderly that are often key to a particular indication, said Evnin. These can have a "huge impact on how valuable your drug can be and

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