Funding in challenging times typically makes for high-stakes drama, but particularly for companies in the promising life sciences industry.

Buoyed by the potential of a medical city at Lake Nona, the future of the region’s life sciences industry appears bright. Indeed, the growing demands for healthcare, as well as innovative therapies and technologies, mean that the long-term prospects for the life sciences sector are alive and well.

Yet, at the same time, there is no doubt that funding for life sciences enterprises has been hard hit by the current economy. The sector has seen a dramatic slowdown in venture-capital investment, negligible initial public offering activity and a substantial fall in the value of biotechnology merger and acquisition transactions.

In light of these challenges, what are life sciences companies doing to maximize their chances of securing investment funding?

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Focused Approach
Both life sciences businesses and investors are taking a much more focused approach to seeking and providing funding than they did in recent years. Life sciences investment decisions have always been based on an evaluation of the individual projects and products within a company’s portfolio. However, while investors previously may have been willing to invest in a company’s overall portfolio, they now show an increased preference for cherry picking the research programs, drug candidates and products in which they invest.

This preference has manifested itself in two ways. First, investors and life sciences businesses are striking deals that are specific to individual projects, programs and products. Last May, for example, NASDAQ-listed Cleveland BioLabs Inc. announced that it had signed a term sheet with Bioprocess Capital Ventures, a Russian venture capital fund, to enter into a Russia-based joint venture to develop Cleveland BioLabs’ Curaxin compounds for cancer applications.

Second, life sciences businesses are closing, halting or jettisoning projects and products with less-attractive prospects or products that do not correspond with a narrowed strategic focus.

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Strategic Alliances
The process of bringing a new life sciences product to market is lengthy and complex, involving research and development, product trials, regulatory approvals, manufacturing, marketing and distribution. Accordingly, the life sciences industry has a sophisticated value chain characterized by a wide array of alliances, joint ventures and commercial agreements, all of which facilitate a product’s life cycle from research to commercialization. Few life sciences businesses have the breadth of financial resources and technical expertise to handle all these activities in-house; instead, companies have chosen to focus on a specific role within the value chain.

Many life sciences businesses have a strategy and business model built around monetizing research prospects at a relatively early stage and reinvesting funds in new research. Commenting on a recent licensing agreement with Affitech A/S, Steven W. King, president and CEO of Peregrine Pharmaceuticals Inc., notes: “This agreement will allow us to realize positive short-term cash flow …. This agreement fits very nicely with our announced corporate strategy to monetize and advance our preclinical pipeline through partnerships or licensing agreements while focusing our R&D efforts on advancing our later-stage clinical programs.”

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Right Partners
As life sciences businesses rationalize and focus their portfolios, even companies in good financial health must ensure that they have the right partners and commercial agreements to maximize their ability to bring products to market successfully and profitably. In recent months, we have seen a variety of deals and agreements enabling life sciences businesses to increase their strategic and operational focus while gaining access to such high-quality complementary capabilities as research expertise and operational skills.

For instance, last June, NeurogesX Inc. and Astellas Pharma Europe Ltd., the European subsidiary of Tokyo-based Astellas Pharma Inc., announced that the companies had entered into an exclusive distribution, marketing and license agreement for the commercialization of Qutenza in the European Economic Area. Qutenza is the first and only product containing prescription-strength capsaicin for the management of neuropathic pain due to postherpetic neuralgia, the nerve pain that can follow shingles. Anthony DiTonno, CEO of NeurogesX, comments: “Having secured a commercial partnership in Europe, we are now turning our full attention to the remaining steps involved for the potential U.S. approval and commercialization of Qutenza.”

In many instances, these relationships will deliver benefits beyond the specific financial terms of the agreements. In particular, businesses may be able to tap into skills and expertise at a cost and performance level they could not achieve alone. Thus, management involvement in complementary but noncore activities may be reduced, thereby freeing executives to focus their attention on maximizing the efficiency — and effectiveness — of their in-house activities.

At the end of the day, agile life sciences businesses that are able to focus on winning products, monetize their research and align themselves with the right commercial partners will be positioned to survive and ultimately thrive through this challenging period and well beyond.

Editor’s note: Verne Bragg, the partner-in-charge of Grant Thornton LLP’s Orlando office, has more than 20 years of public accounting experience. Bragg helps to advise clients on acquiring and divesting businesses, meeting U.S. Securities and Exchange Commission and other regulatory filing requirements, implementing new accounting pronouncements and implementing stock option and executive compensation plans. For additional insights and recommendations to help your company develop effective commercial and investment strategies, download the full Grant Thornton white paper “Insights for Life Sciences: Funding Strategies” at www.grantthornton.com.