When VCs hand out mega-rounds to Vir and Gos­samer, are they bet­ting on the jock­ey or the horse?

Fol­low­ing a pe­ri­od of un­prece­dent­ed re­turns for bio­phar­ma in­vestors, flush VCs are sink­ing big­ger and big­ger rounds of cash in­to com­pa­nies whose pipelines are still in their in­fan­cy. Tak­ing this trend to a new lev­el is an in­creas­ing­ly pop­u­lar move to back biotech ex­ec­u­tives who are known to be star per­form­ers with mega-rounds ris­ing north of $100 mil­lion – even if their pipelines lack a star pro­gram.

There was a time when a few mil­lion bucks would back a promis­ing as­set, and then — if the pro­gram proved worth­while — in­vestors would re­cruit a star team. But back­ing man­age­ment be­fore sci­ence is a trend that’s pick­ing up steam, ac­cord­ing to sev­er­al in­vestors I met at JP Mor­gan this year.

Ni­na Kjell­son, Canaan

Some con­sid­er these bets ex­ceed­ing­ly risky, as VCs are es­sen­tial­ly hand­ing the C-suite cash and hop­ing they dig up some­thing use­ful in re­turn. Oth­ers ar­gue the move means in­vestors are play­ing it safe with this strat­e­gy. Af­ter all, a res­olute CEO root­ing around for sev­er­al op­tions to pro­vide a re­turn may be more de­pend­able than the some­times-finicky sci­ence of a one-star pro­gram.

“It’s a clas­sic de­bate in the VC world,” said Canaan’s gen­er­al part­ner Ni­na Kjell­son. “Do we in­vest in the jock­ey or the horse?”

Com­pa­nies like ARCH Ven­ture Part­ners and Flag­ship Pi­o­neer­ing of­ten bet on the jock­eys.

The trend means one thing for cer­tain: in­vestors’ wal­lets are filled to the brim, and their strate­gies are chang­ing as a re­sult.

The plan, of course, is to get trust­ed lead­ers in po­si­tions where they can de­liv­er one (or hope­ful­ly many) re­turn. This has evolved in­to a busi­ness mod­el in which an um­brel­la com­pa­ny finds promis­ing as­sets to ad­vance, and then spins them out in­to sep­a­rate en­ti­ties to see if the sci­ence sinks or swims. That way, one fail­ure doesn’t tank the whole en­ter­prise and the vet­er­an ex­ec­u­tives can dri­ve on.

When your re­sume war­rants mega-rounds

George Scan­gos

We saw this re­cent­ly with the eye-pop­ping fi­nan­cial back­ing of Vir Biotech­nol­o­gy, which went from launch to rais­ing over a half-bil­lion in seed mon­ey in its first year. In­vestors are bank­ing on a vet­er­an ex­ec­u­tive team that in­cludes CEO George Scan­gos, the for­mer boss at Bio­gen and Ex­elix­is.

Then there was the re­cent deal with Gos­samer Bio, a start­up led by two for­mer Re­cep­tos ex­ec­u­tives that emerged ear­li­er this month with $100 mil­lion in seed mon­ey. The com­pa­ny is be­ing tight-lipped about what as­sets they al­ready have, but we do know the plan is to snatch up ear­ly- and late-stage as­sets and de­vel­op them un­der spin­out en­ti­ties.

To some de­gree, De­nali fits in this pic­ture, too. The com­pa­ny’s pipeline is chalk-full of pre­clin­i­cal as­sets, and yet the com­pa­ny raised mega-rounds to get start­ed and then scored a $287 mil­lion IPO.

In­vestors shore up risk by bet­ting on re­peat teams

Jay Lichter, Aval­on

Jay Lichter, man­ag­ing part­ner at Aval­on Ven­tures, said he sees this as a risk re­duc­tion strat­e­gy on the part of the in­vestor.

“It re­duces risk a lot when you’re back­ing a group who’s proven to ex­e­cute on pro­grams,” Lichter said. “Give them a bunch of mon­ey, toss them a few pro­grams, and the chance that all will fail is close to ze­ro. One will turn in­to a ven­ture re­turn.”

Both Lichter and seed stage in­vestor Wal­ter Moos of Shang­Phar­ma agreed that the trend is an in­di­ca­tion of in­vestors with heavy pock­ets.

Wal­ter Moos, Shang­Phar­ma

“This is prob­a­bly one of the most di­verse fi­nan­cial ecosys­tems I’ve seen in my 35 years in the in­dus­try,” Moos said. “[VCs] need to in­vest more mon­ey per as­set be­cause they have so much more cap­i­tal to de­ploy. There’s a lim­it on how many com­pa­nies the part­ners can han­dle, so the deal size gets big­ger.”

It’s al­so pos­si­ble that VC firms are di­ver­si­fy­ing, Lichter said. In­vestors might con­sid­er vet­er­an-led teams as more ma­ture ven­tures that de­serve pri­vate eq­ui­ty-sized deals in­stead of VC-sized deals.

Big bets or pub­lic­i­ty play?

Are mega-rounds for nascent pipelines smart? Kjell­son said she’s not a big fan of huge seed rounds, even if the team is ex­pe­ri­enced.

“I’m a lit­tle bit more sober these days to make a bet on a team with a $100 mil­lion check ver­sus a $10 mil­lion to $15 mil­lion check,” Kjell­son said.

Of course, many of these deals are mile­stone gat­ed, she says, and as Moos points out, “like biobucks, lots of that mon­ey nev­er shows up.” Moos thinks these mega-sized rounds can some­times be a play for pub­lic­i­ty.

“It can draw more top man­age­ment, co-in­vestors, or even grab the at­ten­tion of Big Phar­ma,” Moos said.

Lichter tends to agree with Kjell­son. He says too much mon­ey in the bank makes biotechs slug­gish as they be­gin to op­er­ate like a “small big phar­ma, with all the bu­reau­cra­cy and po­lit­i­cal struc­ture.”

“I’ve nev­er been a fan of big fi­nanc­ing,” Lichter said. “I think it draws you away from what’s great about biotech, which is be­ing nim­ble. Be­ing close to death. It’s shock­ing how hard peo­ple will work when they have six months of cash and they have to get to work to stay alive.”


Il­lus­tra­tion: Shut­ter­stock

Qual­i­ty Con­trol in Cell and Gene Ther­a­py – What’s Re­al­ly at Stake?

In early 2021, Bluebird Bio was forced to suspend clinical trials of its gene therapy for sickle cell disease after two patients in the trial developed cancer. As company scientists rushed to assess whether there was any causal link between the therapy and the cancer cases, Bluebird’s stock value plummeted – as did those of multiple other biopharma companies developing similar therapies.

While investigations concluded that the gene therapy was unlikely to have caused cancer, investors and the public may be more skittish regarding the safety of gene and cell therapies after this episode. This recent example highlights how delicate the fields of cell and gene therapy remain today, even as they show great promise.

Brad Bolzon (Versant)

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“I want to apologize,” says the Versant chairman and managing partner, laughing a little in the intro, “that we don’t have anything fancy or flashy to tell you about our new fund. Same team, around the same amount of capital, same investment strategy. If it ain’t broke, don’t fix it.”

But then there’s the flip side, where everything has changed. Or at least speeded into a relative blur. Here’s Bolzon:

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Law pro­fes­sors call for FDA to dis­close all safe­ty and ef­fi­ca­cy da­ta for drugs

Back in early 2018 when Scott Gottlieb led the FDA, there was a moment when the agency seemed poised to release redacted complete response letters and other previously undisclosed data. But that initiative never gained steam.

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Steffen Schuster, ITM CEO

Ra­dio­phar­ma re­mains hot as Ger­many's ITM rais­es $109M to ad­vance neu­roen­docrine can­cer pro­gram

The world of radiopharmaceuticals has been heating up over the last few years, and Thursday saw another company focused on the field pull in a new nine-figure raise.

Germany’s ITM, or Isotopen Technologien München, scored a $109 million round of loan financing to push forward its precision oncology pipeline and fund late-stage development for its lead program. As part of the agreement, the loan will convert to shares in the event of future financial or corporate transactions, ITM said.

Jenny Rooke (Genoa Ventures)

Ear­ly Zymer­gen in­vestor Jen­ny Rooke re­flects on 'chimeras' in biotech, what it takes to spot a $500M gem

When Jenny Rooke first heard of Zymergen back in 2014, she knew she was looking at something different and exciting. The Emeryville, CA biotech held the promise of blending biology and technology to solve a huge unmet need for cost-effective chemicals — of all things — and a stellar founding team to boot.

But back then, West Coast venture capitalists didn’t see in Zymergen the one thing they were looking for in a winning biotech: therapeutic potential. Rooke, however, saw an opportunity and made her bets. Seven years later, that bet is paying off in a big way.

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Saurabh Saha at Endpoints News' #BIO19

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Novavax CEO Stanley Erck at the White House in 2020 (Andrew Harnik, AP Images)

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The FDA wrapped up its inspection of Emergent’s troubled vaccine manufacturing plant in Baltimore on Tuesday, after halting production there on Monday. By Wednesday morning, the agency already released a series of scathing observations on the cross contamination, sanitary issues and lack of staff training that caused the contract manufacturer to dispose of millions of AstraZeneca and J&J vaccine doses.

Bay­er plots a ma­jor facelift at Berke­ley cam­pus, un­cork­ing a 30-year, $1.2B plan to dri­ve cell and gene ther­a­pies

Bayer first set roots in Berkeley back in 1974, when it was still operating as Miles Labs. The site has pumped out three hemophilia A treatments for distribution worldwide; but now, as the pharma continues its cell and gene therapy push, it has something bigger in mind.

Bayer is planning a 30-year revamp at the campus, which includes 918,000 square feet in new buildings and double the jobs, according to a report by the Bay Area Council Economic Institute.