Sure, Biotech is Hot. But Are Biotech IPOs a Good Investment?

A Guest Post to Boston Biotech Watch by Christoph Bieri, Managing Partner, Kurmann Partners*

This year will see an unprecedented number of biotech IPOs at a record high investment volume. But  is it wise to invest in them?

We tracked the performance of about 350 biotech and life sciences companies which listed on NASDAQ, NYSE, LSE/AIM and the Swiss Exchange SIX beginning in 2000.  As shown in Figure 1 below, we would divide those fourteen years into four distinct phases:

  • The years 2000 and 2001, which we call the “millennium vintage”
  • The years 2003 to 2007, the “post-millennium”
  • The years 2010 to 2012, the “post-Lehman”
  • The current period, the “13/14 boom”

Figure 1: Funds invested in biotech IPOs, cumulative, Jan. 1, 2000 - Oct. 9, 2014

 

We then tried to estimate the performance of each newly issued stock. Our model assumed that somebody invested at the IPO and held the shares until today, until the company was bought or until it went out of business. We calculated the gains or losses made under these assumptions, correcting for stock splits where applicable. Grouping the individual performance by the date of IPO in the above phases results in Figure 2:

Figure 2: Performance by vintage of biotech IPOs

 

You can read the bar graph top to bottom. The top blue bar represents the total of all amounts invested at the IPO. This is followed in light green with the total appreciation (or depreciation) of the share price until today (October, 2014) if the respective company is still listed. In case the company was sold, the next bar (in red or green) shows the profit or loss the initial investors made.  The next red bar reflects the total funds invested in those companies that later went bankrupt. The net of all of these changes is shown above as gain or loss in percentage of the total investments made.

As you can see, the millennium vintage did not perform well at all. In our (simplified) assessment, investors on average took a loss. According to our analysis, the best vintage was those companies that went public in the extremely risk-averse climate post the 2008 Lehman Brothers bankruptcy. As of today, those investments have almost doubled.

We admit that there are many caveats to our analysis. The biggest factor skewing this analysis is what we see as the current valuation inflation, which has had a disproportionate effect on those companies that listed in the post-Lehman phase (hence the big contribution of “share appreciations” to the net gain). Also, those companies which went public post-Lehman had less time to go out of business, so to speak. We may have missed stock splits (reverse or “real”) or some of the other tools which companies resort to when in dire straits. We did not account for cash pay-outs, and secondary offerings, non-dilutive funding or licensing transactions are also not included. But we think we still got a pretty clear picture.

Figure 3 puts the current climate into context. This chart shows IPOs on a time axis. The bubbles indicate the size of the initial offering in millions of US dollars. The y-axis gives the stock appreciation as of today (or until acquisition) on a logarithmic scale. Not surprisingly, the “cloud” of new IPOs of the 13/14 boom are still clustered around the 1x mark on the y-axis since they have not gained or lost much value in this short time. We can also see the diverse fate of the millennium vintage, when a similar IPO boom took place.

The IPO weather forecast: Clouds on the horizon?

 

Is the current frenzy just the “return to a healthy normal”, as some industry leaders say? Or is it “the folly of year 2000 all over again”, as some others state?  We don’t know.

Biotech always makes for exciting investments, in all shades of the word “exciting”. The combination of money, science and the potential to be part of something really new and important may be satisfying all by itself for some private investors. So there is the fun factor (if you can bear the potential losses). Those who intend to profit will spread their risk broadly and time their investments carefully.

# # #

*Kurmann Partners is an M&A and strategy advisory firm based in Basel, Switzerland, advising globally on mid-market transactions in the Pharma, Biotech and MedTech industries.

2 Comments

Filed under Biotech

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. 

# # #

This post originally appeared on The Healthcare Blog.

1 Comment

Filed under Health IT, Startup

This Therapy Could Treat Ebola – How to Get it to Those in Need?

A guest post to Boston Biotech Watch

By Paul Caron

What if there were a useful treatment for infection with Ebola, which can produce a life-threatening and frightening hemorrhagic fever, but no easy way to get the product to those in need?  A detailed search of the literature and consideration of the viral structure of the Ebola virus helped me uncover a potentially useful product that is far ahead of other proposed Ebola therapies in development that, based on animal data, is highly likely to have efficacy.

Yet there seems to be no simple way to provide this product on a compassionate basis to those in need. This post is an open request to anyone with knowledge of the situation to take action on this potential treatment before more lives are lost.

Ebola is associated with extremely high mortality, between 60% and 90%, and there is no effective treatment. Until recently, it has been possible to contain the spread of the virus and limit the total number of cases to a maximum of a few hundred per year. This year, containment has proven to be more difficult and the number of cases has swelled to over 1,200, including a number of health care workers.

Map of 2014 Ebola outbreak

Map courtesy of WHO

There is concern that the virus could easily be spread beyond the current region encompassing Sierra Leone, Liberia, and Guinea. Indeed there is already one case where an infected traveler flew to Nigeria and later succumbed to this virus. Travel restrictions are being put in place to try to keep the virus contained, but because infected individuals may be symptom-free for up to 21 days, this may not be enough to stop its spread.

The only treatment currently available is supportive replacement of fluids, electrolytes and blood. Broad spectrum antivirals such as ribavirin have proven to be ineffective. There are a number of therapies being specifically developed for Ebola including vaccines, monoclonal antibodies, antisense molecules, and small molecule inhibitors. However, these are all in early stages of development and can’t address the immediate need for an effective therapy.

Antiviral therapies that have proven highly effective for other viral infections often target viral proteins required for replication. Ebola contains an RNA-dependent RNA polymerase, a protein that is conserved among other related viruses including Marburg, parainfluenza, mumps, rabies, and RSV. This suggests that inhibitors that target the most conserved region of RNA-dependent RNA polymerase, the nucleotide binding domain, have high potential for activity against Ebola virus.

By reviewing relevant literature, I have uncovered recent experiments with one of these inhibitors, favipiravir (T-705), which have demonstrated that this product can inhibit the virus in cell culture as well as in mouse models of Ebola infection. Papers on this were published by two research groups (Antiviral Res. 2014 May;105:17-21; Antiviral Res. 2014 Apr;104:153-5). One example of favipiravir’s effectiveness is that a one week course of treatment of infected mice was able to prevent death in 100% of the mice. This treatment was 100% effective even when started six days after the initial infection, when the mice already had symptoms.

Favipiravir is currently in development for influenza (flu) infection by FujiFilm Pharmaceuticals/Medivector. It has completed Phase II clinical trials in hundreds of patients and has recently entered multinational pivotal Phase III trials funded by the US Department of Defense.  It was approved for pandemic stockpiling in Japan in May of this year.

Favipiravir has not been advanced by FujiFilm for use in Ebola patients, because it lacks the resources and expertise, according to a company executive quoted in a Bloomberg News article that ran on July 17, 2014. But it is far ahead of other specific Ebola therapies under development. Given the animal data, I believe it to be highly likely that favipiravir will have efficacy in Ebola patients, especially if it could be given relatively early in the infection cycle. Sufficient drug supply for up to 1,000 patients in the planned influenza trial is likely already available. That is in addition to any material already being stockpiled for potential influenza pandemic use in Japan. Processes to produce more should be in place.

Hazard gear

(Photo: European Commission DG ECHO/Flickr/Creative Commons)

There are other precedents for using unapproved therapies in times of clinical emergencies, especially when the situation is life-threatening and there are no other acceptable therapies. Often these situations arise in oncology, where clinicians advocate to use promising therapies that are in development in critically ill patients. A recent example in antiviral therapy involved a cancer patient with an otherwise untreatable viral infection who was able to receive investigational drug brincidofovir from Chimerix, Inc., in North Carolina. The patient soon recovered.

While treating Ebola patients in Western Africa may not be the largest commercial opportunity associated with this molecule, I find it ethically challenging to have a molecule in hand that could prevent many of these patients from dying as well dramatically limit the spread of this disease and then not even attempt to test its efficacy. Drug supply for at least some patients should already exist; it has proven to be relatively safe in humans; and animal experiments indicate that it has a large potential to work. Quickly bringing this potential therapy to patients will demonstrate to the world what medicine in the 21st century should look like.

# # #

Paul Caron is a pharmaceutical industry consultant and founder of Integrated Profiling, LLC.  www.integratedprofiling.com. He can be reached at pcaron@cbtadvisors.com.

1 Comment

Filed under Uncategorized

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

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.

# # #

3 Comments

Filed under Startup

Big Data in Drug Discovery and Healthcare: What is the Tipping Point?

By Steve Dickman, CEO, CBT Advisors

What good is big data for drug discovery? Not much, if you ask the pharmaceutical industry. The world’s drugmakers have other challenges right now and, with a few notable exceptions like PatientsLikeMe, neither consumer-driven nor patient-driven “big data” seems to be part of the solution.

Even in the apparently more data-driven field of healthcare services, big data keeps bumping up against regulatory and practical barriers. As I wrote earlier this month, a funny thing happened to 23andme on the way to its now-on-hold million-person database….

Mark Murcko, Feyi Olopade and Ajit Singh

Mark Murcko, Feyi Olopade and Ajit Singh (Image courtesy EBD Group)

A recent panel of experts argued that trends in big data will drive up its relevance and provide a navigable path toward greater utility both in pharma and in healthcare. The panelists at the workshop I put together for the 2014 Biotech Showcase in San Francisco last week hinted that the time will soon come when “big data” is as much a part of both drug discovery and healthcare as it is of financial forecasting  and choosing driving routes that minimize traffic.

Click here to watch the video of the panel or copy-paste the link:

http://www.partnering360.com/insight/showroom/id/445

The companies that presented are NuMedii, a venture-backed company that calls itself a “digital pharma company” tackling drug discovery itself; and CancerIQ, a data analytics company focusing on aggregating data on how cancer patients are treated and using it to upgrade the treatment that can be provided in different geographies and types of hospitals.

Joining the CEOs of NuMedii and CancerIQ were Ajit Singh, a venture capitalist with Artiman Ventures who taught electrical engineering and neuroscience at Princeton and then ran global businesses for Siemens in oncology and digital radiology; and Mark Murcko, the former chief technology officer of Vertex Pharmaceuticals who is now running a consulting firm and advising computer-powered drug discovery firms such as Schrodinger and Nimbus Discovery.

Due to these engaging and insightful speakers, this was a fascinating panel that delivered all sorts of hints about what looks like an upcoming turning point. Topics included (time stamps on video in parentheses):

  • What sort of venture investor would understand a big data company in healthcare, IT or life science? (10:10) and (12:45)
  • Where do big data startups go to even get their data given the high degree of regulation? (27:00) and (28:50)
  • How can innovative startups avoid being stopped cold by HIPAA? (21:30)
  • What will be the turning point at which the pharmaceutical industry sees big data as a driver of solutions rather than just noise? (32:40) and (38:00) and (52:20)
  • Is genomic data “big data”? (17:00)
  • How can “sparse data” be just as useful as “big data” in solving certain problems? (43:00)
  • How can newly industrialized countries like India and China contribute to models that might be useful in the United States and Europe? Will they “go first” in some sense in using big data? (44:30)
Gini Deshpande, Founder-CEO of NuMedii

Gini Deshpande, Founder-CEO of NuMedii (Image courtesy EBD Group)

Here is a more complete list of time stamps:

  • (2:00) Definition of Big Data “Things one can do at a large scale that cannot be done at a smaller one to extract new insights or create new forms of value in ways that change markets, organizations, the relationship between citizens and governments and more.” (From the 2013 book Big Data: A Revolution That Will Transform How We Live, Work and Think by Mayer-Schönberger and Cukier)
  • (3:00) Gini Deshpande self-introduction. “At NuMedii, we are a digital pharma company. We are focused on leveraging the vast amounts of life sciences big data that is out there and translating it into drugs with a higher probability of therapeutic and commercial success….We are a pharma company. We leverage the data and turn the data into drug candidates.”
  • (4:20) Mark Murcko self-introduction.
  • (5:10) Feyi Olopade self-introduction. “My co-founder is my mother. She is a nutty professor slash clinical oncologist slash MacArthur genius fellow. It was my mother’s vision to start using data and analytics to deliver more precision treatment and more precision risk assessment….We hope to democratize access to premium cancer care by helping providers deliver data-driven decisions.”
  • (6:35) Ajit Singh self-introduction
  • (7:45) In the world of healthcare, the analytics revolution has barely begun
  • (10:10) How NuMedii bridges the (large) gap between healthcare investors and IT investors
  • (12:45) How CancerIQ bridges the same gap
  • (14:35) Early days of analytics: Shared Medical Systems
  • (17:00) Why genomic data may not be big data
  • (20:35) How 23andme learned the hard way about regulation of medical data
  • (21:30) On overcoming HIPAA: a fascinating framework
  • (25:00) Why IT investing is easier: world of atoms vs. world of bits
  • (27:00) How CancerIQ gets its data
  • (28:50) How NuMedii gets its data
  • (32:40) Why pharma is still (mostly) focused on the drug candidates
  • (38:00) The importance of actionability
  • (41:00) Q&A: How to de-identify health data
  • (42:15) Cancer patients are very willing to share their (personal) information
  • (43:00) The best data may not be big data
  • (44:30) International big data in healthcare – will it take the lead? Case: India
  • (49:00) Case: China
  • (52:20) Why pharma does not yet trust “black box” models – they do not tell a story, says Murcko

# # #

1 Comment

Filed under Uncategorized

From a painful loss, a way to improve children’s care worldwide

Boston Biotech Watch guest post by Megan Krench*

A year ago, Boston-area medical device entrepreneur Sameer Sabir and his wife Nada Siddiqui received the most devastating news a parent could imagine: their infant daughter, Rehma, had passed away.

Rehma was at home with her nanny on January 14, 2013. In the late afternoon, emergency services responded to the home after a call that Rehma had suffered an apparent seizure. Rehma was rushed to Boston Children’s Hospital. Despite the staff’s enormous efforts to save her, Rehma passed away on January 16, 2013, two days after her first birthday.

Rehma  photo

Rehma passed away just days after her first birthday

As explained in the Boston Globe’s coverage, the nanny was charged with first-degree murder after the Office of the Chief Medical Examiner conducted an autopsy and ruled the death a homicide.

It is an understatement to say that this has been a difficult year for Sabir and Siddiqui. They are still very much in the midst of dealing with the profound consequences of the loss of their daughter. Yet, despite their grief, they have decided to take action in Rehma’s memory and help support a unique, new platform for medical education.

Not long after Rehma’s passing, Sabir and Siddiqui established The Rehma Fund for Children. Inspired by the care they experienced at Children’s Hospital, they describe the fund’s mission as supporting “charitable causes that help children and parents deal with the emotional trauma and stress of illness and hospitalization through easier access to more compassionate healthcare.”

The fund recently decided to support an innovative and powerful medical education resource that has the potential to make a positive difference for parents and physicians around the world. The program, OPENPediatrics or OPENPeds, is currently in beta testing. It was developed through a collaboration between Boston’s Children Hospital, the World Federation of Pediatric Intensive and Critical Care Societies, and Cambridge-based IBM labs.

OPENPeds was conceived by Dr. Jeff Burns of Boston Children’s Hospital, whose team was responsible for Rehma’s care. Rehma was treated by experts in the pediatric intensive care unit (PICU) during her time at BCH. In spite of a global need for this kind of expertise, only a select number of PICUs exist. OPENPeds was designed to close this gap by offering an open-access, peer-reviewed, not-for-profit platform to facilitate collective knowledge exchange among pediatric care providers, especially those operating outside of the expertise of PICUs.

To ensure OPENPeds equips practitioners with the tools they need most, the curriculum is based on the results of a survey, completed by over four hundred pediatric critical care providers from fifty-four countries as well as on World Health Organization data on the leading causes of mortality in children.

In addition to this survey-based core curriculum, the Rehma Fund has contributed resources for a Non-Accidental Trauma Module. This module aims to increase quality of care for children who have been the victims of non-accidental trauma. In addition to providing expertise for those patients, the Rehma Fund and OPENPeds also aim to increase awareness of non-accidental trauma in hopes of preventing future injuries. They explained their decision in this video, which they posted last week on what would have been Rehma’s second birthday.

OPENPeds prides itself on high-quality content. The program has been working with physicians all over the world to generate material for the site. The purpose of this is twofold. First, OPENPeds aims to find doctors who are practicing experts in the field for which OPENPeds is developing content. For example, a physician from Boston Children’s Hospital likely would not have extensive experience with pediatric HIV or malaria. The other reason OPENPeds recruits doctors from around the world is to ensure this platform is truly being created for a global community, by a global community. “We recognize that we don’t have all the information, and we don’t want it to be a ‘West to the Rest’ concept,” OPENPeds’ Program Manager, Bridget Koryak, explains.

OPENPeds image of "virtual ventilator"

Interactive medical education: OPENPediatrics allows users to train on a “virtual ventilator” in a patient simulation. (Image courtesy OPENPeds)

The quality of information on OPENPeds is comparable to that found in peer-reviewed journals, but the content is presented in a more dynamic format. OPENPeds has worked closely with experts in Internet-based education technology from both MIT’s OpenCourseWare and the Harvard Graduate School of Education to apply a growing body of knowledge regarding how adults learn. One result is that much of the learning on OPENPeds is interactive. For example, users are challenged to actively apply their knowledge through interactive training modules. Physicians training on an OPENPeds “virtual ventilator” can see how their actions change simulated patients’ responses.

OPENPeds is a unique program, described by partner IBM as the “world’s first cloud-based global education technology platform,” but it will be complementing some existing companies in the digital medical education space. For example, physicians can already subscribe to a service called UpToDate to find comprehensive summaries of cutting-edge medical knowledge in a wide range of specialties, including general pediatrics and adult and pediatric emergency medicine. Two key differences between UpToDate and OPENPeds are format and access: unlike the interactive learning platform used by OPENPeds, UpToDate is primarily literature-based. And unlike OPENPeds’ open access, UpToDate is based on the more traditional paid subscription model.

One physician at a large teaching hospital said that OPENPeds is likely to be widely used, especially by trainees.  Up to Date provides incredibly comprehensive information, this physician said, but it sometimes provides too much information to quickly digest.

Upon learning about OPENPeds, Dr. Rodney Altman, Clinical Assistant Professor of Emergency Medicine (Department of Surgery) at Stanford University School of Medicine said, “Some physicians, especially those in rural hospitals, might treat pediatric patients but might not have a lot of experience or comfort in treating the full range of pediatric conditions. Those MDs might well find such a resource useful and might also be interested to see it extended to true, interactive telemedicine.”

Since its launch in September 2012, OPENPeds Beta has already reached over 1,000 users in 70 countries. During early planning, OPENPeds creators imagined this tool as a way to deliver cloud-based medical education to doctors in remote regions. The OPENPeds team was surprised to find strong domestic uptake. It was even being used by physicians in Boston. OPENPeds has turned out to benefit professionals at institutions ranging from rural hospitals in underserved communities to major regional centers. In this way, even before its official launch, OPENPeds is already serving as an equalizer. Regardless of a hospital’s size, location or resources, OPENPeds levels the playing field by giving everyone access to the same high-quality information.

The OPENPeds team is optimistic about the future, but well aware of the obstacles they face. One issue is connectivity. In order for OPENPeds to reach the wide global audience they have in mind, doctors in remote areas must be able to access the information. To get around this issue, the beta release of OPENPeds was a program that doctors could download once, and then update whenever connectivity permitted. However, user feedback has shown that hospital firewalls often prevent doctors from downloading information directly to their computers. Therefore, OPENPeds is switching to a cloud-based platform to circumvent issues with downloads, but the program will still offer a downloadable version for physicians with limited connectivity. Another obstacle is the language barrier. Modules in other languages are on the way, starting with Spanish. OPENPeds’ videos also have rolling transcripts to help physicians who are non-native English speakers.

OPENPeds has ambitious plans for 2014. The spring will see the release of OPENPeds version 1, along with the release of the non-accidental trauma module. OPENPeds plans to expand its content beyond just critical care to include other pediatric specialties, and will soon be launching both pediatric urology and additional pediatric nursing materials. It is also investigating the possibility of adding a feature that will allow users to directly contact an experienced physician in emergency situations.

As a high-quality, Harvard-affiliated program, OPENPeds could potentially spin off into a for-profit startup, but for the moment there are no plans to depart from its original mission to provide free content to pediatric care providers across the world.

In the rapidly expanding landscape of online learning tools for physicians, OPENPeds has several unique attributes so far not duplicated elsewhere: its focus on pediatrics; its lineup of top physicians as speakers and demonstrators; its incorporation of online learning techniques based on up-to-the-minute research about how adults learn; and its non-profit organizational model. By using both interactive techniques as well as highest-quality medical experts, OPENPeds has set itself apart from more conventional approaches to medical education. Given the subsidies and contributions (including those from the Rehma Fund) that make the platform free to users, and its focus on the typically not very lucrative specialty of pediatrics, it currently seems to have no private sector competitors. However, competition may soon be on the way. According to an article that appeared on January 15 on TechCrunch, 2013 saw $1.9 billion in VC funding for early stage healthcare software and app technology, a 39% increase over 2012.

The Rehma Fund will continue to raise funds and consider investing them into expanding the non-accidental trauma module, translating their content into other languages, and possibly creating other modules. Much will depend on the uptake of the initial release and anecdotes showing that it has indeed been an equalizer.

When Koryak was asked about the contribution of the Rehma Fund to OPENPeds, she replied, “It’s been fantastic working with them. When you work at Boston Children’s Hospital, you’re constantly exposed to different stories and many things that kind of touch you. But this one, particularly so.”

*Megan Krench is a PhD candidate in the Department of Brain and Cognitive Sciences at MIT, where she studies the genetics and biology of neurodegenerative diseases. Follow her on Twitter: @mkrench.

3 Comments

Filed under Uncategorized

23andme: It’s all about the data

By Steve Dickman, CBT Advisors

There was a flood of news in late November about the stinging letter that Mountain View, California-based 23andme received from the U.S. Food and Drug Administration (FDA). Because it ignored FDA instead of continuing a years-long dialogue, 23andme was forced, over howls of protest, to stop selling its direct-to-consumer genetic testing panel.

Almost lost in the controversy was the company’s now derailed core strategy: to collect a million customers’ worth of genetic data, then mine the data for valuable insights that can give the company an insurmountable competitive advantage.

You could try to convince me that the strategy is moot now that 23andme has run into a brick wall at FDA. That aggregating data as a way both to derive medical benefit and to make money is now as dead as 23andme’s consumer genetics business.

23andme blimp

Grounded?

But I would push back. I think this regulatory battle, which 23andme has apparently lost in a rout, is just the first skirmish in what promises to be a game played over a much longer term and at much higher stakes. More about that below.

A year before the FDA’s letter, 23andme cut the price of its service to $99 and announced that it would attempt to reach one million customers by the end of 2013 after attracting only a reported 180,000 in its first six years on the market.

In my view, this change in business model explains much. The test used to cost $699, then $299 and, despite economies of scale, it is hard to imagine that 23andme was making much money selling it for $99.

What happened is this: when adoption was running way behind what it would likely have taken for 23andme to become a profitable testing company, there was a purposeful shift toward aggregating data. In the words of CEO Anne Wojcicki, “One million customers can be the tipping point that moves medicine into the molecular era.”

In my view, what stood behind this shift is the same widespread belief that informs much of the research being done on longer genome sequences: that the aggregation of enough “Big Data” will yield insights more valuable – and profitable – than anything that genomics has yielded until now.

This is why BGI in China, in its Million Human Genomes project, is attempting to sequence more genomes faster than has ever been done before.

It is also why Foundation Medicine has raised over $200 million in venture funding and IPO financing to be the first to market with a 200-gene test for cancer. Foundation does not simply want to be a first mover in massive sequencing of cancer genomes. As I have written before, I believe that it wants both the data that patients will provide as well as the high-margin revenue that will come from providing sequences of the relevant genetic segments at $5,000 or so per patient. It remains to be seen if it will get either the data or the revenue.

Journalist Ezra Klein, nailed it in his Dec. 5 column on Bloomberg View when he wrote “… the long-term play is [the] more interesting [one]: 23andMe wants to aggregate the genetic information of millions of individuals, then mine that data to make medical connections, find disease markers and discover treatments at a faster rate than would be possible using traditional techniques.”

In Klein’s view, the company “fumbled” its chance to work in concert with FDA to jointly develop regulatory guidelines under which it – and presumably its competitors – could live. This “fumbling” by 23andme, wrote Klein, has created “an opportunity for the political system to reassess an old law and determine whether it suits the newest technologies.”

I beg to differ. I do not think 23andme was that foolish. I think that by flagrantly waving its tests in the face of FDA, even going so far as to run national TV ads for them while spending six months not returning FDA’s calls, the company sought out the chance to challenge the very idea of its test being regulated as a medical device.

Indeed, Lauren Fifield, a senior health policy expert cited by MedCity News, predicted in late November that the company has purposely taken a stand. “My gut tells me,” Fifield is quoted as saying, “that the company isn’t challenging process but is instead challenging the very regulatory definition of what it is to be a device.” Fifield, the blog says, works closely with startups, the FDA, and other federal health agencies in her role at electronic medical records company Practice Fusion. “What remains to be seen,” she continues, “is whether the company and tech industry can convince the government that safety can be increased, or at least balanced, by innovation rather than set at odds.”

Look not just at the fact that 23andme lost. Look at how the company lost. The FDA letter stated that, after “more than 14 face-to-face and teleconference meetings, hundreds of email exchanges, and dozens of written communications, you have not worked with us toward de novo classification, did not provide the additional information we requested necessary to complete review of your 510(k)s, and FDA has not received any communication from 23andMe since May.”

You might try to persuade me that 23andme acted inattentively or naively when it gave FDA the cold shoulder. That is the argument made in The New Yorker blog on Nov. 27, 2013, by 23andme co-founder Linda Avey, who left the company in 2009. The FDA decision “…surprised me,” she told the New Yorker writer David Dobbs. “But she pointed out,” wrote Dobbs, “that 23andMe’s general counsel, whom she understands was leading the negotiations with F.D.A., left the company this summer; [so] perhaps it fell through the cracks. “The whole time I was there,” Avey told Dobbs, “we were in an outreach mode with the F.D.A. I can’t imagine there was that much of a cultural shift since then. It might be they weren’t paying close attention.” She admits this sounds strange, Dobbs wrote, but thinks that it is no stranger than any other explanation.

Look at what was at stake: the very future of the company, not to mention the option for consumers to have hundreds of thousands of their genes scanned for health-related variants. 23andme was the only remaining provider among the initial crop of consumer-focused companies to continue to offer these tests.[1]

With so much on the line, I have to believe that 23andme went into this battle with its eyes open. It initially conceded defeat – though even that took a week – in a press release put up on the company web site stating, “We have received the warning letter from the Food and Drug Administration. We recognize that we have not met the FDA’s expectations regarding timeline and communication regarding our submission. Our relationship with the FDA is extremely important to us and we are committed to fully engaging with them to address their concerns.”

Wojcicki was quoted in a New York Times blog saying that the company should have responded to FDA’s requests sooner rather than ignoring them for six months. “We completely recognize we’re behind schedule; we failed to communicate proactively,” she said. “They’re a very important partner, and everyone is focused on resolving it.”

But 23andme may also be borrowing a page from its investor Google in not necessarily attempting to resolve the tension with FDA but rather by trying to trump FDA’s factual and legal arguments with evidence of the utility of the data and widespread support of consumers who willingly share the data in order to see a bigger picture. How better to go into a regulatory or legal proceeding than to be armed with medical advances that were only made possible by data collection that, one could later argue, existed in a regulatory grey zone?

Now that the initial thrust by 23andme has been parried by FDA, the company will face a much tougher road to getting its tests back on the market, if it ever does.

But I would not underestimate the power behind the company, which might include the full force of Google, despite the public separation of Wojcicki and her husband, Google co-founder Sergei Brin. After all, Brin himself took an interest in the company when it revealed his increased risk for Parkinson’s disease, which he knew ran in his family. Furthermore, Anne Wojcicki’s sister, Susan Wojcicki, is Google’s senior vice president of ads and commerce. In addition to Facebook billionaire Yuri Milner and several venture capital firms, Google would appear to remain one of 23andme’s largest financial investors.

Aside from Google, enough consumers believe that they have been helped by 23andme’s tests that a court case or at least an impassioned appearance at Congressional hearings might start to turn things around.

The implications reach far beyond 23andme. In an interview published (paywall) in the Financial Times on Dec. 20, 2013, PayPal co-founder  and billionaire investor Peter Thiel lamented “how technological ambition has gone from the world, leaving what he calls an ‘age of diminished expectations that has slowly seeped into the culture.’ Predictably, given his libertarian bent, much of this is traced back to regulation.”

This is his explanation for why the computer industry (which inhabits “the world of bits”) has thrived while so many others (“the world of atoms”) have not: “The world of bits has not been regulated and that’s where we’ve seen a lot of progress in the past 40 years, and the world of atoms has been regulated, and that’s why it’s been hard to get progress in areas like biotechnology….”

The argument in favor of consumer genetics the way 23andme wants to practice it will be easier to make after there is overwhelming evidence in favor of its utility. I, for one, am not a customer. I have not been convinced that a 23andme test would do more for me than increase my anxiety about my genetic risks for a variety of ailments.

In that regard, FDA has a point beyond a merely procedural one. A clinical trial showing an advantage to a genetic test such as 23andme’s would go a long way toward that test achieving acceptance among both regulators and consumers.

23andme might go away as a provider of medical data. (The company still provides genealogical services.) But its skirmish has paved the way for a fight that could take the better part of the next decade and might result in either radical reform (no more FDA regulation of consumers’ own genes at all?) or in the offshoring of genetic analysis, with all its benefits and pitfalls, to more lenient regulatory environments, whether those turn out to be in China, in Iceland or somewhere in between.

END

Steve Dickman will be moderating a panel on Big Data in healthcare and drug discovery at Biotech Showcase in San Francisco on Jan. 14, 2014, at 8am Pacific time. He is CEO of consulting firm CBT Advisors, based in Cambridge, Massachusetts.


[1] Navigenics was acquired in 2012 by Life Technologies (now Thermo Fisher) and its consumer-facing business was shut down. DecodeME was discontinued before its parent, Iceland-based Decode, was acquired by Amgen in 2012. Pathway Genomics shied away from direct-to-consumer testing through Walgreens after a warning from FDA came in 2010.

4 Comments

Filed under Uncategorized

Futuristic “human-on-chip” models will drive better predictions for efficacy, safety

By Steve Dickman, CEO, CBT Advisors

Note: A shorter version of this piece ran on Xconomy.

The pharmaceutical industry needs better scientific models for testing drugs before they get to the proving ground of human clinical trials. Current lab dish models and animal testing models are time-consuming, expensive and chronically unable to predict which drugs are going to work in clinical trials. The industry is crying out for new modes of early testing that can shorten the timelines, reduce the cost and increase the odds of success in clinical trials.

Both lab dish models and animal models have run into serious limitations. Cell culture (“in vitro”) assays offer some real advantages. Many can provide true, “human” answers to fairly simple questions. But they lack complexity.

Therefore, due both to regulatory requirements and convention, pharmaceutical companies have for decades progressed their testing from cells into animals, where the testers can see the impact on an entire organism with all its interconnecting systems.

But animal models are in some ways even worse. As Dylan Walsh pointed out in his timely New Yorker blog post last week, most animal testing – the kind done in rodents – is crude and ineffective, not to mention how it feels for the mice.

The cosmetics and consumer products companies are in just as tough a bind. For them, safety is paramount but animal testing has been banned as of 2013 for products marketed in Europe and soon to be eliminated in China. If non-animal models that show safety became available, then L’Oreal, Proctor & Gamble and Unilever would be queuing up to use them.

Fortunately, the reliance on this unfortunate patchwork might be about to crack. If cell models could be shown to predict efficacy in a reliable way, ineffective therapeutic candidates would fail faster – and cheaper.  Better safety testing would drastically reduce the sacrifice of animals while yielding more predictive results. Here, though, any changes there would likely take many years due to the immense difficulty of making regulatory agencies like the US Food and Drug Administration comfortable with new regulations.

In fact, futuristic models are beginning to appear. Walsh’s New Yorker post features Harvard luminary Don Ingber, who has been working, organ by organ, on establishing better in vitro models since the founding of his Wyss Institute (the delightful full name of which is the “Wyss Institute for Biologically Inspired Engineering”). His strong academic work in sophisticated in vitro tissue engineering reaches back to the early 1990s. As Walsh writes, “Recent efforts have led to fully functioning “organs-on-a-chip,” named with a nod to their roots in microchip manufacturing. A critical and deceptively simple benefit of these organs-on-a-chip is that they simulate, in a rudimentary way, the mechanical motion essential to organ function.”

Ingber’s lab is in the lead in this area, especially in lung models. I wrote about Ingber’s work here in 2010. Walsh writes:

“The physical mechanics of organs-on-a-chip—the lung-on-a-chip can “breathe” like a normal lung—provide an essential advantage over inert cells grown in a petri dish. For instance, in a recent experiment conducted by Ingber’s lab, when a set of the lungs-on-a-chip that could “breathe” were dosed with the cancer medication interleukin-2, they were afflicted by a well-documented side effect of the medication in humans, severe pulmonary edema; only mild symptoms appeared in a model of the lungs-on-a-chip that didn’t breathe. ‘We’ve ignored mechanics for a century,’ Ingber said.”

These single-organ models are impressive. In October, 2013, the Wyss Institute signed a collaboration at undisclosed terms on the development of human and animal “organs-on-chips” for safety testing.

The Wyss Institute's human breathing lung-on-a-chip mimicked pulmonary edema in humans

The Wyss Institute’s human breathing lung-on-a-chip mimicked pulmonary edema in humans (Image courtesy Wyss Institute http://wyss.harvard.edu/viewpressrelease/99)

In some cases, less sophisticated models in tissues such as liver and skin have already become industry standards. I wrote about these models, and the likely future of this field, here in 2009.

Europeans take the lead

More ambitious models are on the way. A US government initiative, which was showcased in an invitation-only symposium in Europe in September, 2012, recently put up $140 million to develop a network of ten “plug-and-play” organs that survive for four weeks and can, like Legos, be easily rearranged in different orders.

The effort by NIH and DARPA to address European product developers – and get an update on their progress – was done with good reason. As Walsh’s post mentions in a brief aside, there are a few efforts from “a handful of labs worldwide [that] have so far constructed a system with more than one organ.”

One of these is in Berlin, Germany, where the company TissUse, a CBT Advisors client, is pioneering perhaps the most advanced of these efforts. Recognizing that the secret to mimicking complex biology in culture lies in a combination of organ architecture and live circulation, TissUse, spun out of Berlin’s Technical University in 2010, has built its platform around organoids, the minimal functional units of organs. These include liver lobules, skin segments, kidney nephrons and the lining of the intestine. They might eventually include pancreatic islets, where insulin is produced. These organoids can be bathed in appropriate nutrients, and have waste products taken away, at the same scale at which they are served by capillaries in the body. Scale is extremely important in biology. This effort to mimic the natural scale of organ biology makes the TissUse system both robust and modular.

It’s not a perfect analogy, but organoids can be thought of as similar to the transistors that started to replace vacuum tubes in the 1950s. Transistors made modern electronics – laptops, mobile phones, tablets – possible. Similarly, organoids open up vast possibilities. The technologies for first creating them and then packing them optimally onto chips are still in their infancy.

Putting multiple tissues – with all or most of their attendant cell types – into culture and connecting them with tiny “blood vessels” in a physiological order – first intestine and liver than all other organs – will require a virtuoso combination of architecture, engineering and biology, all done at micro (not nano) scale. No wonder we have not been able to find more than a couple of companies that are talking publicly about their work on the topic.

Besides TissUse, the most advanced company that we found to be working on multi-organ models is Hurel, founded in 2006 by Michael Shuler of Cornell University. Hurel raised Series A funds from hedge fund Spring Mountain Capital in April, 2013. The Hurel web site talks about “products under development for future release” that involve “fluidically mediated metabolic interaction of different cell-based models drawn from or representing different bodily organs, such as liver-with-heart and liver-with-kidney combinations.” (Shuler’s January, 2013, review article on lab-on-chip systems including those incorporating several organs is here, behind a pay wall. None of these efforts appear to be company-led.)

Hemoshear of Charlottesville, Virginia, has set an emerging industry standard for “vascular pharmacology” by including the impact of dynamic blood flow on cells in culture. Founded in 2008 out of the nearby University of Virginia, Hemoshear was reported in 2012 to have ten biopharmaceutical industry customers. The company puts cells of different organs, most recently liver, into their dynamic systems that push blood past the liver cells. That allows them to get a high-quality look at liver toxicity, drug metabolism and drug-drug interactions. Aside from the useful combination of different organs with vasculature, the company has not reported multi-organ approaches, let alone organoid-based ones.

Another interesting one is Zyoxel, based in Oxfordshire in Great Britain. Zyoxel was founded by Zhanfeng Cui of the University of Oxford based on technology from Cui’s lab and the lab of Linda Griffith of MIT. The Zyoxel chip is liver-only. That is the single-organ focus of many in vitro testing companies that have created “3D liver” systems. According to the web site, the Zyoxel chip’s key distinguishing feature is “a scaffold whose dimensions have been engineered to recreate the capillary bed structure of the liver sinusoid.” That approach sounds promising and it will become even more so once scientists have actually shown that they can grow the capillaries on the chip.

Eleven organs – the true “human” on chip?

By comparison, the science at TissUse is both advanced and extremely ambitious. The early TissUse chips feature a combination of organs, liver and skin, connected with channels that circulate culture medium and, soon, human blood that moves through “vessels” comprised of endothelial cells that will grow directly inside the channels.

Liver and skin were chosen in part because they are the most complex single-organ systems currently in use in vitro. Moreover, liver is the gatekeeper for oral drugs entering the bloodstream and skin is the gatekeeper for cosmetics. TissUse is tying them together both because the company has strong expertise in both but also because they can create some interesting and useful models with them, for example, models that allow them to study potential liver toxicity of skin-penetrating chemicals or skin sensitivity to liver metabolites of drugs. Furthermore, such a combination allows TissUse to study distribution, metabolism and toxicity, three components of the “ADMET” profile of a substance, which is the basis of current safety testing in animals. “ADMET” stands for absorption, distribution, metabolism, excretion and toxicity.

TissUse’s two-organ chip

TissUse’s two-organ chip. Photo courtesy Tissuse GmbH

Used singly, both liver & skin have severe limitations. TissUse is trying to remedy these. Most of the company’s work is not yet published but one observation is that liver cells, when encouraged to form organoids and then combined with skin tissues, can live in homeostasis for a long time. This allows the company to conduct extended repeat-dose testing over weeks, much longer than the current standard of several days for single-dose drug testing on liver or skin cell culture routinely performed today in industry. The practical time limit for culturing liver organoids in the TissUse system has not yet been reached. Early published results point to a time frame of at least 28 days.

The powerful nature of TissUse’s system becomes evident when you consider the next step: to test “A” and “E,” adsorption and excretion, all you have to do is add intestine and nephrons from the kidney. The company is already working on doing just that. Eventually, TissUse’s founder-CEO Uwe Marx envisions up to eleven organs connected by “blood vessels” on the company’s chips. The initial chip design takes that goal into account.

Head-to-head data is starting to emerge comparing multi-organ chips with standard efficacy and toxicity assays. That will prove their predictive ability. Such a system will then address industry’s need for verisimilitude in therapeutics and cosmetics testing without sacrificing animals or accuracy.

The future human-on-a-chip?

The future human-on-a-chip? Image courtesy TissUse

“You on a chip”?

Another level of utility not yet addressed by TissUse but surely on the horizon is patient-specific testing of medications outside the body using iPS cells (inducible pluripotent stem cells). Scientists create these cells from human skin or other tissues and “reprogram” them to become cells of almost any tissue. Companies such as Cellular Dynamics in Madison, Wisconsin, are already beginning to deliver large quantities of iPS cells on an industrial scale and with pharmaceutical quality controls in place. In my view, that source of supply alone is a game-changer for drug testing. The company had a surprisingly strong IPO given the “picks-and-shovels” nature of its business, probably because its revenues are growing nicely. It won’t be long, I predict, before innovative companies start to offer outside-the-body testing especially for patients with chronic or long-term diseases who can therefore afford to wait to have their cells custom-grown.

But without the multi-organ and organoid-based nature of TissUse’s technology, it is hard to see that patient-focused business reaching its full potential. Indeed, a company called iPierian backed by the illustrious US venture firm Kleiner Perkins and other top VC firms was founded in part to industrialize just such iPS-cell-based, patient-centric disease models. I heard iPierian’s then-CEO John Walker describe this approach a talk at an investor conference in 2010 and it was captured in this 2010 blog post on Xconomy by Luke Timmerman. That company has since changed its business model and I have not heard of others.

Forward-minded venture investor Founders Fund of San Francisco laments the “medieval” approach used in traditional pharmaceutical discovery. The right sources of capital combined with the right industry partnerships, both currently emerging, might give Hurel, Hemoshear, Zyoxel, TissUse and other companies a path to preclinical testing that is both more accurate and more humane.

# # #

Disclosure: TissUse is a client of CBT Advisors.

2 Comments

Filed under Uncategorized

Foundation’s IPO Isn’t Bubbly, It’s a Jolt for Genomic Diagnostics

By Steve Dickman, CEO, CBT Advisors

September 25, 2013

(Originally published on Xconomy)

Foundation Medicine, the Cambridge, MA-based cancer diagnostic company, reminded me of the 2000 genomics bubble when it went public this week. The company sold its IPO shares at $18, and the stock almost doubled in its first day of trading, closing at $35.35, a 96% increase in stock price off an already bumped-up IPO price. That gives the company a market value of almost $1 billion.

Frothy, yes, but not quite bubbly

First day froth? Or sustainable value creation?

This impressive rise represents one of two potential outcomes. It could be that either genomics is here to stay as a diagnostic tool and Foundation is a harbinger of this change. Or, this could be the peak of another bubble featuring a money-losing company hyped by scientific leaders but still unproven in the marketplace. In that view, Foundation’s IPO is not just hazardous to the company’s most recent investors. It may be damaging to the whole field of genomics-based healthcare and to biotech stocks in general.

Foundation faces a long road but I am inclined to take the optimistic view. Genome sequencing is a powerful technology that has declined so much in price, so fast, that it has outpaced Moore’s law. The real value in sequencing is not the raw data, which are becoming a commodity, but rather the interpretation of that data for specific patients. In ways I will explain below, Foundation sits just at the nexus of that new data and its own increasingly powerful interpretation engine.

My first take-home from FMI’s monster IPO is, don’t worry so much about the company’s past losses ($22.4 million as of 2012, according to the IPO prospectus). Look instead at the amount of money raised ($106 million on top of $99 million raised since the company was founded in 2009) and consider its practical value: research funding.

When the 2000 genomics “bubble” was inflated, companies such as Incyte, Human Genome Sciences, Celera and Sequenom raised eye-popping amounts of cash at even more eye-popping valuations (one day in February, 2000, Sequenom hit a $4 billion market cap on nearly nonexistent revenue), there was no way for that money to create value in a reasonable time frame. What followed was a decade of retrenchment as one company after another started the arduous process of home-growing its own drugs (Incyte has notably succeeded at this) or shifting to a more sustainable business (such as Sequenom’s prenatal  test for Down syndrome and other chromosomal abnormalities).

The fresh money for Foundation Medicine, plus the inevitable follow-on offerings, will fuel a powerful research platform that is in a position to discover and then apply a number of new insights into how genetics influence patients’ response to cancer therapies. That, in turn, has the chance to improve the success rate for physicians in treating cancer using both marketed and experimental drugs.

My second take-home is that the large fundraising gives the company a greater survivability in the absence (until now) of reimbursement. You don’t have to read the prospectus to know that one of the key risk factors for FMI is the lack of buy-in from payers. As Ben Fidler of Xconomy wrote, “Foundation began selling its diagnostic, known as FoundationOne, at the American Society of Clinical Oncologists in June, 2012. And while demand has been rampant—-some 1,500 physicians in about 25 countries have ordered the test since—FoundationOne isn’t covered by any plan. Rather, coverage is determined on a case-by-case basis, meaning the company is likely going to have to gather meaningful evidence from clinical trials to prove to payers that its test is making a big difference for patients.” Reimbursement is still a hurdle, probably the biggest. Hold a big IPO and voila – funding is there for these trials.

Personally, I am thrilled that Foundation’s approach reflects a strong shift toward using personal genetic tests (in this case whole genome sequencing) to drive medical care. The term “personalized medicine” has been overused for so long as to become a sad cliché. But changing a patient’s treatment based on a genetic test and especially initiating a treatment that would otherwise not have even been considered – that is a watershed. An idea like Foundation’s, in which you scan the genome of an individual patient for variations in more than 200 genes, is a medical reality today that was barely even conceivable five years ago.

Furthermore, Foundation is barely dependent on its test revenues at the moment. The bulk of its revenues (something like 85%, I’ve heard) still come from partnerships with pharmaceutical companies. Its investors, both private and public, may well grant Foundation the time it will need to achieve reimbursement and make a compelling case to enough physicians to drive test adoption and growth.

Critics have correctly observed that there is little evidence for the utility of most of the genes on Foundation’s first panel, FoundationOne. Something like two hundred genes are assayed when barely twenty are known to be drivers of cancer. As I understand it, this is where Foundation’s entrepreneurial strategy comes into play. By aggregating data on the next 180 genes rather than focusing just on the 20 genes of known relevance to cancer patients, Foundation hopes to bring a much greater degree of clarity and utility to cancer therapy, which has traditionally been based on a brutal process of trial-and-error. Many patients (and their physicians) don’t have enough time or scientific insight to go through a series of single-gene diagnostic tests to find out which drug might be best for them. Even if patients demanded this one-at-a-time approach, it is not at all part of current medical practice. For the sake of cancer patients, I hope Foundation Medicine succeeds with its broader approach.

Critics have also observed that Foundation’s business model is predicated on the company being paid $5,000 or more for a test (according to Xconomy, recently out-of-pocket payment by patients or one-off payments from insurers have been running more at the $3,800 level). But the cost of sequencing is very low! Can’t the test be less expensive? Where does all that money go? The answer, to me, is clear: the money goes to research. The model reminds me of crowdsourcing, a funding mechanism that has just become a viable mechanism for funding biotech companies. In Foundation’s case, it is a way to raise money from people who have a real need (cancer patients), provide them with sufficient value (sequences of genes with known implications for cancer therapy) and then increase the incremental value of the test for the next round of patients.

To succeed, this approach has to scale. That is, insights obtained from the first 3,000 patients have to become more valuable for the next 30,000 and so on. There have to be increasing returns or else there will be a backlash at the level of pricing and adoption. In the absence of reimbursement, the only way to make this work is to raise a lot of money (through IPOs, secondary share offerings, pharmaceutical industry partnerships, self-pay from patients, international adoption or whatever) and pour it back into the company. The field of genomics spent several years wandering in the wilderness of “genome-wide association studies” (GWAS) which were supposed to identify canonical mutations that affected large numbers of individuals. That barely turned out to be the case. Now mutation hunters have come to the opposite conclusion: it is individual mutations, perhaps even those with an “n” of just one person, that will matter the most in improving cancer therapy. The company or entity that builds the largest database of these mutations – and applies them in cases where there is an “n” of two or 20 – will become a go-to source for insight into specific patients’ cancers.

There are three dangers here: first, that scaling cannot be achieved quickly enough to justify reimbursement. The tests Foundation is doing are by their very nature outside of the parameters such as sensitivity and specificity that are traditional metrics for payers. So their results have to be so overwhelmingly good that payers change the rules in order to reimburse for the tests. That is likely to happen slowly if it happens at all.

Second, unless great insights arise from the additional genes, Foundation – with no real intellectual property on the content of its assay – will fall prey to commodity entrants offering tests at much lower price points. That is reminiscent of the dynamic I see playing out in non-invasive prenatal testing (NIPT).

Third, what if Foundation succeeds and gains insights from its database (paid for by patients) that lead to a true competitive advantage? Won’t there be a clamor for public release of Foundation’s data, similar to what happened when Myriad Genetics lost its Supreme Court case and no longer had patent coverage over its BRCA1/2 test? It will be interesting to see this play out.

In my view, Foundation’s IPO is a turning point that will only boost the many efforts to make the genome a powerful ally in the fight against cancer. Given the massive drop in sequencing costs and today’s vote of confidence, it will not take too long for similar insights into other diseases to follow.

# # #

3 Comments

Filed under Uncategorized

Biotech VCs, Stung by Startup Returns, Elbow into Royalty Financing

By Steve Dickman, CEO, CBT Advisors

Aug. 21, 2013

(Originally published on Xconomy)

The new landscape for venture capital investing does not seem to leave much room for classic company formation. Investor after investor has shut down or moved beyond startups into what seem like greener pastures.

So it should come as no surprise that at least a few VC firms are now expanding into the royalty space, as shown by a deal announced this week. Aisling Capital and Clarus Ventures, two top-tier VC firms, acquired 20 percent of the royalty stream created by sales of ibrutinib, a novel tyrosine kinase inhibitor developed by Pharmacyclics (NASDAQ: PCYC) and partnered with Johnson & Johnson (NYSE: JNJ) for use in B-cell malignancies such as chronic lymphocytic leukemia (CLL).

According to the press release, Aisling and Clarus each invested $48.5 million for matching 10 percent shares of a $485 million royalty-financing deal that Royalty Pharma struck last month with Quest Diagnostics Inc. (NASDAQ: DGX). Ibrutinib recently was designated by FDA as a “breakthrough” therapy. Analysts cited by FierceBiotech expect the drug to hit $5 billion in revenues in a short time, making the royalty stream very valuable. Under a deal structured like this, Aisling and Clarus are essentially wagering that the drug will be a blockbuster, and will provide them much more than $48.5 million in steady royalties over the lifetime of the product’s patent – if they or their limited partners do not choose to take profits first. It would not surprise me to see some of the royalties later bought back at higher prices by Royalty Pharma or acquired by third parties.

There is no doubt in my mind that the choice to invest in royalties had to be explicitly approved by the funds’ limited partners (LPs), either in the fund charter or, more likely, in an ad hoc fashion before this deal was done. I can’t imagine there was much resistance when the Aisling and Clarus general partners described the risk-reward in the ibrutinib deal. The LPs probably asked them to do more of this type of investing, given the product’s high-reward/low-risk profile.

The announcement answered two questions in my mind: first, what will VC funds do now that the returns make it harder to justify raising more money to support traditional models? Second, what will royalty funds do to make money now that they are facing a more efficient (read: barbarously competitive) market for the royalties of approved drugs?

Royalty deals as likely winners

In some ways this deal looks like a one-off: maturing VC funds that need to deploy large amounts of capital setting themselves up for near-term (if more modest) returns in lieu of typical home-run, long-term bets on early-stage biotech. Once they get a few of these out of their system, the VCs will swing back to their true nature as swashbuckling, entrepreneurial investors, right?

I am not so sure. In fact, I would argue that actually the royalty play illustrates the “new normal” in life sciences VC investing: a search for investments with short time horizons; a lack of faith in preclinical or even phase I molecules and the teams developing them; and an irresistible pull to “sure-fire” deals of a more financial nature.[1]

These are the same trends that have led to the rise of the asset-based strategies deployed by life science VC funds like Atlas Venture and Index Ventures. Those strategies build portfolios of assets, rather than management teams, and flexibly deploy those teams in ways that can be changed depending on the success of the molecules.

The trends have also led to a much more active market in secondary positions of VC funds. In secondary investing, funds buy up positions in VC-backed companies. They buy them either from general partners who are exiting the business or choosing not to manage older funds all the way to exit; or from limited partners who prefer up-front cash to hoping for later exits from their illiquid VC investments. Sales in the secondary market of overall private equity investments, including those in venture capital, were reported to hit a record $26 billion in 2012.

Some long-time VCs have told me recently that their firms are promising limited partners to do secondary investing as part of their core business, just as secondary funds such as Omega Funds have branched out into direct investing. Whereas royalty investing is more of a numbers game, secondary investing to me feels like a true hybrid of VC skills (assessing value in early-stage or mid-stage companies and managing portfolios of such investments skillfully) and financial engineering skills (pricing the portfolios well enough to stave off competition and still leave room for an arbitrage).

Late last year, a client approached my firm CBT Advisors and asked us to make a case for investing in life sciences venture capital. The client, a family office with a private equity bent, was preparing to deploy some capital in life sciences and wanted to know what strategy made the most sense for a potential limited partner.

CBT Advisors teamed up with Fred Meyer, another Boston-area consultant, and the team carried out some strategic and financial analysis based on our knowledge of the industry and on the limited available data. The upshot of our work: there are several alternatives, including secondary investments, that can provide what look like better returns than VC (especially when considering the 10-year historical figures) at what looks like considerably less risk.

One of the approaches on our list was royalty investing. We concluded that, strictly from a risk/return perspective, royalty firms were a very attractive way to participate in pharmaceutical finance. Royalty Pharma, in particular, has built a stellar track record investing in the royalties on marketed drugs such as sitagliptin (Januvia), a diabetes drug from Merck that accounted for $5.7 billion in revenue in 2012 and adalimumab (Humira), a treatment from AbbVie for autoimmune diseases that recently hit  $9.3 billion in annual revenue, making it one of the best-selling drugs of all time.

But Royalty is at some risk of becoming a victim of its own success. The fund, which had little competition when it was founded in 1996, has grown to over $10 billion in assets, and it is facing a much more competitive market for royalty streams of approved drugs.

So the announcement of what is, according to VentureWire (paywall), one of Royalty’s first three investments in a not-yet-approved drug was not a total surprise. Today’s press release completes the picture. Royalty Pharma got an assist on the due diligence on ibrutinib from Aisling and Clarus and the VC funds got a piece of the action.

The end of VC? Hardly

Where does this all end? To me, it does not spell the end of VC as we know it. To the contrary. Even those investors (like Aisling and Clarus) making headlines for investing in royalties are still actively looking at direct investments into startups and (especially) later-stage companies. At the end of the day, most venture capitalists like these funds who have made it to 2013 with any dry powder at all are in a position to make the case that early-stage, high-risk investing will continue to play out well for selected investors. The recent wide-open biotech IPO window has certainly bolstered their case.

Part of my argument has to do with both the skill sets and the personal wishes of VCs, who are usually more adept at (and more interested in) the messy reality of picking management teams, intellectual property and assets that will make companies work instead of primarily crunching the numbers. Many VCs would rather find other jobs if all that was left in VC was financial analysis.

But more of it has to do with the returns. When I look at the stellar track records of folks who have recently raised funds (Jean George, Mike Carusi, Jim Broderick, Chris Christofferson and Hank Plain of Lightstone Ventures; Martin Murphy of Syncona), I am encouraged in thinking that royalty investing is just one of many ways that VCs are finding to raise new funds that they hope will make money for investors. First, the ibrutinib deal has to go well, along with others like it that are undoubtedly in the works. At least in this case, the likelihood of ibrutinib becoming a commercial success is high and the timeline is short. If the drug and deal do, in fact, succeed, then the benefits will accrue to the entire ecosystem.

# # #


[1] VentureWire (paywall) quoted Clarus managing director Nick Simon saying that Clarus invests “opportunistically” in royalties and that late last decade, Clarus had obtained a royalty interest in Lexiscan, a medication used in cardiac stress testing, and later sold that interest to Royalty Pharma.

Leave a comment

Filed under Uncategorized