Ellington Healthcare Partners Investment Approach

Ellington Healthcare Partners (Ellington) approach is different from others and offers a competitive advantage for investors.

Our integrated team of scientific, business, and operational leaders has an outstanding track record of identifying and nurturing companies developing disruptive technologies. The team has chosen to target stem cell, regenerative medicine, and nanomedicine companies. These companies offer enormous potential in the fight to treat Battlefield Medical Concerns, traumatic injuries, cardiovascular disease, brain and spinal cord injuries, and Alzheimer’s.

Here is the challenge.

Of 5000 drugs that enter preclinical testing, only 5 make it to full human trials, and of that 5, just 1 makes it to market. Ellington believes that it is imperative that early preclinical and Phase 1 and Phase 2 programs be evaluated for the right attributes that are necessary to obtain final FDA approval. Most often the companies do not correctly assess the required parameters that constitute the FDA’s approval for efficacy and safety. If this essential step were to be carefully analyzed, the drug candidate’s development path could be dramatically modified to prevent failure and avoid massive wasted expenditures or being dropped from consideration if a modification was not possible.

ELLINGTON has a better way

Ellington has a proprietary approach that analyzes each of the critical parameters for successful FDA approval and product launch, thus avoiding this enormous failure rate. The results of this approach translate into Ellington’s team selecting candidates that will have a high probability of success beyond the current 1 out of five thousand. Ellington will only invest in those opportunities that have achieved approval to enter FDA Phase 1 trials, and that also meet our criteria for success.

Before considering any opportunity, the candidates for investment must sufficiently answer the following three questions:

1. What is the problem, without using jargon, you are trying to solve?
2. What difference would it make if you could solve the problem, and who cares?
3. How does your therapy approach differ from other approaches?

After satisfying these questions, and before any traditional analysis of investment candidates, seven critical criteria are analyzed by Ellington.

1. Scale-up Costs: Many developing companies fail to analyze the cost of manufacture at an early stage. If you cannot make it affordably, you will not deliver commercial viability.
2. Healthcare Cost Constraints: The current political environment will be continually reducing overall expenditures, and new methodologies must be cost effective to the total health care system.
3. Sequential Disruption: Companies must be cognizant of any potential competitors that will disrupt the Company’s therapy.
4. Equivalences to Existing Solutions: While it is possible to develop candidates that are “substantially equivalent” to existing drugs, Ellington has chosen to focus on those who are disruptive and/or have superiority to current solutions in performance and/or cost.
5. Insurance Reimbursement: If insurance companies do not accept the product as a viable and cost-effective course of treatment, then reimbursement will not be forthcoming and will pose the end to that product from a business perspective.
6. Regulatory Strategy: This critical step must be crafted to minimize the risk of failure with a clear understanding that the results of the trials must clearly define the ultimate claim(s) of use.
7. Trial Design: Too often, drugs will fail because the trial design is inadequate to answer the questions that are required by the FDA. Ellington works with our portfolio companies to ensure the trial design appropriately adheres to the claims made.

At Ellington, we have found that consideration of these seven criteria can identify those companies that will fail. Unless a company can satisfy all seven of Ellington’s criteria, the opportunity cannot be deemed commercially viable.

Those opportunities that meet Ellington’s strict requirements will be the subject of further due diligence which will include:

1. Market opportunities,
2. Business proposition,
3. Science validity,
4. Competitive landscape,
5. IP and technology security,
6. Management capabilities,
7. Sales marketing,
8. Financial viability,
9. Valuation, and
10. Capital plan for investment.

Once we have completed the full due diligence and before investing any funds, Ellington and the candidate company will jointly determine to go and no-go objectives that must be met to continue. Ellington will fully commit the funding, but it will only be released upon achieving each successful go point. This disciplined approach goes far beyond the simple benchmark/milestone methodologies today.

Ellington’s focused approach minimizes the risk. The following are examples of the team’s abilities to evaluate early-stage technologies.

Examples of companies that passed and exceeded Ellington’s investment rubric:

1. A privately held, pre-commercial healthcare company focused on the development and commercialization of diagnostics and therapeutics for Sepsis and SIRS based on a new understanding of the metabolic origin of organ damage and mortality.
2. A device company that has validated a nanoscale mesh that eliminates micro-emboli from the bloodstream, preventing arterial blockages that lead to strokes.

Examples of companies that did not pass our proprietary evaluation criteria:

1. A stem cell-based product treating alopecia due to insufficiencies in its regulatory strategy.
2. A tissue re-engineering CRISPR technology due to reimbursement issues based upon the cost of manufacture.
3. A nanotechnology delivery system due to a poor choice of target compound prevents commercial differentiation from existing products.

In all the above cases, Ellington’s decisions were made through a structured, proven, strategic process that included Scientific, Business, and Operational team members. DARPA has successfully used this proprietary process to evaluate the viability of funding ideas that have significantly impacted US national security, including healthcare.