Q&A Bryan Roberts

Whatever venture capitalist Bryan Roberts is doing, it’s working. Roberts, a general partner with Venrock, has had nine of his portfolio companies reach a valuation of a billion dollars or more. Those investments were in digital health (AthenaHealth), genomics (Illumina) and biotech (Receptos). Now Roberts focuses mainly on digital health. Read my questions and his responses from our January 11 fireside chat at the Digital Medicine Showcase in San Francisco. On January 25, Venrock closed on a new $450 million fund.

bryan_roberts-cropped

Dickman: Independent of returns, which of your investments have been the most satisfying to you so far?

Roberts: I get the most satisfaction out of doing things that, when we start with them, nobody else likes. That no one else thinks will work. They don’t like the people, the idea. Nothing. It’s not just that the timing is off. Regardless of timing, they believe it’s a silly idea forever.

And I feel like I spend years going, “I don’t know why everyone in the world doesn’t love this.” But it takes a long time. And then they sort of flip. Other investors start to like them. That is the part I like.

Dickman: Have you gotten to the point where you are using data science and machine learning to help you make investments?

Roberts: We do not use it at all in choosing deals. For the most part, our investments are made in things where there are way more variables than there are equations. You are making decisions in the face of ambiguity that is pretty pervasive. So you can’t actually use data or even diligence to get yourself to an endpoint. By contrast, data science has become indispensable for companies doing product development. It’s like the electrical grid for them.

Dickman: You have always had an amazing network. What do you learn from big companies in pharma or digital health that you see as potential acquirers of the ventures you invest in?

Roberts: I do not look at big companies that way. I have tended to focus on orthogonal solutions to what I think are big problems. My thesis on most big companies is, what they will consider acquiring in five years will be different from what they would consider acquiring today. Either it will be different people or a different strategy or something. I don’t know what they will consider acquiring but it will be different. There is actually no “signal value” for me in what they like today, except on the investments that I made five years ago. I used to come to this conference and spend lots of time with those folks and I do not do that anymore. It’s the portfolio companies that have to spend time with those folks, not me. Because in my thinking I need to be out five years.

Dickman: What drives your investment decisions in pharma and biotech and in digital health?

Roberts: For me, those opportunities are chosen by entrepreneurs I get attached to intellectually and they are about an orthogonal approach to a big problem. Back in the day, Sirna Therapeutics (Editor: then called Ribozyme Pharmaceuticals) was trading at $6M market cap because it was about to go out of business. And on its old business model it should have gone out of business. That was at the same time as when its competitor Alnylam was doing its series B financing. We actually looked at both of them and made a decision to invest in Sirna. There was a huge price difference – Sirna’s price was much lower. The thing that was interesting to us about Sirna was, they had done 18-24 months of work in the space of RNA interference. And they had intellectual property and manufacturing. It was that that drove our decision more than, say, what Merck was thinking about at that time.

Dickman: In around 2012, you kept doing some biotech but you really dove into digital health. Was that the right move?

Roberts: I am hugely intellectually selfish. I work on stuff that is interesting to me from an intellectual perspective. The sea changes going on in how people pay for and organize health care have been fascinating to me. We’ll see whether in fifteen years whether it is as robustly successful an ecosystem as biotech or genomics.

To read the rest of the questions and answers, please go to this link to see the rest of this post on Forbes:

http://www.forbes.com/sites/stevedickman/2017/01/31/thirteen-questions-for-bryan-roberts-of-venrock/#227c152718d7

N.B. Roberts’ responses were edited for clarity. A video link to the entire chat can be found here courtesy of EBD Group.

Leave a comment

Filed under Uncategorized

Can biology, even drug discovery, ever be “clouded”? It’s early but Andreesen Horowitz VC thinks so

By Steve Dickman, CEO, CBT Advisors

Can you create biological insight on a laptop? If you could, it might overturn a fundamental paradigm of drug discovery: that it takes a great scientist or team of scientists to find a clear path through the messy complexity of biology. In the conventional model, sometimes the scientist is at a university. Other times she is in a company. But always, always, there is a series of iterative interactions – scientist running experiments in lab, scientist struggling to interpret results, scientist designing new experiments, scientist analyzing new results – until biological insight arises. If it ever does.

Of course, many drug discovery advances over the past thirty years have been driven by technological innovation: combinatorial chemistry; high-throughput screening; vastly improved imaging and prediction software; and rapid and reproducible assays run in some cases by robots on groups of cells or even individual cells leading to large and hopefully meaningful datasets.

But none of these advances has replaced the “Aha” moment of insight that arises from a human being’s engagement with a biological phenomenon that is thorny or one that had not even been perceived to exist. I always expected – and still do expect – to find that kind of insight in labs, not on laptops.

But now a renowned Stanford professor-turned-Silicon Valley venture capitalist, Vijay Pande, has set his sights on this challenge. Pande, the architect of the award-winning Folding@Home project and himself an award-winner in computational biology, recently joined a top Palo-Alto-based venture fund, Andreesen Horowitz, which formed a new $200 million fund to invest in “cloud biology” and other areas of software companies in the bio space. To read the post, click here or copy-paste http://onforb.es/1Sq3Q2G.

Leave a comment

Filed under Biotech, Health IT, Startup

Why Denali Raised A $217 Million Financing Round: Not Just ‘Because It Could’

On May 14, when venture capitalists and sovereign wealth funds announced the largest first round venture financing in the history of biotech, $217 million for Denali Therapeutics, my “bubble alarm” went off. On its face, this is exactly the kind of extravagant financing that happens at the peak of a market. It felt a bit like the IPO of DrKoop.com all over again.

But once I got over my initial shock, I realized that the financing, while risky, in fact makes logical sense from several different vantage points. I came up with three reasons – beyond “because it could” – why the company raised so much money.

Denali will use what it says are novel approaches to find treatments for heretofore nearly untreatable neurodegenerative diseases such as Alzheimer’s and Parkinson’s. Denali certainly has the pedigree for its ambition to be taken seriously. The team members announced so far are all superstars from Genentech. The investors include Fidelity, Flagship and Arch, as well as the Alaska Permanent Fund.

Here is a teaser version of my four reasons that this round could become so big.

1. Prior success with a similar strategy. Case in point: Juno.

2. Prior success at Genentech.

3. “If there is money on the table…”

4. It’s the biology, stupid.

To read the details about why this financing became so massive and to learn more about Denali’s challenges and its strategy for overcoming them, read my latest post on Forbes here:

http://www.forbes.com/sites/stevedickman/2015/05/21/why-denali-raised-a-217-million-financing-round-not-just-because-it-could/

Leave a comment

Filed under Uncategorized

Can Pharma Conquer the Consumer the Way Apple Did? This App Might Help

By Steve Dickman

CEO, CBT Advisors

Apps are moving much closer to delivering real therapeutic benefit, as I wrote last month on Forbes. But life science venture capital  investors of any stripe – financial or corporate — are reluctant to invest in app developers. For most venture capitalists (VCs), anything you can buy in an app store is, with rare exceptions, not yet a “doable deal.”

Simon Meier of Roche Venture Fund

Simon Meier of Roche Venture Fund

Then, earlier this month, I noticed that a life sciences venture capitalist I know, Simon Meier, a corporate VC from Roche Venture Fund, had just invested in a $4.8 million round raised by mySugr, an Austrian app developer that has produced some popular apps to help both Type 1 and Type 2 diabetics manage their disease. According to TechCrunch, mySugr has attracted over 230,000 registered users to its diabetes management apps and web-based educational tools. Roche Venture Fund had previously invested in Foundation Medicine, an investment which is turning out phenomenally well due to the billion-dollar majority acquisition of the company in January by none other than Roche itself.

In my latest post on Forbes, I show what mySugr is doing; describe what the success case looks like (lucrative but not in a drug-like way); and give a few reasons why it was attractive to the fund, which seems to be one of the only life science venture groups investing in apps (two more are here and here) and which was in fact the only life science investor in a round otherwise composed of IT investors. Then I share my take on what this type of deal, especially if it is repeated, might mean for the pharmaceutical industry.

Read the rest of my post here:  http://www.forbes.com/sites/stevedickman/2015/03/25/can-pharma-conquer-the-consumer-the-way-apple-did-this-app-might-help/

Leave a comment

Filed under Uncategorized

Coming to an App Store Near You: Drug-Like Interventions

By Steve Dickman, CEO, CBT Advisors

A note to my readers: As of this week, I have been made a contributor to Forbes and many of my pieces will appear there. Thanks for your continued readership and please keep the comments and questions coming on Forbes, Twitter and LinkedIn.

Although replacing pharmaceuticals with apps still sounds like science fiction, it will be just a few years before getting medical treatment by downloading an app from the Apple App Store or from Google Play will begin to seem routine. All the pieces are coming together: startups are working on real medical challenges, apps are showing clinical utility and a path is emerging to approval by the Food and Drug Administration (FDA). The only things missing at this point are definitive proof and, oh yes, venture money. At a panel that I put together at Biotech Showcase in San Francisco last month (panel video here), three startups showed how they are tackling both the lack of funds as well as some real health issues: smoking cessation, attention deficit disorders and migraine. It is instructive that each of these companies sees peer-reviewed, controlled clinical trials as a must. A consensus seems to be emerging that in order to occupy the more clinically useful – and more highly remunerated – realm of “apps-as-drugs,” the winners will have to do much more than just monitoring.

To read the rest of my post and see which companies are emerging as leaders in the apps-as-drugs field, click the link or copy-paste it:
http://www.forbes.com/sites/stevedickman/2015/02/11/coming-to-an-app-store-near-you-drug-like-interventions/

Leave a comment

Filed under Uncategorized

BIO CEO 2015 Conference Preview

By Steve Dickman, CEO, CBT Advisors

Feb. 3, 2015

One conference that is a highlight for me every year is BIO CEO in New York. This year’s edition arrives next Monday Feb. 9, concluding on Tuesday Feb. 10. One of many reasons I like it so much is that so many fund managers attend. That makes for some excellent Q&A and chatter in the hallways of the Waldorf.

BIO CEO2013_205x100_Thumbnail

If you can get there, I highly encourage it. If not, read the tweets (hashtag is #BIOCEO15) and other media coverage.

The sessions I am most looking forward to include these:

  • “Emerging Trends in Deal Structures,” Mon. Feb. 9 at 9:30am. Panelists will discuss recent trends in both performance milestones and earnouts as well as swaps between pharmaceutical companies of therapeutic assets. Excellent panelists include:
    • Bruce Booth, Partner, Atlas Venture
    • David H. Donabedian, PhD, Vice President, Head of Ventures & Early Stage Collaborations, AbbVie
    • Randall Mills, PhD, President and CEO, California Institute of Regenerative Medicine (CIRM)
    • Adelene Perkins, CEO, Infinity Pharmaceuticals
    • Mark Schoenebaum, MD, Managing Director, Evercore ISI

It will be especially interesting to hear from Randall Mills, who is ushering CIRM into a hectic phase of clinical trial funding after that state agency’s first few years funding mostly early-stage research. And it is always fun to hear from Mark Schoenebaum. I half-expect him to steal the show…

  • “Getting Ahead of Ebola and Other Infectious Threats—Overturning Assumptions,” Mon. Feb. 9 at 11am. The panel will discuss how companies are trying to bring new vaccines and therapies to market faster, with implications likely for a wide array of diseases. Ebola was on the front page of the New York Times on Sunday with good news, finally: the recent outbreak seems to be ebbing. However, as much as the topic will predictably fade, there will certainly be new outbreaks of Ebola and other emerging diseases and actual strategies from government and industry have been in short supply. I am glad that there is a representative of the Gates Foundation on this panel alongside some biotech luminaries to bring the much-needed non-profit perspective. Panelists:
    • Ripley Ballou, MD, Head of Ebola Vaccine Research, GSK
    • Chris Garabedian, President & CEO, Sarepta Therapeutics
    • Peter Khoury, PhD, Senior Program Officer, Bill & Melinda Gates Foundation
    • Guillaume Leroy, PhD, Head of Dengue Vaccines, Sanofi Pasteur
    • Clifford J. Stocks, CEO, Theraclone Sciences
  • “Digital Health—Early Successes for Investors and Biotech R&D Productivity,” Mon. Feb. 9 at 3pm. This session will feature perspectives from both financial and corporate as well as from experts who have broad exposure to digital health investments. One focus will be how digital health companies are improving R&D productivity for biotechs. I had panelist Julie Papanek on my “apps as drugs” panel at Biotech Showcase (the link will take you to a video of the full panel), which took place in January. There, Julie helped me learn about what VCs are doing (and not doing) in the space. Panelists:
    • Angela Bakker Lee, PhD, Partner, VP Healthcare, Global Business Services, IBM
    • Donald Jones, Chairman, Wireless-Life Sciences Alliance
    • Julie Papanek, Principal, Canaan Partners
    • Ryan Pierce, Entrepreneur in Residence, Rock Health
  • VC Funding Report for biotech. Dave Thomas from BIO Industry Analysis will be unveiling his new biotech VC Funding Report. This first-of-its-kind study looks at where venture financing has been put to work in terms of disease area and novelty of research over the last decade (five years pre and post economic crisis). Results are broken down across fourteen disease areas, including oncology, cardiovascular, neurology, psychiatry and more.

There are also some high-profile hour-long “fireside chats.” For example, on Tuesday morning, Gilead’s John Milligan will be followed by Alnylam’s John Maraganore. I wonder if anyone else remembers that Gilead started out as an antisense therapeutics company! Then on Tuesday afternoon, a chat with Peter Greenleaf from Sucampo will be followed by Ron Cohen of Acorda and then by Ian Read of Pfizer. I will try to attend many of these. Reading the CEOs’ body language and hearing their jokes will help me interpret both company commentary as well as investor sentiment in the months to come.

In between these plenary sessions, there are over a hundred company presentations. I hope to see you there.

# # #

Leave a comment

Filed under Uncategorized

It Had to be You: Why Roche Was the Lone Suitor for Foundation Medicine

By Steve Dickman, CEO, CBT Advisors

January 16, 2015

Originally published on Xconomy

The buzz from day one of the JP Morgan conference in San Francisco earlier this week was the announcement on Sunday night by Roche that it was acquiring a majority interest in Foundation Medicine (NASDAQ: FMI) for a bit more than $1 billion in cash for a little more than half the company, which translates into $50 a share. Those were just the latest eye-popping numbers from Foundation, which went public in September, 2013, amid warnings of a biotech bubble. From its initial offering price of $18, Foundation proceeded to enjoy a first-day jump all the way up to $35 a share, straining credulity for those investors focused on the fact that the company had not received meaningful reimbursement for its flagship cancer diagnostic product FoundationOne.

It’s sixteen months later and Foundation still has not received the positive coverage decisions from Medicare or major private insurers that it would need in order to even dream of making money on its sequence-based diagnostic test. The stock had ridden down to $23 a share before the acquisition and there was plenty of short interest even at that level (pity those investors who did not cover those shorts on Friday!).

Roche was the only pharmaceutical company in the world that had a rationale for acquiring control of Foundation. It is best positioned to make the acquisition a success.

But Roche still went ahead and bought an unprofitable company for $1 billion in a transaction reminiscent of its purchase of a controlling stake in Genentech in 1990. Aside from the deal structures, which in both cases leave the US management team intact if now reporting to Roche HQ in Basel, there would seem to be virtually no similarity. Roche has moved far beyond its early-1990s status as a small-molecule-heavy European pharma eager to transition into biologics. At the time of the initial Roche transaction Genentech was already a powerful product engine, having developed early protein replacement therapeutics human insulin and human growth hormone with lots more in the pipeline and vibrant science to match. By contrast, Foundation has done little more than make losses on its diagnostics business.

But there is one big parallel between that deal and this one: In both cases, Roche believes that it has seen the future of the pharmaceutical industry. And it can only grasp that future by placing a large and risky bet on a US innovator company. Roche’s thorough transformation into a company invested in targeted therapies driven by disease biology supports my thesis that it was the only pharmaceutical company in the world that had a rationale for acquiring control of Foundation and that it is the one best positioned to make the acquisition a success.

In my view, the key reasons boil down to these:

  • Roche was early and fervent in its embrace of diagnostics as drivers of drug development and sales. I know only one top executive in the pharmaceutical industry who cut his teeth in molecular diagnostics and he did so at Roche– Dan O’Day, who was CEO of Roche Molecular Diagnostics from 2006 to 2010 and is currently COO of Roche Pharma. Once the Foundation transaction is completed, O’Day and two others chosen by Roche will join Foundation’s board of directors. Aside from the personal, Foundation also fell on fertile ground at Roche on the institutional level. Roche had already changed its drug-discovery focus to be more diagnostics-driven than most other pharmaceutical companies on virtually every level. As Roche CEO Severin Schwan declared in 2012: “More than 60% of our pharmaceutical pipeline projects are coupled with the development of companion diagnostics in order to make treatments more effective.” That number has almost certainly gone up.
  • Roche was the pharma that had most thoroughly integrated clinical genome sequencing into its trial protocols, long before it had figured out how best to use the data. In my work with biotech companies, I had been hearing for years how Roche had embraced sequence data as a key success factor for the pharma industry of the future. As soon as the cost of sequencing became halfway affordable (maybe $5,000 to $10,000 per full sequence), Roche began to require genome sequence data as a key data point from every patient in every clinical trial. If there was any doubt about how highly Roche regarded sequencing, its $51-a-share Illumina bid in 2012 dispelled it. (Illumina, whose CEO Jay Flatley said at the time that the bid seriously undervalued his company, now trades at $181). An executive speaking under condition of anonymity who knows Roche Ventures well confirmed that Roche places high importance on sequence data, both data which it has itself collected as well as data being collected by Foundation. As an aside, Roche Ventures had invested in Foundation two rounds before the IPO in 2012 and had no strings attached in the form of a promised acquisition or partnering deal. That investment is another indicator of the value Roche management placed on keeping up with the world of clinical sequencing. That executive told me on Monday that Roche was counting on Foundation’s data scientists to be able to make the most effective use of their own data banks of both sequence data and outcomes data and that the prospect of joining forces was irresistible.
  • Roche realized that it would face competition if another pharma company scooped up Foundation. Roche believes that in genomic profiling, it has identified a common theme for creating value in oncology therapeutics of whatever stripe – targeted therapies like kinase inhibitors; biologics like monoclonal antibodies; and even immuno-oncology approaches like checkpoint inhibitors. Having made this observation, it did not want anyone else to catch up. Combining Roche’s clinical sequence data and its drug pipeline with Foundation’s gene-level and patient-level insights clearly would realize the most powerful synergy. But in the hands of another pharma, the Foundation team and data sets could have posed competition. Ergo, Roche decided to buy it now.
  • Roche is counting on a shift from biochemical targets to genomic profile targets, especially in drugs for solid tumors. Foundation’s “poster child” cancer cases are those in which genetic profiling suggested – against all experience of oncologists and with no evidence from n-of-1,000 clinical trials – that cancer drug X, developed for, say, ovarian cancer, would work best in cancer indication Y (e.g. prostate cancer). Because the patient is desperate, the physician prescribes the drug and voila – there is a response or even a remission. This pattern echoes what has happened in blood cancers such as chronic lymphocytic leukemia (CLL), in which old-fashioned chemotherapeutic agents have been replaced by biologics like rituximab (Rituxan) and are being augmented or, eventually, replaced again by kinase inhibitors like ibrutinib (Imbruvica). This will likely happen in solid tumors as well: chemo as we know it will be scaled back (though, like that other blunt instrument, surgery, it will likely never completely disappear) and physicians will chase cancer cells through various waves of genetic mutations, each of which demands a different targeted therapeutic or biologic to hold it at bay. In that world, the company that is most on top of the mutation patterns and treatment patterns and can incorporate those into both its drug development efforts and its sales pitch, wins, or at least has an edge. Diagnostics will likely be an important part of immunotherapy as well, an area where Roche is currently weak. Right now companies like Juno (NASDAQ: JUNO), Kite (NASDAQ: KITE), Bellicum (NASDAQ: BLCM) and Novartis are taking baby steps with CAR-T. Most companies are focusing on surface antigens like CD19 that are widely expressed and therefore do not require molecular diagnostics.  To realize the full potential of these therapies, companies will need to match patient-specific tumor profiles with panels of off-the-shelf biologic reagents and cell engineering products. That’s where Foundation’s tests might come in.
  • Foundation is setting new standards in cancer genome analysis. Foundation has raised the bar in the accuracy of genome-based tumor profiling (sensitivity, specificity) by something like a factor of three, and built robust and scalable informatics and analytics. Roche was already using the Foundation platform on a limited basis and realized that it was simpler to expand that use rather than to try to copy it.

Since the last few pharma mega-mergers, the industry’s biggest players have gone in wildly different directions. Novartis embraced gene therapy and gene editing. AstraZeneca doubled down on the biologics franchise it obtained with the acquisition of MedImmune. Bristol Myers and Merck have raced ahead in checkpoint inhibitors. Merck, Sanofi and to some extent Pfizer have rapidly expanded investment in “beyond the pill” and “digital interventions” (apps as drugs). And Roche took up diagnostics and genetics. For Roche, drug development, especially in oncology, is all about “genetics-driven medicine,” which in their view requires “genetics-driven drug development” and “genetics-driven marketing.” No one else has placed such a big bet on genetics though all pharma companies are certainly exploring it. For example, AstraZeneca, Johnson & Johnson and Sanofi recently announced a collaboration with Illumina (NASDAQ:ILMN) to develop a “next-generation-sequencing based test system for oncology.” In some sense, if Roche wins this one, others – e.g. those betting on checkpoint inhibitors and CAR-T cells – might lose out.

In CBT Advisors’ world of venture-backed biotech companies, this landscape poses significant challenges. Gone are the days when a biotech’s innovation would be appreciated by as many as five or ten pharma companies at the same time (there are barely fifteen left that regularly carry out M&A) and there could be a big bidding war. The biotechs’ leverage is not what it used to be. Counterbalancing that is the obvious productivity flop in pharma R&D. Biotech is the only place pharma can turn for real innovation. And turn they do, early and often.

This creates a bonanza for firms like mine that assist early, science-driven companies in managing their public positioning and their BD pitch from day one to create the largest possible exits. Now more than ever, the right story sells, just maybe to only one or two bidders. In Foundation’s case, the billion-dollar number was probably what it took to get the company’s pre-IPO investors (who included Google Ventures and Bill Gates not to mention smart funds like Casdin Capital) to give up on at least some of their dreams of long-term returns in exchange for a sweet 10-12x (I’m guessing) on their last pre-IPO investment from early 2013.

From Foundation’s point of view, the deal does three things, all of them good:

  • Cashes out the early investors at a price they can accept.
  • Delays, perhaps indefinitely, the need to break even on selling tests and shifts the focus to drug development and companion diagnostics
  • Relieves the constant pressure to market the company’s analytic services to multiple pharma companies in deals that have been the main source of revenue for Foundation to this point. That pressure was undoubtedly going to become heavier as Foundation’s pharma partners realized that, quarter after quarter, there was no reimbursement coming from Medicare and little from other payers, leaving pharma to provide the vast majority of the company’s source of revenue. (A first small insurer in Grand Rapids, MI, announced coverage of FoundationOne and another Foundation test in October, 2014.)

Back to why the acquirer had to be Roche: remember that over the last 25 years, Roche has had the undoubtedly humbling but ultimately very profitable experience of owning Genentech. Revenues and product pipeline from that acquisition long ago overtook those products from Roche’s own drug development in volume and importance. In some sense, Genentech has come to own Roche. Since Roche is nowhere near as advanced in gene therapy as Novartis nor as advanced in checkpoint inhibitors as Merck and Bristol-Myers, the move to own Foundation is an attempt to be the best it can be as a genetics-driven drug developer and marketer. No other pharma would have seen this deal that way. When and if Foundation’s investment bank called around looking for better offers, I bet no one called them back.

For Roche, the deal will either turn out to be a leap frog or, maybe, a dead end. But if cancer therapies, especially for solid tumors, really do wind up getting developed and marketed in a genome-driven way – and many trends point in that direction – then this move will have turned out to be prescient indeed.

Leave a comment

Filed under Biotech, Diagnostics