Angel investors are the first stop in a new era of drug development

Once a month, 40 or so executive types break from their regular routines to meet up for the day. There’s schmoozing, a catered lunch, and of course presentations. Lots of them.

“We get 300 to 400 applications a year, and screen it down to about 200 applications,” said Ellen Weber, director of the group. They further whittle down the stack to a select few, who then make it to this in-person round, or rather, the monthly get together of Robin Hood Ventures in Philadelphia.

This is where aspiring start-ups make their direct ask for money from members of Robin Hood. It’s an angel group, made up of independent certified investors (though mostly men, they’re business-types, not men in tights).

In many ways, spaces like this have become a critical entry point for those in the biotech and pharma world, looking to transform an idea into an actual therapy or treatment.

The path for a product to make its way into the doctor’s office or medicine cabinet is a perilous and evolving one. It requires a lot of investment, especially early on, with only a tiny fraction of new compounds ever making it to the Food and Drug Administration for a review.

And so with few victors and a journey that can take years and cost billions of dollars, one of the riskiest and most fragile parts of the voyage is here, at the beginning, when a product is still being developed and may or may not pan out.

Big pharma used to invest a lot in this dynamic, riskier phase. But more and more, bigger companies are stepping back, looking to pick up products that are further along and are a safer bet instead. That’s meant private investors, including those gathered in this slick, eighth-floor meeting space, are playing an important role, picking up that early tab and shaping critical decisions about the advancement of future treatments and health technologies.

Behind the scenes

The types of startups Robin Hood Ventures considers run the gamut. Each presenter gets 15 minutes at the monthly round-up to plead their case, power points and all, followed by a Q&A.

Then, angel investors like Scott Fishman weigh in privately with each other.

“I guess the best way to describe [an angel investor] is someone who’s been fortunate in their career, who is now in a position to — I mean it sounds a bit cliched — but to give back in a way, in the sense that angels are in a position to help fund startup companies,” Fishman said.

Yes, angels want to make money, but he and others are excited about kickstarting new therapies. They’re also offering mentorship and support, sort of like the ABC TV series “Shark Tank.”

“We are definitely engaging in an early level with the intention to engage at a deeper level,” he said.

Fishman is a longtime medical technology consultant and investor who’s written about the culture of biotech investment and what he views as a very precarious and “fragmented” space.

He says angel investing isn’t about just throwing money at something in hopes of a return. You can have the best idea ever, he says, but if you don’t have the business smarts or the right plan, everything will implode.

Fishman is one of a growing group of investors at Robin Hood who are interested in the pharmaceutical and biotech arena. During a late afternoon break, another cluster of them socializes in the back. Among them are Mark White, Adrian Trevisan, and Fred Berg.

“I left Pfizer three years ago and was interested in doing something more with small companies,” White said, who was in the pharmaceutical industry for more than 30 years.

For Trevisan, he’d “prefer a drug that’s going to cure somebody of something or do something important, rather than a lifestyle,” he said. “But one of the reasons we’re here is we think the companies we invest in are going to become successful.”

“We like the altruistic side,” said Berg, who doesn’t have a background in pharma. “But we like to make investments that make a return to us. We understand this is a very, very risky space.”

During presentations, the group sits around a long table shaped in one big, intimidating “U,” facing a podium and drop-down screen up front. It’s mostly businessmen, but there are a few scientists. A couple of them are women.

Jeb Connor gets ready to present. He’s part of this growing field of biotech and pharma companies, vying to win over angels. His young company, GenPro, aims to develop epigenetic tests using software and DNA to better diagnose and target treatments for patients, earlier on in their disease.

Startups like this are working on therapies for cancer, alzheimer’s, autoimmune diseases, and more. But the competition for early funding can be fierce.

“Even if you have a really promising concept with the proven technology, you have to know how to get people to believe in it and to believe in you,” Connor said.

Connor is calm, composed, and straight business talk as he goes through his pitch, firmly holding that Powerpoint clicker. He’s a longtime businessman who partnered with a research scientist to create Genpro.

Years ago, Connor might have had to convince big pharma to believe in him, but today lots of the big pharmaceutical companies no longer develop drugs from scratch. Instead, they’re looking to pick up products that have already advanced some and are showing more promise. This void, along with an an explosion in the whole biotechnology field outside that traditional pipeline, has created a newer marketplace for early-stage investment.

But it can be fragmented and even chaotic.

“So, the number one challenge for these companies is how do they access these individuals?” said Swati Chaturvedi, founder of Propel(x), a company in the Bay Area that’s trying to help, by connecting angel investors with biotech startups. “And vice versa for these companies, how do they access the individuals?”

Chaturvedi says getting investors interested in this arena has been especially tricky. That’s because science products, by nature, are intimidating and complicated.

“Most people don’t understand them, they’re based on complex technologies” she said. “So typically what has happened is that has further narrowed the pool of angel investors.”

A successful investment in science, Chaturvedi says, also runs counter to the general start-up culture, which is driven in large part by the software and internet world, where success is often built around celebrities, public relations, and buzz.

So, for example, the number of people who are downloading an app makes it more popularand valuable. So, more investors want in.

“But in science that is not the case,” she said. “In science what you should be asking for is data. What does the experiments that you’ve done, what were the results, and what were the stress tests that you did? How long did you do them? So those kinds of things are more important.”

Assessing the ecosystem

So is this really the best way to develop new healthcare technologies and therapies?

“So there are pros and there are cons,” said Rachel Sachs, a law professor at Washington University in St. Louis who studies policy in the innovation and biotech area.

On the plus side, “a number of small companies exploring a number of new, innovative ideas, might mean that we get breakthroughs more quickly than if you have a few old pharmaceutical companies who are stuck in their ways,” she said. “If we have a bunch of small, innovative companies, which are maybe able to take on different kinds of risks than older established companies … We may be able to learn unexpected things more quickly than we otherwise would.”

But on the other hand, those products have to look profitable for private investors. There’s a bit of a Wall Street game here. Sometimes the goal of investors is to sell the smaller company to a bigger one, to make money. Or the goal is to gain enough traction and investment in a product that it warrants an IPO, entering it into the world of the shareholders and stock exchange.

These steps are also a way to get a product to the next level of development, but this process involves goals that may be different from taking a product all the way to market.

Another point to consider is that investors may also prioritize treatments that have a lucrative market over ones that are valuable to society but might not make as much money.

“So it might be that small companies which are making drugs which venture capitalists think are more likely to be blockbusters are more likely to get venture funding than companies investing in neglected diseases or riskier products,” Sachs said.

That goes for big pharma too. But again, going back to this first Angel stage, even if a product gets this early funding, it’s small potatoes compared to the big dollars it will need through its long journey to the finish line.

Powerpoint debrief

Back inside Robin Hood Venture’s monthly meeting, Jeb Connor’s pitch session wraps up.

He explains that he thinks his tool to predict diseases and successful treatments could have a multibillion-dollar market if it works out.

“It’s a good group,” Connor told The Pulse, while the angels debriefed in private. “You can see a majority of them are paying very close attention, and they’re asking good questions.”

The idea is once he gains more traction with the angels, Connor hopes bigger venture capitalists with deeper pockets will take interest and invest millions more.

Some angels from this group have already invested in him, but he still needs to raise more. So, has he gained any more traction from an angel investor here today?

Scott Fishman isn’t ready to show his cards.

“I hadn’t invested in them previously, so to be honest with you, I have to sort out my thinking with it,” Fishman said, adding that he was impressed with the transparency and way the business appeared to operate.

Part of that sorting now will involve consulting with others from the Robin Hood group, and possibly doing more research. But before all that, Fishman and others rush off to a much more immediate, critical part of the day.

“We’re going downstairs for cocktails,” he said, laughing.

Building camaraderie also appears to be an important part in this high-risk, potentially high-rewards game.