Active ingredients continue to attract new, loyal investors

Lux ResearchJul 31 2010

Active ingredients ranging from weight-loss herbals to cancer-killing cytotoxics attract billions in venture investment dollars every year. But technologies designed to selectively deliver active ingredients to targeted locations are beginning to gain momentum, as their application in drugs, medical devices, food, personal care, and agricultural chemicals rapidly grows and corporate venture investors take notice, according to a new report from Lux Research.

“Tracking Targeted Delivery Technologies through Idea, Investment, and Exit”

Targeted delivery spans a range of technologies that direct the effect of active ingredients to an intended place, time, environment, or other condition. Titled "Tracking Targeted Delivery Technologies through Idea, Investment, and Exit," Lux Research's new report catalogues the technologies and methodologies for targeted delivery. It identifies key investment trends in the field, and projects where future strategic and financial opportunities lie. The report also marks the official launch of the Lux Targeted Delivery Intelligence Service, which will provide clients with ongoing research on market and technology trends in the field.

"Active ingredients will continue to attract new and loyal investors," said Mark Bünger, Research Director for the new Lux Targeted Delivery Intelligence Service. "More and more, however, investors are beginning to realize that the delivery systems are what drive an active ingredient's value. Increasingly, it is the delivery platform that matters, not the molecule."

To understand the path from venture investment to exit for advanced delivery technologies, Lux Research examined the histories of 25 venture-backed startups (including $835 million in investment) from 2000 to 2009. Tracking venture funds, partnership terms, and eventual exits, the database helped analysts derive a detailed picture of investment trends across the industry as a whole. Among the report's key observations:

• The right technology classes attract more money. Among the startups under study, device delivery companies like Alexza received the largest amount as a group - $331.0 million in 23 transactions, followed by encapsulation developers like Endocyte, which garnered $293.7 million in 12 deals and the largest average amount each. Advanced materials companies such as Liquidia got $118.5 million in 13 transactions, while 5 transactions each in bio/chemical targeting companies and nanoparticulate reformulators brought in $62.6 million and $29.4 million respectively.
• Delivery companies don't need to IPO to pay back investors handsomely. IPOs are certainly attractive - after four years and $26.8 million in investment, Lifecycle Pharma's IPO raised more than $100 million. But even tiny Potentia's investors may see a tenfold return on the $17 million they put into the company if the planned purchase by its partner Alcon goes through. And while Halozyme entered the public markets via a reverse merger, its progress since then demonstrates that such companies are not doomed to eternal penny-stock status.
• Consumer product corporate VC joins pharma, offering new avenues to exit. Drugmakers have long provided a reliable exit for delivery startups, but makers of consumer food, beverage, and cosmetic products and ingredients like Nestle and Tate & Lyle are joining the game. As they seek functional advantages and new form factors, delivery companies such as Monosol are becoming attractive partners - and ultimately, acquisition targets, such as when Wrigley acquired Cafosa, maker of a medical chewing gum. To secure exits, traditional VCs will partner more frequently and earlier with the VC arms of potential acquirers, like Novartis Ventures and Unilever Ventures.

"With acquisitions and partnership deals paying up to the hundreds of millions, the IPO exit is not as imperative for targeted delivery as for other fields," said Chananit Sintuu, a Research Associate for Lux Research, and the report's lead author. "And given the overall declines in both traditional venture investment and in IPOs across the board, the strategic venture partnerships we see in targeted delivery are harbingers of technology investment more broadly."

"Tracking Targeted Delivery Technologies through Idea, Investment, and Exit" is part of the Lux Targeted Delivery Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research Targeted Delivery Journal, and on-demand inquiry with Lux Research analysts.