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PPD Biotech panel: Five biotech leaders offer their surprising takes on the big trends shaping the industry in the Bay Area and beyond

Dave Frakes, medical officer PPD Biotech West region, welcomes Bay Area biotech leaders to the panel discussion


By John Carroll, endpoints news

With Bob McDowell, MyoKardia; Paul Scansaroli, Barclay’s; Aron Knickerbocker, FivePrime Therapeutics; Neil Kumar, BridgeBio Pharma; Sujal Shah, CymaBay Therapeutics;

Panel discussion on September 20, 2018 in San Francisco;

Photography by Jeff Rumans, endpoints news.


(L-R) John Carroll, Bob McDowell, Paul Scansaroli, Aron Knickerbocker, Neil Kumar, Sujal Shah


Continuing a conversation I started in Cambridge, Massachusetts, a couple months ago, I asked a few Bay Area biotech leaders to join me in a discussion about big trends shaping the industry, as well as the future we’ll face in the hub and around the world.

My guests were Bob McDowell, chief scientific officer of MyoKardia, a standout biotech in the cardio field; Paul Scansaroli, managing director of Barclay’s US Healthcare Equity Capital Markets, with direct experience in launching IPOs and follow-on raises; Aron Knickerbocker, CEO of FivePrime Therapeutics; Neil Kumar, CEO of BridgeBio Pharma; and Sujal Shah, CEO of CymaBay Therapeutics.

In the transcript that follows, condensed for length and clarity, you’ll quickly see their views don’t necessarily follow the mainstream. In many instances, they offer a surprising take on the big trends.

Read on as we cover what’s driving the hot IPO market and why biotechs are hitting public markets even at preclinical and Phase I stages; why Series A rounds are bigger than ever, but may still fall far short of where funding should be; and why the deepening experience inside new and existing funds may herald a new era of insight into biotech and risk.

Hiring is tough? Maybe you’re not paying enough. And maybe, just maybe, we’re all underestimating the growing commercial risks taken on by small players bound for markets they’re ill-equipped to handle — and how that may play out as their products launch.

Our evening’s discussion, as in Cambridge, was a collaboration with PPD Biotech, which is dedicated to providing CRO services to biotech and small pharma companies. — John Carroll


John Carroll

It’s been a great year; the second quarter was phenomenal in a lot of respects. We’re seeing a lot of things happening and certainly an active fourth-quarter is coming. Is this sustainable? Is this something that’ll continue to play out, or can we only consider this in three-month segments?

Paul Scansaroli

Paul Scansaroli

It’s hard, obviously, to project where we’ll be 12 months from now, but when we look at biotech broadly and the context of the new issue environment — and again, I focus mostly on the public side of capital-raising, although we spend, in many cases, years with companies before they’re public, trying to help them navigate the private capital markets and venture capital and how those seemingly earlier and earlier “crossover investors” lead ultimately to IPOs and then, successful follow-ons as the companies grow. We are generally pretty bullish on the environment for a number of reasons that would suggest it’s sustainable. Obviously, I’m the banker talking, so I’m well aware of the inherent bias I have in that point of view. But hopefully, we all are inherently optimistic about where the industry not only is, but where it’s heading.

I think everybody wants to pick the top or try to figure out if this is, in fact, a bubble. It’s hard to, obviously, see that it’s a bubble popping like we experienced in 2008 or 2001. But, part of the reason we’re bullish on it is we’ve had a very successful number of years in the financing environment, and this year in particular is on track to exceed all of 2015, which was by all respects a kind of record, landmark year from a new-issue perspective. And that was really fueled by a massive amount of participation from generalists, meaning non-healthcare-dedicated investors. The progress we’ve had so far this year has been in the absence of that, primarily; relative, at least, to 2015. So, the fact that we’re able to sustain what’s now been almost $20 billion of issuance in between the follow-on and the IPO market, with primarily a growing healthcare-dedicated community who wants to and is inherently interested in understanding, supporting innovation and helping management teams create the next wave of medicine to cross a very diversified group of therapeutic areas.

So, it’s not so concentrated in one particular field, where if something goes wrong, the whole sector is likely to explode. For a number of those reasons, we feel pretty bullish. And also, when you look at the larger-cap companies, it’s pretty hard to find the kind of revenue and earnings growth profile in almost any other large-cap sector than what we’ve seen in large-cap biotech. And this is all, again, in the absence of what I think was a very highly anticipated year for M&A. And certainly, M&A’s picked up, but it isn’t close to where I think people’s expectations were at the start of the year.

So, when put all that together, it’s facilitated a pretty robust new-issue environment that we think will continue. Certainly, it will ebb and flow as it always does. But, in most cases going back in this type of backdrop, successful companies have been able to finance themselves.

John Carroll

We’ve got four other executives here from public companies, and I think you’ve all had various successes. Maybe some ups and downs along the way. Do you see this as a temporary opportunity you want to take advantage of? Or do you see this as a sustainable issue, where you can grow your companies and continue to go on, depending upon your success or failure? Bob, how about you?

Robert McDowell

Bob McDowell

Actually, the idea of a large A round was pivotal to MyoKardia’s success because it enabled us to get off the ground, focus on the science and essentially set up the company.

John Carroll

Which is Third Rock’s model.

Bob McDowell

Without that, we would’ve been going hat in hand, result by result, like a lot of biotech companies do and we’d never have been able to focus on getting into the clinic and validating the thesis of the company as quickly as we did. That’s the model Third Rock has pioneered. We’re now seeing other investors do the same, and companies have been given sufficient funding, but with adequate preparation to really advance to true yes/no decisions without management being distracted.

John Carroll

One of the ironies, though, is that the Third Rock funds — those rounds of $50 million, $60 million — looked so big just a few years ago. Some of these A rounds now are really packing it in. What do you see, Neil?

Neil Kumar

Neil Kumar

Are we getting our fair share when you think about the global economic market? $700 trillion of capital. Asset managers run $5 trillion of capital, $1.8 trillion in dry powder and there’s $25 billion of healthcare private equity, private venture investment a year. That seems small to me. So, there’s an incredible runway to finance a lot more innovation in healthcare. Sometimes, a more targeted A round is appropriate. Sometimes, diversification is appropriate. Depends on what people are thinking about, but you’ve got a globally yield-constrained economy and there aren’t that many places you can put your money and watch it grow, and biotech is one of them.

Very, very few NIH programs get translated into something that’s commercially viable. The number of first-time financings is almost the same as what it was in 2008 right now. So, you’ve got mega A rounds and all that, but I think there’s a lot more to go in terms of…

John Carroll

More money going into the same number of deals is something that you hear over and over again in this industry.

Neil Kumar

Superstars get funded with, instead of $50 million yesterday, $300 million now, but that’s not the only way to drive innovation. These mega-rounds are deserved for some — these great CEOs and whatnot — a lot of great innovation is just going starved. I see tons of good projects that don’t get funded.

John Carroll

Sujal and Aron, let’s get you both involved in this thing. Are we seeing only the first glimmers of what’s going to happen here? Or is this as good as it gets?

Sujal Shah

Sujal Shah

Maybe I’ll start, because part of what Neil talked about is certainly what I think is really evident. Bob mentioned 2001 and 2007-8. Those were times when macro factors created a very different environment for biotech companies to raise capital. It wasn’t reflective of even the innovation ongoing. I don’t think there was necessarily a gap in innovation in those years.

There were a lot of other environmental factors that impacted our own sector and our own ability to raise capital then. The trend on innovation is really largely unchanged; what’s really unique, clearly, is that the pace of innovation is very rapid, certainly with oncology and gene therapy, areas within our field that were really nascent 10, 15 years ago. But there’s also something really interesting in our new pockets of capital. You refer to Third Rock. Vida Ventures. You’re starting to see investment firms of ex-entrepreneurs and the mentality of funding that comes with an understanding of operating. So, these mega-rounds are, I think, reflective of the understanding that you really need to get at least through some key inflection points with a significant amount of capital in the early days, and that change, I think, is certainly beneficial for all of us.

We’ve been public for five years; the world we live in is a little bit different, and I used to argue that maybe it’s easier for us to raise capital or significant amounts of capital in the public markets. That may still be true. But this change happening even within the private investment opportunity is really significant. It’s a new source of capital. The innovation continues to trend very positively, and it’s extremely robust. Again, it’s more macro factors that could make things more challenging for some companies. But in the end, even in those environments, it’s really innovation and experienced teams being able to raise capital. Those things, I think, are unchanged, even in somewhat challenging markets.

John Carroll

So, Aron, you’re new to the CEO job. You came up through the business side of biotech. Are things fundamentally different now?

Aron Knickerbocker

Aron Knickerbocker

I think we’re at a period of prolonged economic expansion. We’re in the eighth year of a broad bull market, and so, you’ve got capital under management, as Neil was alluding to. Asset managers need to allocate some of that to higher risks that generate higher returns.

John Carroll

And nobody gets more risk than biotech companies.

Neil Kumar

That’s not true, by the way. We should talk about that.

Aaron Knickerbocker, Neil Kumar, Sujal Shah

 

Aron Knickerbocker

I’m curious about this, actually. This year, in the public markets, the biotech index has outpaced S&P and small caps have done even better, so that’s continued to track capital to public entities, and at Five Prime, we’ve benefited from that. But is the music going to stop? I don’t think so immediately. What we’re seeing is that prolonged upward trend, and part of that is the tech environment.

When you think about technology shifts — looking at the tech industry for instance — you had a new millennium, dot-com move, and then you had mobile and the iPad and all that. Then you had cloud. Now you’ve got the internet of things. But it’s a prolonged expansion with retractions along the way. I think biotech is similar in that we are seeing we can create sustainable competitive advantage and secure competitive positions as a result. That’s going to attract investment, because there aren’t that many sectors where you can invest, and — if the company’s successful — realize prolonged, sustained competitive advantage. That’s what’s happening. We’re seeing that as some of the ideas that used to be science fiction are now translated into realities, be it gene therapy as well as protein and biologics and small molecules. There’s an incredible array now of ways to treat patients and their diseases and to target those patients who’ll benefit from a given type of therapy.

So, what we’re seeing is technology coming to bear in a major way across the industry, and, as a result, it’s going to continue to attract capital.

John Carroll

Neil, what’s riskier?

Neil Kumar

Movies are pretty risky.

John Carroll

I don’t know about that.

Neil Kumar

People don’t really think about risk in the same ways because we have such a small capital pool relatively in biotech as compared to some of these other economies. People don’t think about pooling risk and collateralizing risk. We have pools of capital that are in the trillions around things like, “Will the hurricane do X-Y-Z amount of damage?” And then, you’ve got a secondary market on top of that, and you’ve got a tertiary market on top of that.

We don’t have any of that in biotech. You have to somehow be able to quantify the performance in your sector in a way that can reach that $700 trillion — or at least a $5 trillion — [level] of capital in a way that’s more robust. … I mean, Bob can tell you. It’s like you’re out there, there are 30, 40 funds, right? You go on the road, you talk to any bank, it’s like a hundred funds that they take, whether or not a biotech can truly have the capital to do something, transform it like what they’re doing at MyoKardia.

Paul Scansaroli

And it’s connected to what I was saying in the beginning. When you go back to 2015, I remember going around to various mutual funds who have healthcare PMs that I would spend the majority of my time talking to, but would have endless examples of secondary funds within their organization who historically had nothing to do with biotech running in their office, saying, “What’s this bluebird?” They would wind up taking a big chunk of that allocation in the transactions that were happening in 2015. I think now we’re set up for some more sustainable success as it relates to the new issue environment, because you haven’t seen as much of that. There’s some but not as much. I think you’re seeing a broadened universe of healthcare-dedicated investors. Maybe in 2015 if it was 30, 40, I think it’s maybe double that. It’s still not large, but it’s a deeper bench of healthcare funds who know and understand and appreciate the risk and the innovation that they’re participating in. I think, again, you can mess it up if a lot of the organizations that have attracted that capital over the past three years start to see consistency in terms of clinical failures, because many of them are now starting to get more robust datasets that are either going to work or not. There’s some clear window of opportunity there to succeed or fail that people understand when they invest in biotech. I think that’s why we feel pretty good about at least the backdrop that we are operating in today and for the foreseeable quarter or two, absent the 2001 or 2008 major macro event that just kind of shuts everything down.

John Carroll

What I’d like to do right now is take out our crystal balls. What are the biotech world and the Bay Area going to look like compared to right now? Bob?

Bob McDowell

You’re going to see companies actually getting to and beyond proof of concept. That’s the only marker that matters now. We’ve really got to get to the patients. We’re gaining a greater appreciation for the translational complexity of moving from the nice preclinical world that we inhabited: All the technology gives us the illusion that we can dissect that world to infinite resolution. We’ve got to get to the patients and find out what’s really going on. Biotech companies are going to be challenged even more to bring on seasoned professionals — like Jonathan — who develop drugs and know what to look for and can set high-bar examples. It’s succeed or fail. It’s not a bunch of maybes. Getting to those really unambiguous clinical endpoints is going to be critical.

John Carroll

If you think about it, 40 drugs or 42 new drugs a year, that never struck me as a very big number. I know a lot of people are incredibly excited about that. To me, it’s like, why isn’t it 100? Are we headed to 100, Neil? Is that the future?

Neil Kumar

That’s what you’ve got to hope the future is, because if you look backwards in time, this is probably one of the most productive turns of the biotech cycle in terms of new product approvals. We have almost 30 new product approvals coming out of biotechs — we’re not talking about large pharma — over the course of the next 18 months. If that’s the case, then you start to do the math. You look backwards in the pipeline, and unless POTS falls 10, 15 percentage points, we’re going to have a lot more approved products.

The future will be really interesting, because what happened over the last 10 years is you started with the behemoth pharma model and you moved to diseconomies of scale. Focused biotechs do R&D better. What we’re starting to see is actually some companies trying to do commercialization better as a focused element in the neuropsych field and other fields like that. You’re going to see a lot of new companies that are fully integrated biotech companies doing really interesting science and commercializing the products. To Paul’s point, you’re not seeing a lot of M&A.

John Carroll

Is this a reflection of the ongoing lack of performance of big pharma? Is this a permanent part of the feature of this sphere where you’re going to see Big Pharma recede and take a role simply in late-stage development and marketing? Or is there a broader future that includes a more innovative Big Pharma organization?

Sujal Shah

Neil talked about something, and I’ll connect it to the question you’re asking, John. If I just think a little bit about what does this region look like, I think the impact that small companies developing and actually commercializing is the biggest question mark into what really transforms the industry. The reality is, as of 10, 15 years ago, you could effectively just develop and let pharma commercialize. Like you said, with the kind of downtrend in M&A, you can’t count on that anymore. What’ll be really interesting is to see how companies become consolidated, smaller companies that do become commercial. That’s a very different challenge for smaller companies and the biotech sector. I don’t know that anyone can really, truly count on bringing things just to commercialization with the hope that a full pharma behemoth will then take it from there. That expectation is not embedded anymore in everything we do.

John Carroll

The goal of Big Pharma as the knight in shining armor with the big check seems to have gone a long time ago. They’re not coming, and they don’t want to pay that kind of money, which seems to be part of the problem for Big Pharma. In any case, Aron, what’s your perspective on this? Do you think a lot about marketing right now?

Aron Knickerbocker

We do. We’re not there yet, but we’re aiming for that. Everything we do is to get on a registrational path and to a market. To this question, pharma still plays an incredibly vital part of this ecosystem. Whether they’re supplying sufficient innovation for their own pipelines, it’s pretty clear they have to externalize some of that and access it through collaborations or acquisitions. Still, pharma provides tremendous development, manufacturing, regulatory, commercial, global reach that we don’t have. That’s always going to be a symbiotic relationship that exists. Biotech will innovate and provide products to pharma or potentially whole companies to pharma. That’s not going away. The best pharmas will aggregate the best products.

To your earlier question about what does biotech look like in five years, we’re going in a direction of a much more bespoke business model. Whether that’s on the molecular diagnostics side — where you know what kind of disease profile the patient has and his or her tumor or whatever disease state, for instance—and based on that, you select a therapy. Or vice-versa. You custom-tailor the therapy, like a CAR-T cell, for that patient using his or her own cells.

We’re seeing some pharmas make that bet to go on the bespoke path. Gilead buying Kite or Celgene, Juno, for instance. Also, on the molecular diagnostics side — Roche rolling up all of Foundation, for instance, and Ventana. That’s the way we’re headed globally as an industry. We’ve got to figure out the best ways to address these diseases. Fundamentally, I’m a risk manager. I’ve got to allocate capital across our various projects. That means you take the very best shot you can with that capital. To reduce that risk, you figure out who’s most likely to benefit from this drug and how do you tailor that therapy to him or her. That’s the way we’re headed.

Paul Scansaroli

I would just add, briefly, maybe for this area specifically, we’re seeing also an integration — maybe it’s not next year or the next five years, but beyond that — an intersection of tech and biotech [with] the number of transactions that have tried to access the market with an artificial intelligence part of their story. Certainly not every investor is ready for that yet or ready to value that yet, but there’s a tremendous amount of interest in where that can go. I would not be surprised if, down the road, you started to see a lot more in terms of the integration of the tech sector and biotech.

Aron Knickerbocker

Paul’s absolutely right. These things are just beginning, like wearable technology. Apple’s got a healthcare group. They’re not talking about it, but they’ve got one. Half of Google Venture’s investments are in health. They have Verily. It’s where we’re headed. I absolutely agree. Here in the crucible of tech, for us in biotech, we can take advantage of that. At Five Prime, for instance, our engineers could go work at tech companies, but they come to do automation or software engineering at Five Prime because they’re connected to the emotional appeal of helping patients. We’re benefiting from being in this tech environment.

John Carroll

This symbiotic relationship in the Bay Area between technology and biotech has come up in a number of conversations I’ve had with people in this area; it’s something you don’t hear a lot in Boston and some of the other areas around the world. But at the same time, there’s this huge pressure technology puts on in terms of swallowing up talent, paying big wages, driving up home prices.

Sujal Shah

I’ll tell you, it’s a big problem. We’ve doubled in size over the last year. I’ll give you an anecdote, because generalizations are probably more boring. We had a meeting just yesterday, a senior team meeting, where we talked about a new indication we’re interested in going into. Believe it or not, one individual we were looking to recruit who had a significant amount of expertise in this function at another very successful small biotech company in the area was effectively the decision point on whether we could run this study in the first half of next year or the second half of next year. As a public company, that timing is a big deal. It’s a big difference. For all of that to weigh on this single individual — or otherwise our task to go find another one similar — is an anecdote of that challenge. It’s really hard to find that kind of talent, but it’s critical to success.

John Carroll

Neil, you like to start up new companies and get them rolling. What do you think?

Neil Kumar

It’s expensive to live in the Bay Area, so you’ve got to kind of diversify your footprint and make sure people from the East Bay can make it to something in San Francisco. It’s also … I don’t know … raise the wages, then. It’s not going to help the fundamental issues that are occurring in San Francisco, but within the biotech community, you’re talking about an industry that net sheds jobs every year. It’s not tech. I mean, tech has to go recruit a high school student who is an amazing programmer. We probably don’t have to do that yet. I’m sorry. Every board wants to pay everyone at the 50th Radford percentile. Pay them a little more. The history of our industry is that 90-plus percent of the gross proceeds go to investors. That doesn’t need to be the case going forward. Why not 80 percent, and 20 percent go the employees? I don’t think it’s that complicated. We need to pay people more.

John Carroll

Am I niggling here about the salary thing?

Bob McDowell

Well, no. The key is when you need to make those hockey stick growths. We’re now entering Phase III trials, and that means we just have to build an internationally focused clinical organization. That’s tough to do in the Bay Area. We’ve had to basically blow up the Radford curve and say, “Look, we just need to get the best talent for the roles we need. These people will make or break our lead program, which will make or break the company, so let’s invest. Let’s get the right people.” We’ve been very lucky to get some very senior people from Gilead and Genentech and other local companies who have the skills we needed. Just forget the curve. This is how we have to build the team.

John Carroll

You have a whole group of new Chinese companies like Zai Lab and BeiGene and so forth. A lot of these companies are engaged in gap technology right now. They’re becoming, overnight, Big Pharma companies for China. They’re sweeping up everything in their path that they can so that they can have a portfolio of drugs they can sell in China — and ultimately innovate and start to do new drugs for the rest of the world. I think Chinese scientists are going to have a big impact, maybe five or 10 years from now. We’re going to hear from them. I’m curious how you view that particular trend. Paul, when you talk to people, what do they say about China?

Paul Scansaroli

People feel it’s too early to tell within any level of certainty, at least in my field. I’m sure others would be much more well-versed in the talent pool in China from a scientific perspective and how the community thinks about that part of the world from a business and operational point of view. From an investor point of view and the impact on the new issue market, it’s still pretty early days. We can all look at the massive amount of capital that BeiGene has raised. Zai Lab you referenced. But they still are more infrequent than sufficient to see a clear trend. From my perspective, I would agree with you that it’s coming. It’s just very hard to, from where we sit to today, have a clear perspective on the impact five years from now or even less on the broadened new issue market.

John Carroll

Aron, you just did a deal I think just as you got to be CEO or just before?

Aron Knickerbocker

Just right before. Zai Lab.

John Carroll

Zai Lab. Tell me about that. What’s your perspective?

Aron Knickerbocker

The game has fundamentally changed in China, even in the last two years. China used to have a much more provincial, protectionist economic policy, particularly with respect to drug development and healthcare. You had to run studies in China with only Chinese patients, and it used to be you had to make the drug in China as well. No innovation was going to China as a result.

The central government has said, “No, we’re not going to do that anymore.” They prioritized life sciences as an area for national investment. They’ve reformed their economic policy altogether and scrapped this model that wasn’t working. The results are stunning. I mean, you talk about the capital that’s amassing there, and it’s being deployed now to bring in innovation from American companies, from European companies, others. At Five Prime, we’re the beneficiaries of that.

I’ll give you the example of what we did with Zai Lab, because it perfectly illustrates what changed. We’re now running a Phase III trial in gastric cancer, which is very prevalent in China. They’re now allowing what’s called a multiregional clinical trial to be used for the basis of approval. That was one change. Plus, you can use imported drugs, so we make our drug here in St. Louis and send it to China to be used in Chinese patients. That’s completely changed the game. And for Zai Lab — with capital-experienced drug developers and a proven management team — they’re doing exactly what they ought to do, which is take advantage of that opportunity, and we are as well.

So, they’ve licensed in our drug for gastric cancer for China, and together we’re running a global study with them. Half the patients in this pivotal trial are likely to come from China. So it’s completely reworked the game. It’s pretty incredible what’s happening there, and I expect it will continue to be a source of capital and collaboration going forward. We certainly have benefited.

John Carroll

Five years ago, a global strategy would’ve been a partner in Europe or something along those lines, and that would’ve been about it. You would have heard about Japan. You wouldn’t have heard about China or much about Asia.

Aron Knickerbocker

So for your question, what happens in five years? I think in five years some of these Chinese companies will be global players.

Question from the audience

In the tech sphere, for example Uber, we’re seeing really, really large companies that have billions of dollars in investment that are not going to IPO. They’re remaining private, because they have options in the private markets to continue their existence without going to the public markets. And I think the gentleman on the end here alluded to the fact that, as a public company, there’s a hiring squeeze, and you have a program held up by six months because you’ve got a critical dependence on a certain hire. Would those problems be alleviated if you remained with the private markets rather than going public? And is an IPO actually the best thing to do for a biotech in this environment as it continues to evolve?

Neil Kumar

It’s an interesting question. We obviously burn more; we have more capital expense than your traditional tech company. But you’re hard pressed, outside of maybe a couple of recent examples, to see a $10 billion to $20 billion biotech built outside of the public markets. Part of the reason for that is because in biotech the cycle is so long. Investors can hang with you for some time. A hedge fund doesn’t need to liquidate their position in your company for a hedge fund manager to get paid.

A private equity firm, or a venture firm, is in and out. Now, they may have a five-year horizon, but five years isn’t long enough. For us it’s a 10-year cycle. It’s over 15 years.

So, unlike in tech where [five years] could be a long enough time frame, for biotech you need to get public to sustainably raise capital over a long period of time. And there are actually incentives in place for those public-markets managers — not all of them, but some of them, the long-only funds and hedge funds that have a long-term orientation — for it to be successful.

Paul Scansaroli

I agree with a lot of what Neil was saying. The technical dynamics and the need for liquidity from the private investor base in biotech is certainly different from what you see in tech. And the cap on what’s traditionally been perceived as IPO evaluations on the margin, or on average, is very different.

John Carroll

What is the average?

Paul Scansaroli

So this year, the pre-money average equity value for biotech IPOs is $350 million, which is the highest we’ve seen in many years. It’s gone up steadily. If you look at just a couple of years ago, it was below $200 million pre-money. And it’s interesting also in that 35 percent of those IPOs this year are preclinical or Phase I.

So the valuations are going up, and that percentage was 21 percent last year. The earlier stage and the valuations are going up, but it speaks to some of what Neil was speaking about in terms of wanting to get public, needing to get public earlier, for access to capital. You know, there are other incentives — visibility, exposure, a lot of those benefits. But we also spend a lot of time with companies thinking about what’s the right time for them to be public. Not necessarily from a returns/investors’ point of view, which usually winds up being most important, but just from an infrastructure, people, life-cycle, IPO readiness — all of the things that come with being public versus private — which I think is incredibly critical, plus the ability to interface with public investors and to have the staffing and time management for senior executives.

We spend a lot of time with companies, and maybe they have a little bit longer of a window to remain private now, given that there’s been a more robust crossover environment and a willingness to do multiple rounds earlier with a broader network of public funds. But with a goal to get public, in almost all cases, much earlier than you’ve seen these tech unicorns like Uber, for example.

Neil Kumar

And you also probably have less flexibility on the private side in biotech. A lot of those companies that you’re referring to on the tech side generate revenue. They may not be profitable, but they generate revenue. We have less flexibility because we’re not generating revenue. So some of the private rounds are more like debt rounds than they are equity rounds. You have a lot more of these secondary markets [in tech] so that you can almost have employees get liquid along the way. We have none of that in our space. Or at least that I’ve seen. Maybe with Moderna.

Question from the audience

I wanted to come back to the commercialization-in-biotech topic, which I thought was quite interesting. Just would love to hear a little bit of expansion on that, because I can think of a number of local companies that have struggled with that, and it takes significant investment to put the infrastructure in place. So it really only works if you have multiple products — either a very large product or in a specialty — so that you can envision spreading that investment over a period of time. I’d just be interested to hear how it’s going to be done differently in biotech or given, for those of you that are further along than my shop, what you’ve been thinking about?

Sujal Shah

I’ll at least say that most small companies struggle at it. I don’t even think it’s a few; it’s fairly daunting for most companies that have decided to become commercial or don’t otherwise have a choice. Something we in biotech really have had to think about for years, but will become more important when there are more commercial small companies, is this idea of consolidation. We’re talking about challenge of resources. We need to do a much better job being able to identify where organizations can really come together, where there’s enough synergy to be successful from a commercial perspective.

To me, that’s one of the driving factors that’s going to be key, whether you’re talking about here in the Bay Area or in Boston, as you see more and more small companies become commercial. You can’t do it with just one product. We like to tell ourselves that if we’re a niche player or we’re in a rare orphan disease, we can become commercial. That’s certainly possible, but to really be able to grow as a commercial organization, we as smaller companies need to do a lot more consolidation with others in the industry.

Paul Scansaroli

And that opens a whole other can of worms, too, as it relates to drug pricing.

John Carroll

And we got through the whole evening without drug pricing up until now [laughter]. It’s amazing.

Paul Scansaroli

It speaks to the percentage I mentioned earlier around IPOs that are Phase I or preclinical. That’s where all of the money is. People want nothing to do with anyone that’s got material, commercial risk, at least from what I’m seeing in the new issue environment. It’s not just for lack of certainty around drug pricing — where I think the fear has faded a bit for now — but more specifically to the points about the challenges of actually getting it to market. People are much more interested in seeing value appreciate from preclinical to Phase I and to proof of concept than they are in seeing something actually get through quarter-over-quarter of revenue growth.

Dave Frakes, John Carroll, Paul Scansaroli, Aron Knickerbocker, Sujal Shah, and Bob McDowell


Read Part 1 of this PPD Biotech panel series from Cambridge, MA