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

The top 10 block­buster drugs in the late-stage pipeline — Eval­u­ate adds 6 new ther­a­pies to heavy-hit­ter list

Vertex comes in for a substantial amount of criticism for its no-holds-barred tactical approach toward wresting the price it wants for its commercial drugs in Europe. But the flip side of that coin is a highly admired R&D and commercial operation that regularly wins kudos from analysts for their ability to engineer greater cash flow from the breakthrough drugs they create.

Both aspects needed for success in this business are on display in the program backing Vertex’s triple for cystic fibrosis. VX-659/VX-445 + Tezacaftor + Ivacaftor — it’s been whittled down to 445 now — was singled out by Evaluate Pharma as the late-stage therapy most likely to win the crown for drug sales in 5 years, with a projected peak revenue forecast of $4.3 billion.

The latest annual list, which you can see here in their latest world preview, includes a roster of some of the most closely watched development programs in biopharma. And Evaluate has added 6 must-watch experimental drugs to the top 10 as drugs fail or go on to a first approval. With apologies to the list maker, I revamped this to rank the top 10 by projected 2024 sales, instead of Evaluate's net present value rankings.

It's how we roll at Endpoints News.

Here is a quick summary of the rest of the top 10:

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How small- to mid-sized biotechs can adopt pa­tient cen­tric­i­ty in their on­col­o­gy tri­als

By Lucy Clos­sick Thom­son, Se­nior Di­rec­tor of On­col­o­gy Pro­ject Man­age­ment, Icon

Clin­i­cal tri­als in on­col­o­gy can be cost­ly and chal­leng­ing to man­age. One fac­tor that could re­duce costs and re­duce bar­ri­ers is har­ness­ing the pa­tient voice in tri­al de­sign to help ac­cel­er­ate pa­tient en­roll­ment. Now is the time to adopt pa­tient-cen­tric strate­gies that not on­ly fo­cus on pa­tient needs, but al­so can main­tain cost ef­fi­cien­cy.

Partners Innovation Fund

David de Graaf now has his $28.5M launch round in place, build­ing a coen­zyme A plat­form in his lat­est start­up

Long­time biotech ex­ec David de Graaf has the cash he needs to set up the pre­clin­i­cal foun­da­tion for his coen­zyme A me­tab­o­lism com­pa­ny Comet. A few high-pro­file in­vestors joined the ven­ture syn­di­cate to sup­ply Comet with $28.5 mil­lion in launch mon­ey — enough to get it two years in­to the plat­form-build­ing game, with­in knock­ing dis­tance of the clin­ic.

Canaan jumped in along­side ex­ist­ing in­vestor Sofinno­va Part­ners to co-lead the round, with par­tic­i­pa­tion by ex­ist­ing in­vestor INKEF Cap­i­tal and new in­vestor BioIn­no­va­tion Cap­i­tal.

John Reed at JPM 2019. Jeff Rumans for Endpoints News

Sanofi's John Reed con­tin­ues to re­or­ga­nize R&D, cut­ting 466 jobs while boost­ing can­cer, gene ther­a­py re­search

The R&D reorganization inside Sanofi is continuing, more than a year after the pharma giant brought in John Reed to head the research arm of the Paris-based company.
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Neil Woodford. Woodford Investment Management via YouTube

Wood­ford braces po­lit­i­cal storm as UK fi­nan­cial reg­u­la­tors scru­ti­nize fund sus­pen­sion

The shock of Neil Wood­ford’s de­ci­sion to block with­drawals for his flag­ship fund is still rip­pling through the rest of his port­fo­lio — and be­yond. Un­der po­lit­i­cal pres­sure, UK fi­nan­cial reg­u­la­tors are now tak­ing a hard look while in­vestors con­tin­ue to flee.

In a re­sponse let­ter to an MP, the Fi­nan­cial Con­duct Au­thor­i­ty re­vealed that it’s opened an in­ves­ti­ga­tion in­to the sus­pen­sion fol­low­ing months of en­gage­ment with Link Fund So­lu­tions, which tech­ni­cal­ly del­e­gat­ed Wood­ford’s firm to man­age its funds.

Dave Barrett, Brian Chee, Amir Nashat, Amy Schulman. Polaris

Bob Langer's first port of call — Po­laris Part­ners — maps $400M for ninth fund

Health and tech ven­ture group Po­laris Part­ners, which counts Alec­tor, Al­ny­lam and Ed­i­tas Med­i­cine as part of its port­fo­lio, is set­ting up its ninth fund, rough­ly two years af­ter it closed Po­laris VI­II with $435 mil­lion in the bank, sur­pass­ing its tar­get by $35 mil­lion.

The Boston-based firm, in an SEC fil­ing, said it in­tends to raise $400 mil­lion for the fund. Po­laris — which rou­tine­ly backs com­pa­nies mold­ed out of the work done in the lab of pro­lif­ic sci­en­tist Bob Langer of MIT  — typ­i­cal­ly in­vests ear­ly, and sticks around till com­pa­nies are in the green. Like its peers at Flag­ship and Third Rock, Po­laris is all about cham­pi­oning the lo­cal biotech scene with a steady flow of start­up cash.

John Chiminski, Catalent CEO - File Photo

'It's a growth play': Catal­ent ac­quires Bris­tol-My­er­s' Eu­ro­pean launch pad, ex­pand­ing glob­al CD­MO ops

Catalent is staying on the growth track.

Just two months after committing $1.2 billion to pick up Paragon and take a deep dive into the sizzling hot gene therapy manufacturing sector, the CDMO is bouncing right back with a deal to buy out Bristol-Myers’ central launchpad for new therapies in Europe, acquiring a complex in Anagni, Italy, southwest of Rome, that will significantly expand its capacity on the continent.

There are no terms being offered, but this is no small deal. The Anagni campus employs some 700 staffers, and Catalent is planning to go right in — once the deal closes late this year — with a blueprint to build up the operations further as they expand on oral solid, biologics, and sterile product manufacturing and packaging.

This is an uncommon deal, Catalent CEO John Chiminski tells me. But it offers a shortcut for rapid growth that cuts years out of developing a green fields project. That’s time Catalent doesn’t have as the industry undergoes unprecedented expansion around the world.

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Arc­turus ex­pands col­lab­o­ra­tion, adding $30M cash; Ku­ra shoots for $100M raise

→  Rare dis­ease play­er Ul­tragenyx $RARE is ex­pand­ing its al­liance with Arc­turus $ARCT, pay­ing $24 mil­lion for eq­ui­ty and an­oth­er $6 mil­lion in an up­front as the two part­ners ex­pand their col­lab­o­ra­tion to in­clude up to 12 tar­gets. “This ex­pand­ed col­lab­o­ra­tion fur­ther so­lid­i­fies our mR­NA plat­form by adding ad­di­tion­al tar­gets and ex­pand­ing our abil­i­ty to po­ten­tial­ly treat more dis­eases,” said Emil Kakkis, the CEO at Ul­tragenyx. “We are pleased with the progress of our on­go­ing col­lab­o­ra­tion. Our most ad­vanced mR­NA pro­gram, UX053 for the treat­ment of Glyco­gen Stor­age Dis­ease Type III, is ex­pect­ed to move in­to the clin­ic next year, and we look for­ward to fur­ther build­ing up­on the ini­tial suc­cess of this part­ner­ship.”

UP­DAT­ED: Chica­go biotech ar­gues blue­bird, Third Rock 'killed' its ri­val, pi­o­neer­ing tha­lassemia gene ther­a­py in law­suit

Blue­bird bio $BLUE chief Nick Leschly court­ed con­tro­ver­sy last week when he re­vealed the com­pa­ny’s be­ta tha­lassemia treat­ment will car­ry a jaw-drop­ping $1.8 mil­lion price tag over a 5-year pe­ri­od in Eu­rope — mak­ing it the plan­et’s sec­ond most ex­pen­sive ther­a­py be­hind No­var­tis’ $NVS fresh­ly ap­proved spinal mus­cu­lar at­ro­phy ther­a­py, Zol­gens­ma, at $2.1 mil­lion. A Chica­go biotech, mean­while, has been fum­ing at the side­lines. In a law­suit filed ear­li­er this month, Er­rant Gene Ther­a­peu­tics al­leged that blue­bird and ven­ture cap­i­tal group Third Rock un­law­ful­ly prised a vi­ral vec­tor, de­vel­oped in part­ner­ship with the Memo­r­i­al Sloan Ket­ter­ing Can­cer Cen­ter (MSK), from its grasp, and thwart­ed the de­vel­op­ment of its sem­i­nal gene ther­a­py.