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Economic conditions remain uncertain, but little is dousing enthusiasm for investors in biotech looking for the next big thing. Two panels focused on the biotechnology industry at the Venture Capital and Principal Investment conference held at Harvard Business School on February 3. One explored industry trends while the other focused on early-stage investing.
Members of the "Investing in Biotechnology: Industry Trends" panel seemed optimistic about the present-and future-state of the industry. Genomics has spurred significant growth in the last two years, said Mark Carthy, a general partner at Oxford Bioscience Partners, adding that the biotech industry overall is cyclical and happens to be in an upswing at the moment.
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| The direction a company goes is kind of like targeting a ballistic missile." | |
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| — John Freund |
Ansbert Gadicke, founder of MPM Group, agreed. One important development, he added, is that the wave of pre-genomic products is now coming to market. "It has a huge impact on the profitability of the industry," he said. "The first twenty-five years of biotech basically yielded twenty-five profitable companies. In just the last year-and-a half, another twenty-five profitable companies have been added," due to early-stage products now coming to market.
It's important to remember that "history is always written after you see it," said Terry McGuire, cofounder and managing general partner at Polaris Venture Partners. Twenty years ago artificial intelligence was hot. Now AI is no longer the buzz, but we are benefiting from the results of that early research. "Success is measured by real products generated," he said.
Jean-Francois Formela, Investment Principal at Atlas Venture, took it a step further. You need to ask yourself as an investor: Do you keep going forward with genomic research or is it time to harvest? "Technology is a means to an end," he said. "It's important to look at downstream platforms."
When the dot-com bubble burst, funds shifted to healthcare/life sciences, where expectations were raised, perhaps unreasonably, with the mapping of the human genome. However, panelists suggested that biotech investors and companies would avoid the dot-com blues. Unlike dot-coms and other industries where product development-to-market cycles are sometimes measured in months, the biotech cycle is measured in years, even decades, said Chris Mirabelli, General Partner of HealthCare Ventures. "If you don't hit one funding cycle," he said, "you'll hit another one." Companies that survive find a way to hunker down in lean times and get the job done until the next windfall or opportunity.
Crystal ball
Where will investors be putting their money in the future? Ansbert Gadicke believes personalized medicine will evolve; drugs will be developed to target a person's specific disease pathway. Instead of sinking
billions of dollars into a drug that helps only 20 percent of the people for
whom it is prescribed, it will be possible, perhaps, to begin treating a
smaller number of people with better results.
"If the FDA is reasonable, we will be able to develop these drugs with a fewer number of clinical trials," he said.
Another interesting trial will focus on combining gene cloning with work done on centenarians—a small, long-lived population who seem to be resistant to disease. We will see more research into disease prevention and resistance, he added.
Discovering the cellular changes that trigger disease is a ripe area of research. Reprogramming cells—figuring out how diseases change cells from one kind to another—will be a big area of research in the years to come, said Carthy.
McGuire's answer was short and cryptic: "Silicon medicine."
Early-stage investing
When "Investing in Biotechnology I: The Challenge of Early Stage Investing" panelists were asked to define early stage investing, Tom Dickerson of Tullis-Dickerson said it was much like Justice William Douglas' description of pornography—he can't define it, but he knows it when he sees it. More practically, he continued, an early-stage company is one in which the CEO still has direct control over all employees.
Russell Hirsch, a managing partner at Prospect Venture Partners, defined early stage as having the first institutional money in and as having the opportunity to provide deal origination. "There are partners walking around in our firm who have an idea for a company or who cross paths with an entrepreneur," he said. The partner then becomes acting CEO of that company, assuring a measure of control.
According to John Freund, managing director of Skyline Ventures, "early stage" means early-stage company, not necessarily early-stage technology. "The direction a company goes is kind of like targeting a ballistic missile," he said. "It starts off someplace and eventually it's going to land somewhere. If you get in at an early stage of the flight, a small change in the direction can affect the eventual target tremendously." He prefers to get in on an investment where the trajectory is not completely formed so, as a VC, he can act as an adviser or coach to the fledgling company, and have a hand in its outcome.
Speaking the language
Being able to assess emerging opportunities in biotech requires an increasingly demanding set of scientific and technical skills, or access to people who can guide you, panelists said.
Founder, President and CEO of NewcoGen Group, Noubar Afeyan, said you don't have to know the cutting edge of all science, you just have to be able to speak the language. Without that, you can't engage in intelligent dialog. "Over time, you try to figure out what the question is, more than knowing the answers. We're not in the business of finding answers, we're in the business of coming up with really good questions." If you are not a scientist, he added, find someone you trust who speaks the language, who can put a context with the content of a biotech project.
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