Convergence West Highlights: From iPhone Sequencing Apps to Funding Innovation in Biotech

Last Friday, Dec. 3, 2010, I attended the excellent Convergence West conference in San Francisco. Here are some highlights. I’ll be doing an additional post on my “fireside chat” with Jamie Heywood of PatientsLikeMe.com.

Topics covered:

  • We have seen the future of high speed genome sequencing – and it’s a bit of a gross-out
  • Diagnostics regulation and iPhone blood tests
  • Diabetes costs are immense
  • MEDCO gets it
  • Creative financing for mainstream biotech

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We have seen the future of high speed genome sequencing – and it’s a bit of a gross-out

With three high-profile liquidity events* in 2010 for high-speed genomics companies, the financial markets seem to have embraced the prospect of low-cost, ubiquitous sequencing for all. But what will the sequencers be sequencing?

During a panel Q&A, I asked Eric Schadt, the Pacific Biosciences CSO, how close we are to wide clinical or even consumer use of that company’s world-beating technology. The applications he named ranged from the not-apparently-useful to the gross:

  • “In four to five years, we will be able to use our third-generation technology to sequence hundreds of gigabases for $100 in 15 minutes.”
  • “In 10 years it will be like an AT&T plan: sign up and get 10 genomes for your family.”
  • “Integrate the sequencer into your iPhone, wave it around and see the genomes of all the pathogens swirling around you all the time.”

We realize that there are plenty of applications for the sequencing of genomes besides the human one. We blogged about the genome-mining of gut bacteria here. But judging from the facial expressions, the reaction to the iPhone app for skin bacterium sequencing was a visceral ‘yuck.’

*Pacific Biosciences raised $200 million in its IPO on Oct. 27; rival Complete Genomics raised $54M in its IPO on Nov. 10. Ion Torrent was acquired on Aug. 18 by Life Technologies for $375M upfront and $350M in possible future milestones.

Diagnostics regulation and iPhone blood tests

A previous panel I moderated (at the Wolfe Biopharma conference in Boston on Oct. 19) featured a discussion of a new regulatory path for MDx at FDA, currently in a bill sponsored by Sen. Orrin Hatch to be introduced in the U.S. Congress’ “lame-duck” session in late 2010 or early 2011. During the Q&A, I asked the MDx panel about this and heard this groan from MDx company Saladax CEO Sal Salamone:

“I’ve been in diagnostics for twenty-five years. There were not a lot of big advances in the technology for diagnostics in that time but the costs of compliance with regulations have increased an order of magnitude.”

On a similar note, FDA is not the only new hurdle that MDx startups encounter on the way to the market. From entrepreneur Sridhar Iyengar, Founder of New Hampshire-based AgaMatrix, which has successfully partnered with Apple to bring real-time glucose testing to the iPhone:

  • “Working with Apple is a lot more difficult than working with FDA.”

Diabetes costs are immense

Tethys Bioscience is one of the highest-profile VC-backed MDx companies around, with a commercial platform, $48 million raised in the recent Series D round alone, high-profile investors from inside and outside healthcare and an indication focus – Type 2 diabetes – that is one of the most prevalent and expensive of those facing society. CEO Mickey Urdea therefore has a bias but he also has a point: Type 2 diabetes is a societal scourge.

  • “If you have gained 30-60 pounds in 6 months, it probably means you just retired from the Air Force” said Urdea.
  • Furthermore, Urdea said, the Air Force believes it will “go into bankruptcy” by 2017 if it doesn’t find a better way to combat diabetes.

MEDCO gets it

We heard from two panels that Medco Health is the company that is most on top of the shift in the U.S. health care system to a more incentive-driven and value-based model.

“Medco has the potential to change the paradigm for diagnostics. They are working on pairing diagnostics with generics to prove they are better than new drugs.” (Saladax CEO Sal Salamone). As one recent article on Medco’s MDx initiative put it, “With Medco Around for Dx Shops Developing PGx Tests Independently, Who Needs Pharma?”

  • Jamie Heywood, Founder-Chairman of PatientsLikeMe.com said jokingly that “Medco is starting to look like it could buy Merck.” This is not quite true – Medco (NYSE: MHS) at a $26 billion market cap is still much smaller than Merck (NYSE: MRK) at $108 billion. But since Merck spun out Medco back in 2003, Medco is up five-fold and Merck’s value is down.

Creative financing for mainstream biotech

The VC funding panel featured several successful examples of the high-risk, high-reward approach needed to pursue innovation in biotech.

  • Very encouraging: The VCs that are still investing in biotech “are more interested in in funding innovation today than at any time in the last 15 years,” said VC Bryan Roberts of Venrock. But, he continued, this is because “they are so scared by regulatory & commercial risks and [they fund earlier-stage projects because they] think they can get out before [they face those other risks].”
  • Pick your poison: “If you are not getting financial dilution (via VC) or IP dilution (via partnerships) then you have to have ‘bandwidth dilution’ through government funding,” said Oncomed CEO Paul Hastings
  • Find a contrarian: Hastings said that it takes a true contrarian within Big Pharma to push a deal with an innovative biotech. Hastings cited Moncef Slaoui, chairman of R&D at GlaxoSmithKline – who backed GSK’s 2008 acquisition of Sirtris – as one example. Roberts agreed: “Great decisions don’t get made by groups.” This was certainly true when Roberts and Jim Neidel helped CEO Howard Robin sell our Sirna Therapeutics for $1.1 billion to Peter Kim at Merck in 2006. (Sirna’s turnaround PIPE was a deal I did as a VC with TVM Capital in 2003.)
  • Power raiser: Oncomed (which is developing drugs targeting what it calls “tumor-initiating cells” aka cancer stem cells) has raised a lot more money than I had realized: $229M in equity including its investment from GSK & a further $100M from partnerships including GSK and Bayer Schering. Hastings said that Bayer Schering had struck the right attitude by
    • Showing up on a Saturday morning for a kickoff meeting; and
    • By the Bayer Schering team leader telling his 20-person team (visiting the 3-person Oncomed team) “We are here to learn from them and not the other way around.”

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