Author Archives: Steve Dickman

Can This $181 Billion Fund You Have Never Heard Of Succeed At Playing The Long Game In Life Sciences?

Traditional life sciences investors have made lots and lots of money from recent multi-billion dollar exits like Receptos, Alios and Acerta. But lately I’ve noticed a different life sciences investing strategy, one closer to the way social/mobile/software investors invest. By paying higher entry prices for later mega-rounds in ambitious life sciences companies, including both therapeutics and non-therapeutics companies, these deep-pocketed investors hope to reproduce their earlier successes investing in the likes of Amazon and Tesla. Their capital, which comes without the usual board seats and tight monitoring, is deeply welcome, because it allows these companies (similar to consumer companies like AirBnB and Uber) to stay under the radar much longer than if they would have to file for an initial public offering (IPO). By the time some of these companies finally surface, they may have catalyzed profound change as well as making money.

My curiosity about this new approach took me to Edinburgh, to the shadow of its imposing castle, where I got to look at this type of investing through the eyes of one of its top practitioners, an investment management firm known as Baillie Gifford.

Never heard of Baillie Gifford? Neither had I when they first approached me in 2015 through a mutual acquaintance at MIT for a friendly chat. It turns out that Baillie Gifford is a global investment fund that quietly deploys the assets of some of the largest pension funds in the United States as well as investing on behalf of many other clients. After doing business for over 100 years, Baillie Gifford currently has 145 billion GBP ($181 billion) under management.

“Life sciences companies are an increasingly important part of our research agenda.” That was the essence of what the Baillie Gifford team told me back in 2015. Talk about turning talk into action. Barely eighteen months later, the fund had made six investments in life sciences companies in rounds totaling over $1 billion.

Table 1. Baillie Gifford’s publicly disclosed life sciences and healthcare investments (not including health IT investment ZocDoc) as of April 11, 2017.

Table 1. Baillie Gifford’s publicly disclosed life sciences and healthcare investments (not including health IT investment ZocDoc) as of April 11, 2017. Data from Pitchbook and Crunchbase

The common theme among all of these investments is “growth.” In order to have a chance at making outsize returns – think at least 50% a year if not 100% or 200% – an investor has to bet on a company that can change the world – before the change has happened. Baillie Gifford’s strategy in finding these investments focuses on identifying “mega-trends,” major changes that may be slow to take hold, but once in place, can be extremely influential. Widespread access to the internet would be one example of a modern megatrend. Within biotech, the trend toward ever-cheaper and ever-more-widespread gene sequencing would be another.

Trying to make money this way is very different from traditional biotech venture investing. But the size and number of recent such financings show the growing popularity of this model. Recipients include the synthetic biology companies Ginkgo Bioworks and Zymergen; the Google-funded, data-intense companies Flatiron Health and Verily; the Illumina spinout GRAIL; and the medical device company Intarcia Therapeutics. The Baillie Gifford portfolio alone contains Ginkgo, Flatiron and Intarcia along with therapeutics companies CureVac, Denali Therapeutics and UNITY Biotechnology.

Baillie Gifford is not the only fund coming into life sciences and healthcare investments with big dollars and long-term views. Domestic US fund Alaska Permanent Fund was a big pre-IPO investor in Juno. More recently, that fund invested in the $61 million Series A round of Cambridge, MA-based biotech Codiak Biosciences and in the $217 million Series A round of Denali. Sovereign wealth funds such as Singapore-based Temasek are also increasingly joining syndicates in biotech companies such as Alzheimer’s therapeutics developer TauRx, also based in Singapore, as well as US-based companies such as gene editing-focused biotech Homology Medicines and primary care-focused healthcare play Iora Health. Based on various analyses my firm has carried out on fund flows in this sector, I expect other sovereign wealth funds to increase, in some cases significantly, their investing activity in life sciences and healthcare.

Fewer. Larger. Later.

In contrast to typical life sciences venture capitalists (VCs) who invest in ten therapeutics companies hoping to make big multiples on two or three of them, Baillie Gifford invests in fewer life science opportunities and puts much larger amounts of money to work in each investment. The team is also unconventional. Unlike the typical crossover fund or hedge fund team stuffed with MD-PhDs and clinical development experts, the Baillie Gifford team consists of generalists. Tom Slater is one example. A 2000 computer science graduate, Slater joined Baillie Gifford straight out of college. After working on Asia and UK equity teams, Slater joined the Long Term Global Growth team in 2009, and since 2015, he has been head of US Equities. Because Baillie Gifford is owned jointly by its 41 partners, Slater has considerable “skin in the game.”

Tom Slater

Tom Slater. Photo courtesy Tom Slater

To read the rest of this post, visit:

http://www.forbes.com/sites/stevedickman/2017/04/12/the-long-game-in-life-sciences-181-billion-fund-baillie-gifford-invests-big-in-private-companies/

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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.

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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.

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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.

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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/

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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/

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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/

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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.

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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.

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