Category Archives: Startup

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

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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

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Health IT: Will Europe catch the wave?

By Steve Dickman, CEO, CBT Advisors

The US health IT space is white hot. Europe lags far behind both in the number of companies and in the amount of money being invested. There have been very few (no?) exits. I was wondering if Europe will ever catch up and which companies and geographies are emerging winners. So I decided to survey a half-dozen Europe-based VC partners active in healthcare investing some of whom have taken their first tentative steps into health IT investing. Here’s what I found out.

But first the impressive US benchmarks: HealthITNews reported in mid-July that VC investment into health IT surpassed $1.8 billion just in the second quarter of 2014, double the amount that had been raised in the previous quarter. Investors have cashed in on exits from companies such as Castlight Health (NASDAQ IPO in 2014); Humedica (acquired by United Health for a reported several hundred million dollars in 2013); and Healthy Circles (acquired by Qualcomm Life in 2013 for an undisclosed amount).

This makes sense given the obvious drivers for health IT activity in the United States: the mandated shift to electronic medical records (EMRs); consumer interest in web and especially mobile health apps; the boom in analytics in all areas including health; and especially the multi-payer system, one that heavily involves employers. Castlight would not even exist without the employer aspect. Rock Health reported in its excellent midyear funding report published in late June that startups developing payer administration tools took in more VC money (over $200 million in the first half of 2014) than any other subsector within health IT.

A Europe of borders

Meanwhile, as much as Europe has dismantled many of the internal impediments to the single market (local currencies, border crossings), there are many barriers to developing solutions to Europe-wide healthcare challenges. These include:

  • Language barriers. Start a web site for a consumer-facing business and you will see your user base fracture unless you can communicate in at least three (or four!) languages.
  • Scaling challenges. Try to remedy the challenges inherent in the healthcare system and you will soon realize that there has been virtually no harmonization yet. Single payer systems are fine as long as you stay within them. If you try to work cross-border, then look out! As Antoine Papiernik, a managing partner at Sofinnova Partners in Paris put it, “Our European system is also messed up, but in a different way than in the US. It is the fact that [EU healthcare systems] are completely state controlled and operated that makes it difficult for a Health-IT play to get to scale as well as it could in the US.”
  • Missing incentives. When it comes to reducing inefficiencies and shifting responsibility and benefit to the consumer, the US healthcare system is a target rich environment. Similar incentives are hard to find in Europe, especially across borders. Consumers are less incentivized when they get cradle to grave healthcare financed by payments much lower than those in typical US health plans. Therefore, said Anne Portwich, a partner at LSP in the Netherlands, it is hard to imagine a consumer-focused company gaining VC financing in Europe, at least before it has huge traction (some promising examples will come up later). This is because “Something the consumer has to pay for him or herself, even 1 Euro per month, that is a completely different [and more challenging] dynamic and a different business model than what we are familiar with.”
  • Big data not yet “in.” Finally, a less obvious example. The larger business environment in the States has been largely penetrated by the type of thinking that favors “big data” and “analytics” as solutions to real problems. This way of thinking is years away in Europe, said Simon Meier, investment director at Roche Venture in Basel, Switzerland. Meier went part-time for a year in 2013 to work with a startup in big data and advertising so he observed this firsthand. Even sectors ripe for analytics such as retail and advertising have not yet been overhauled in Europe, he says. Therefore, Meier said, “our data scientists are still occupied in resolving issues or setting up infrastructure in areas from which US scientists have already moved on. There are plenty of markets in the European Union that have not even started thinking about data science. Compared to the US, applying data science to healthcare in Europe is going from a simple sailor knot to a Gordian knot.”

For all of these reasons, successful early-stage European health IT companies (see inset below) seem to be primarily single-country focused for now. Sometimes that leads to companies in different countries occupying similar niches, such as helping consumers improve sleep. Consumer-focused sleep-aiders we found include sleepio in the UK and iSommeil in France. Either app could be used in any country. Sleepio, which offers online sleep therapy, even prices its services in US dollars, so perhaps these apps’ reach is very broad. However, iSommeil’s sample language is all in French so I suspect that a majority of their readers are in French-speaking countries. Its app is available in the US iPhone app store but there are no reviews.

The bulk of Euro health IT activity that we turned up is in the UK, where a couple of active VCs (SEP, Albion) and some pioneering companies are mining turf (e.g. practice management software, EMRs) that has either already proven fertile in the States (despite the vastly different healthcare system) or that, though initially local or Europe-focused, may later turn out to be interesting for expansion. Those rounds have been on the small side, in keeping with the early stage of the companies and the low initial capital needs of software businesses. We’ll see if even more international VC funds begin to follow the pioneers in later rounds. Those international VCs, some of whom we reached, are certainly paying keen attention.

Withings' connected (and stylish) blood pressure monitor

Take your BP at home – in style

Breaking the mold

One company that breaks the mold is Withings, an Apple-like consumer products company based in France that started out selling an internet-connected scale added a blood-pressure cuff and is now branching out into a stylish wristwatch that doubles as a self-tracking device. 

MyTomorrows, based in the Netherlands, also offers something novel and very intriguing: an online platform that allows patients who have exhausted standard therapies to be treated with medicines not yet approved by regulatory authorities. Self- and angel-funded with $6 million, MyTomorrows already offers patients with an impressive list of diseases the opportunity to ask biotech companies directly for medications on a compassionate basis. If it gets over what are likely to be some very challenging regulatory hurdles, this one has real promise. 

But there are not many outliers like these and even fewer that have been financed by top VC firms. Furthermore, outside of the UK, VC activity in European health IT in general has been very limited. 

Will Mint be the solution? 

Thus it was with great interest that I noted the recent $6M Series A investment by two top-tier European VC firms, LSP and Seventure, in Mint Solutions, an early-stage company that originated in Iceland and has relocated to the Netherlands. 

As much a device as an IT play, Mint Solutions illustrates what is working about European health IT and at the same time why scaling will be hard. The challenge Mint addresses is errors that hospital personnel sometimes make in administering medication. Mint features a small bedside scanner (PICTURE?) that images the pills and confirms their identity before they are dosed. “The real challenge is the oral meds,” said Portwich, “not infusions. Mint has a scanner, a box with a drawer that comes out. First it does a 3D scan – shape, size, accompanying instructions. An algorithm verifies the identity of each pill. Then it gives a readout in a couple of seconds. It’s connected to the e-prescribing system. And it puts into the chart: ‘Mr. Miller got 2 ibuprofen and Lasix at 10am.’” 

Demand among Dutch hospitals – the company’s test market – is strong, said Portwich, spurring optimism that Mint’s solution, dubbed “MedEye,” can be marketed in other countries as well. A good review of MedEye and Mint Solutions appears here.

MedEye scanner

What’s next, a robot nurse? Don’t answer that…

In the “avoiding medical errors” market, though, the technology that has already taken hold in the United States is barcoding. This does not trouble Portwich. “We know that barcode scanning is widely used [in the States]. There is not yet 100% penetration but big hospitals have implemented it. But when you look at the long-term care facilities, that is a different story. Barcoding is not so well established there. So that could be our entry market.” 

Though LSP was early to discover Mint, to encourage co-founder Gauti Reynisson and his team to set up shop in the Netherlands rather than his native Iceland and to make a commitment to invest, Portwich recalled that, until Seventure came along, the search for a syndication partner was not so simple. “It felt like we are the only one” investing in health IT, she said. We spoke to IT investors and they said, ‘We only do software and this has a hardware component. They also said, ‘Oh, you are selling to hospitals – the sales cycle is too long.’ And our healthcare colleagues said, ‘Wait, but this is IT. We don’t do IT. We prefer medical devices.’” 

It helped that in 2012 LSP had set up a “health economics fund (HEF)” backed by two Dutch insurers, among other investors, in order to invest specifically in private healthcare companies with products close to market. In most cases, Portwich said, the HEF’s investments will go into traditional medical technology. 

Mint Solutions represents a type of company that Meier of Roche Venture says he is seeing increasingly often in the diagnostics space. To capture an opportunity, Meier says, “You have to number-crunch AND design a small device that does its job well. Both for the company and the investor, the small device is more the focus than the big data.” 

“Big time” IT and data plays in the healthcare space such as Foundation Medicine, in which Roche Venture invested, are still rare in Europe. “Look at Flatiron Health,” Meier said, an oncology-focused cloud-based data and analytics platform in which Google invested $100 million: “I have not seen anything similar in Europe.” 

Language barriers, fragmented markets, a pot of gold across the ocean: no wonder many European health IT entrepreneurs I know either have already moved or are thinking of moving to the States

I suppose the best that Europe can hope for besides outliers is that some of its best companies hit it big in the States and then return and offer their services in their home markets. But it will take a while before that starts to happen. 

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This post originally appeared on The Healthcare Blog.

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Stealth mode the new sweet spot for some biotechs

By Steve Dickman, CEO, CBT Advisors and Sultan Meghji*

*Sultan Meghji is an entrepreneur and advisor in life sciences, financial services and high tech. He is based in St. Louis, Missouri.

In biotech’s early days, telling a story to a wide audience used to be part of the path to success. Founders would share a compelling early narrative to potential investors, reporters and just about anyone else who would listen. Nature papers were the coin of the realm. Molecular biologists with big dreams even became something of a cliché, memorialized in a joke one of us heard in the early 1990s from one of the scientific founders of Biogen. In the joke, a molecular biologist on his wedding night fails to consummate his marriage. A shocked friend asks the bride what happened and she says, “Oh, he just stood at the end of the bed all night telling me how great it was GOING to be.”

But far from shouting to the rooftops, lately it seems that more and more biotechs are pursuing a different approach. Instead of keeping their technology under wraps until a first financing happens, these companies go into what we call “permanent stealth mode.” The principle here seems to be, “Say no more publicly than necessary and even then, keep it vague.” Meantime, let your actions speak for you: Raise money. Sign partnerships with pharmaceutical companies. And then seemingly out of nowhere, hand consumers and investors a finished product or service.

Lately, we’ve seen some tech companies choose this path. Notably, the company that developed Siri was spun out of SRI International in such a way that Apple acquired it barely three months after the company’s voice recognition app was first offered in the App Store. That route is relatively new in IT and still fairly rare. It seems to be related to the fact that the competitive advantage held by some startups involves algorithms, which can be hard to protect using patents. But such an approach has been even rarer for biotech companies that, until recently, had to fight like rain forest vines for the light and nourishment that publicity could bring.

In this post, we’ll share some examples of three “deep stealth” life sciences companies that chose to stay on the stealthy side well beyond the timeframe of a typical startup: Moderna, Kadmon and Theranos. The first two are developing novel therapeutics and the third is a consumer diagnostics company. We will share what little we can find out about them; offer some analysis about what has motivated the companies to stay stealthy; and ask whether they represent the beginning of a trend and, if so, what that implies for the industry.

Moderna Therapeutics

In less than four years, Moderna has raised over $400 million. It has built a platform around RNA to trigger the production of protein drugs inside the bodies of patients, thus turning the body into a protein factory. We noted back in 2012 that Moderna’s approach turns the traditional dogma of biotech on its head: instead of manipulating the DNA in the lab and then producing proteins in cells or bacteria, then selling these proteins to the patient, Moderna instead takes messenger RNA, does some fancy chemical tricks to it and puts it into the body as RNA, letting the body’s own protein production machinery do the rest. We also noted that the company had chosen not to publish anything, even in scientific journals, leaving open the question of how the RNA would be stabilized and delivered (RNA in its native form is notoriously unstable not to mention subject to destruction by ubiquitous enzymes) and leaving the rest of us to wonder what the platform could really do and how it does it.

Then came a news bulletin: In 2013, Moderna struck a validating deal with AstraZeneca that included an unusually rich up-front payment: $240 million plus an additional $180 million in potential milestone payments. Then in January, 2014, it announced a deal with Alexion for $100 million up front and a $25 million equity investment plus undisclosed milestone and royalty payments. Yet even as of today, the company has put out but a single publication. Recently, the company spun out a subsidiary called Onkaido to focus on oncology. At the same time, its business strategy seems to be shifting. CEO Stephane Bancel told Xconomy in mid-June that it will become a holding company that spins out drug development companies and that “Moderna will most probably never develop and sell a drug.”

Kadmon Corporation

Kadmon, founded by Sam Waksal in 2009, has grown much larger than a typical privately held company ever does. Waksal is known both for founding ImClone in 1984 and for being convicted of securities fraud in 2003. Waksal’s work with ImClone eventually led to the approval and marketing of Erbitux, an early and influential targeted oncology therapy. ImClone was acquired by Lilly in 2008 for $6.5 billion.

Kadmon, which has been built mostly around acquisitions of later stage technologies, is not completely in stealth mode. It does have a web site that lists its clinical pipeline in some detail. Initially focused on oncology, liver disease and metabolic and cardiovascular disease, it now sells the hepatitis drug ribavirin. All of these pipeline products have been brought in by acquisition, beginning with the acquisition of Three Rivers Pharmaceuticals for more than $100 million in 2010, according to the Wall Street Journal. That company had products on the market at the time of acquisition, especially in hepatitis C. Bloomberg reported that Kadmon had reached $25 million in annual revenue by 2012 and was targeting $40 million to $60 million in 2013. Interviewed by Maria Bartiromo on CNBC in January, 2011, Waksal described a new paradigm for building a biotech company with a commercial arm that could serve as a “cash generating machine” so that “we don’t have to go to the [financial] markets to constantly raise money for drug development.”

The corollary to that is that, if it is funded by revenues, the company’s very exciting research does not have to be disclosed, even to venture capitalists and especially not to the public, in the context of fund-raising. At investor conferences, the company has described some fascinating RNA targeting technology that could represent a new generation of gene therapy. Waksal told Bloomberg in 2013 that Kadmon was considering a spinout of a gene therapy company and an oncology company focused on the Chinese market.

In the meantime, there are not too many publications (none linked on the Kadmon web site) and the company has had to cope with multiple warnings from the FDA over its marketed products.


Theranos has recently begun to emerge from stealth mode, although its technology is still secret. This June, 2014, Fortune cover story reported that the eleven-year-old company is valued at $9 billion and that, due to her share ownership, company founder Elizabeth Holmes, a Stanford dropout, is worth $4.5 billion on paper.

Theranos’ blood draw technology replaces traditional, slow, overpriced blood testing with pinprick-style small-volume blood tests. By working efficiently on tiny volumes, Theranos is both cutting prices by half or more as well as increasing efficiency by allowing for follow-up tests to be done right away, according to the Fortune article.

How Theranos does all this remains a secret. But this “black box” has not prevented the company from raising what Fortune reports to be more than $400 million nor from striking a distribution partnership with Walgreens, a partnership that extends beyond Walgreens’ 8200 US stores to its European pharmacy partner Alliance Boots. In parallel, the company is working with hospitals to offer its tests in what the CEO of UCSF Medical Center told Fortune is “the true transformation of healthcare.” (USA Today covered much of the same ground in its July 8, 2014, edition here.)

Theranos’ vast ambition, coupled with its lack of publications subjecting its methods to scientific scrutiny, has not gone unnoticed, especially by competitors. Fortune wrote:

‘The most frequent criticism is that Theranos is using purportedly breakthrough technology to perform tests that are relied on for life-and-death decisions without having first published any validation studies in peer-review journals. “I don’t know what they’re measuring, how they’re measuring it, and why they think they’re measuring it,” says Richard Bender, an oncologist who is also a medical affairs consultant for Quest Diagnostics, the largest independent diagnostic lab.’

Why advertise?

The clearest unifying attribute of Moderna, Kadmon and Theranos is “high confidence,” followed closely by “high ambition.” There is no other way to raise the billion-plus dollars these three have raised. There has to be some technical know-how to go along with the bravado. Otherwise multi-hundred-million-dollar partnerships with national pharmacy chains or big pharma companies just do not materialize. Activating a direct commercial channel (in the case of Theranos with Walgreens) or a high-credibility development partner such as Moderna’s partner AstraZeneca is at least a temporary substitute for a look under the hood.

But there is something else going on as well. Let’s call it “stealth as a business model.” All three of these companies seem to share the belief that they will be better off if no one knows what they really do or how they do it. Most notably, they depart significantly from the status quo of publishing and presenting the technologies in an open forum as the gold standard for credibility. This is so unusual in the history of biotech that it made us think about the question the other way around: why would you want to disclose anything about your new biotech company? Just raise the money, sign a partnership and get on with it!

We thought of a good five reasons why many companies share at least the basics of their technical approach. (One company whose chances we like, Heptares of London, UK, published a paper in Nature in 2008 more than a year before they raised their Series A round. That company published in Nature again in early July of this year, gaining credibility from Nature’s name and its peer review process – a more traditional pattern.)

A clue to understanding the trend is the presence or absence of venture capital (VC) money. Of the three companies we chose to examine, only Moderna has disclosed an investment by a traditional VC, Flagship Ventures. It’s fine to stay in stealth if you want to raise money from a single VC, or for that matter from a single VC syndicate. As long as you don’t need “buzz” in the form of news articles and conference hall chatter, you can just go achieve your objectives without sharing much about what you are doing. These days, most early-stage therapeutics investments are done by an initial syndicate that intends to fund the companies through major milestones such as Phase 2 data or partnerships. Therefore the need for buzz is less. Next stop, hedge funds, who couldn’t care less about buzz and whose analysts may in some cases be confident enough to make big-ticket investments decisions based on unpublished data.

So why publish and share at all? Let’s set out some reasons and see if we can shoot them down: 

  • Fund-raising. As described above, that point seems moot. Atlas Venture in Cambridge has a whole stable of early startups and they keep their technology under wraps for a while – maybe all the way to exit? Third Rock Ventures incubates companies for a year or more before hatching them nearly fully formed and typically not intending to raise more money until the IPO anyway. Why not go all the way in stealth?
  • Corporate partnerships. Roche will find out about you whether you publish or not. If your scientific founder is already known to the therapeutic area head, all the better. If not, maybe better to publish.
  • Clinical trial recruitment. This is usually handled by intermediaries such as clinical research organizations (CROs). Patients are usually tracked down actively. Companies don’t wait for the patients to be pulled in via news stories (though the stories don’t hurt).
  • Hiring. This would seem to be a big one, especially in hotly competitive geographies such as Cambridge or the Bay Area. But now that more and more “virtual drug development” companies are filing for IPO in Phase 2 with staffs of fewer than fifteen people – two of these have been CBT Advisors clients in 2014 and two more have been clients of our co-author – the point seems less relevant
  • Overcoming resistance in society to biotechnology. This may have been a factor at the dawn of the industry in the 1980s but now there seems to be much less resistance, even in traditionally conservative societies like Germany. A more nuanced understanding of advanced biotech seems to be emerging and there is strong demand globally for more biotech companies, not less.

When you think about it, publishing has some downsides too. Most threatening among these is that publishing what you are doing will arm your competition. Yes, your patents will be published anyway eighteen months after you file them. But competition has intensified in the era of the patent troll. Why advertise?

The strong implication of all of these arguments is that biotechs should stay stealthy whenever possible. If founding scientists are not required to publish in order to get tenure or to get the next grant, they should, like our examples here, take it to investors, take it to pharma, fund it to the hilt and don’t look back.

In one sense, this does hark back to the early days of biotech, when companies were able to raise considerably more money for technology platforms that were years away from generating tangible products. That model went away early in the last decade, in part because investors – both hedge funds and venture funds – began to apply financial analysis tools to product portfolios, sharply cutting the valuations and the ability to fund-raise for all but products that already existed. The shift into stealth mode seems to be going hand-in-hand with a shift in investor favor toward early funding of powerful platforms such as Moderna’s. Once again, a company able to raise significant amounts of capital can try out several different things and allow some of them to fail quietly without the market playing a role.

We just want to mention one tiny nagging doubt: much of the research that underpins these companies comes about under the auspices of US government funding, typically from the National Institutes of Health (NIH). But in the guidelines we found, there is no formal mechanism requiring disclosure once research is funded. It is not even required to be published. Nevertheless, it strikes us that sooner or later there may be a backlash to all this stealthiness.

And of course the longer term question remains: does having strong financing and a strong commercial channel replace independent peer review of the underlying technology?

In the meantime, we sincerely hope that all of these companies are successful. It would be an amazing day in healthcare if they were. And should that day come, we are imagining a moment when Hollywood decides to make the movie, akin to the way screenwriter Aaron Sorkin imagined the beginnings of Facebook in “The Social Network.” The big difference here is that the script writer will have an awful lot of liberty in shaping a story that no one has ever heard.

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Moderna Therapeutics as the next Genentech? Not so fast

By Steve Dickman, CEO, CBT Advisors

December 10, 2012 (slightly shorter version originally published on

Quick biotech PR tip: When exiting stealth mode, heralding your company as the next Genentech is one way to get above the noise. That was the approach of Moderna Therapeutics, a Cambridge, MA-based startup that announced itself last Thursday, revealing that it had raised more than $40 million and attracted an all-star set of board members and scientific advisers.

Announcing that you just might be on the way to becoming Genentech II raises the bar a wee bit. And, at first blush, Moderna looks like it might even get over that very high bar.

Central Dogma of Molecular BiologyThe concept is intriguing, to say the least. Biology’s central dogma is “DNA to RNA to protein.” Although Nobel Prizes have been won for discoveries that expand upon that central dogma (the discovery of reverse transcriptase, for example), the core approach underlies the first several generations of biotech products. Think EPO, Neupogen or the grandfather of them all, human insulin. You manipulate the DNA in the lab and then express the protein in the production facility. Then you put it in a vial and sell it to the patient, who gets an injection or an infusion. The main role for the dogma’s middleman, messenger RNA (mRNA), is a passive one: get transcribed from the DNA then, in turn, get translated into protein.

Moderna turns the dogma on its head: go straight to the RNA, do some fancy chemical tricks to it and deliver it directly into the body. This makes the patient herself into the production facility. All of us carry around cellular protein factories, known as ribosomes, and if properly activated, those can be harnessed (at a much lower cost) to produce proteins in which we have deficiencies.

One report on Moderna, published on Xconomy, quoted venture investor Noubar Afeyan of Flagship Ventures as saying that the company “builds on lots of things that have been tried before.” One of those things is gene therapy, providing genes (that is, DNA) via viruses or other delivery vehicles and trying to get cells to express those genes. Those approaches, too, tried to use the body as a manufacturing facility. Unfortunately, with some recent intriguing exceptions, most of them have failed.

Aside from this novelty, three things make Moderna so interesting:

Breadth of application

Since the mechanism is potentially so universal, proteins could be produced that address any number of diseases. The company said it will focus first on areas where protein therapeutics are already well-established: oncology supportive care, inherited genetic disorders, hemophilia and diabetes. But the company also claimed that it can also induce production of intracellular proteins that could never be given exogenously due to efficacy or immunogenicity concerns. Should this approach work, and it’s a bit of a long shot, it opens up new areas of application to the pharmaceutical industry.

Repeat dosing

Unlike many gene therapies, which could potentially be curative, in Moderna’s case the patient will need to be dosed with the mRNA over and over again. Think “recurring revenue stream.”

Intellectual property

When Genentech and Amgen were founded, neither one had a monopoly on the production of all human proteins in bacteria. When monoclonal antibodies were invented in Cesar Milstein’s laboratory in Cambridge, UK, Milstein was discouraged from patenting the concept. But in Moderna’s case, filing broad and deep intellectual property was the company’s central focus and a big reason why the company remained in stealth mode for the past two years. This means that even if other companies manage to enable the use of mRNA-based techniques in areas not yet explored by Moderna, the company could still demand royalties.

Yet another reason to pay attention to Moderna: unlike many other biotech companies, Moderna was not based on work published soon after its founding. The original publication that drew interest from Afeyan didn’t involve using patients as protein factories at all. The paper, published by company founder Derrick Rossi in 2010, involved using injected mRNA to produce cells that resemble embryonic stem cells. According to the Xconomy article, Afeyan did not want to invest in a stem cell company, which he perceived as too risky. Instead, he suggested that Rossi use the mRNA as a way to induce protein production in patients. That led to the key experiments, as yet unpublished, that were the basis of the company’s intellectual property and its initial financing. According to Moderna’s triumphant press release, the publications are supposed to come in 2013.

At the same time, there are three big questions:


Isn’t Moderna facing a double hurdle, first in selectively getting into the right kind of cell and then in achieving the right therapeutic dose level? The first of these hurdles represents the same kind of delivery problem that has presented such an enormous challenge to RNA interference (RNAi) companies like Alnylam. For all its promise, RNAi was born amid a hail of questions expressing doubt about delivery. How to use systemic delivery to propel nucleic acid molecules with strong negative charges and potentially vulnerable to ribonucleases into the right cell types in the right organs at high enough concentrations to have a biological effect? That was the question. (The early results, as I viewed them in a cramped biochemical laboratory in Kulmbach, Germany, in 2002, looked blotchy at best.) More than ten long years later, despite some powerful efforts that cleverly take advantage of biological reality, for example, the “leakiness” of tumors, those questions have still not been completely laid to rest.

The other part of the delivery challenge has to do with what happens to the mRNA once it is inside the right kind of cells. How many cells exactly has it penetrated? What are the expression levels over time of the desired proteins on a per-cell or per-tissue basis? Will the levels in one patient be the same as in the next one? Achieving appropriate dosing without setting off alarm bells at the Food and Drug Administration will be tough.

Where are the other investors?

The only institutional investor named in the press release was Flagship Ventures. If other VC firms were involved, one would expect to find them sharing the limelight. So either Flagship decided that what it had in Moderna was so good, it did not want or need to share or other VC funds were approached and said no. It will be interesting to learn over the coming weeks which of these explanations, or which combination of them, pertains.

What’s the value in its first applications?

Let’s assume that the Moderna approach works. Suddenly EPO, Factor VIII and beta-globin can all be produced in patients deficient in these proteins simply by dosing them regularly with mRNA. But so what? There are already therapies on the market that will be doing this. In fact, some of those will be going generic and will be joined on the market by “biosimilars” that will presumably cost less than the existing (expensive) drugs. Furthermore, many of today’s most successful protein therapeutics have been modified (e.g. pegylated) to improve their half-lives. Where would be the advantage of an injection of mRNA over one of protein, especially a second-generation, long-acting protein such as Amgen’s Neulasta®?

Perhaps the advantage would come in proteins that cannot be injected as such because they elicit unwanted immune reactions from patients. But there are not too many examples that come to mind (thrombopoietin is one). That might be one reason why Moderna CEO Stéphane Bancel said that the company would be partnering the largest-market indication areas, like cancer, while retaining only rare diseases (in which intracellular protein production might make sense) for itself.

In summary, Moderna reflects a novel approach. For that, its founders and visionary investors deserve their well-earned day in the spotlight. It is especially commendable that a venture investor in the current no-whip, Splenda-only funding environment would create a good old-fashioned full-fat latte of a biotech company. Funding it exuberantly, vigorously protecting the IP and keeping the shares to yourself are all probably wise moves. But for the rest of us to see Moderna as a new Genentech, Moderna will have to publish in a peer-reviewed journal, partner with a pharmaceutical company or at least explain how it addresses basic questions like delivery and consistent dosing across tissues and patients.

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