It was an inspiring afternoon yesterday at Xconomy’s latest event, “Pharma’s Bet on Boston Innovation,” in Cambridge, MA. Local industry pioneers such as Millennium CEO Deborah Dunsire and Sirtris CEO Christoph Westphal talked about how game-changing technologies and sound business strategies have attracted big pharmaceutical outfits to invest in their respective companies.
Our speakers also offered insightful perspectives from within their organizations, including AstraZeneca, GlaxoSmithKline, Merck & Co., Novartis, and Takeda Pharmaceutical Co. Boston-based Enlight Biosciences used our venue to break the news about its recent partnership with healthcare powerhouse Abbott Laboratories. One corporate venture investor from a pharma company likened the returns of her fund to “pocket lint” relative to the revenue of the overall company, but said the corporate venture unit is important to the company’s ability to access innovative science. And Westphal even speculated that our own Luke Timmerman is a “SIRT1 over-expresser” because his genes help him stay thin despite his high-calorie diet. (Laugh if you want, but Sirtris’ deep understanding of genes, like SIRT1, that control aging and cellular metabolism helped the Cambridge, MA-based biotech get sold to Glaxo for $720 million in June 2008.)
A recurring theme throughout the day was that big pharmas and innovative biotechs need each other. Generally speaking, large pharmaceutical companies haven’t created enough innovative products over the past decade to justify their huge internal R&D budgets. But biotech has continued to push the envelope to transform risky science into drugs, providing a source of new products to fill pharmaceutical companies’ ailing R&D pipelines. We heard from executives from such local biotech firms as Aileron Therapeutics, Aveo Pharmaceuticals, Hydra Biosciences, and Enlight Biosciences about how relationships with pharma companies are bankrolling their drug-development activities. (Here’s a link to a list of all the speakers who were on the agenda yesterday.)
Our audience of life sciences innovators helped us pack the 16th-floor ballroom of the Hyatt Regency Cambridge. But for all of you who weren’t able to attend the forum, here are seven key insights from our speakers and panelists:
—Raise lots of money when you can. It’s true that the financing climate in 2004, when Sirtris launched, was completely different from the stingier one today. But Westphal—whose company raised $104 million in private financing before its $69 million IPO in May 2007—aggressively raised capital beginning with a $5 million seed round in August 2004. While raising funds for the seed financing, Westphal understood that there was competition among the venture investors such as Polaris Venture Partners (where he is a former general partner). “The VC guys were all mad because they thought they could do it themselves,” he said. Given the high interest from the venture community, Westphal quickly raised $11 million more from investors in September 2004—just a month after closing the seed round.
—Build it boldly, and pharma will come. Huw Nash, vice president of corporate development at Aileron, knows something about drawing interest from Big Pharma. His Cambridge-based company in June raised $40 million in a financing that included the venture units of Eli Lilly, Glaxo, Novartis, and Roche, as well as traditional venture and angel investors. A big part of the allure at Aileron is the company’s “stapled peptide” drugs that have the potential to home in on thousands of different molecular disease targets not reached by previous treatments. (Read Luke’s story about Aileron for a deeper explanation of its novel platform.) “This is the type of solution that [pharmaceutical firms] need to really open the door to a completely new growth opportunity,” said Nash.
—Pharmaceutical companies want to be part of the Boston innovation ecosystem (which should be good news for entrepreneurs and investors starting biotechs here). “We are privileged to be in a place where innovation thrives—it’s a crucible of innovation,” said Dunsire. “To me, being here is very important to connecting with other sources of innovation.” Indeed, Millennium operates as the cancer therapeutics arm of its parent company, Takeda, the Japanese drug giant that purchased Millennium in a blockbuster $8.8 billion buyout in May 2008.
Maggie Flanagan Leflore, managing director at Med Immune Ventures, noted during a separate panel that the West Coast is taking notice of the growing pharma presence in the Boston area. “The sense in San Francisco is that Boston is eating San Francisco’s lunch because of the growing pharmaceutical presence here,” said LeFlore, who was in San Francisco last week. “They don’t call it the Hub for nothing.”
—Don’t waste your time with me-too drugs. There was a time when drug companies could find investors to support the development of products that offered a minor improvement over existing therapies. “The era of the me-too drug is behind us,” Dunsire said. At Millennium, she said, the company quickly ends development of a drug if early tests show that the treatment is unlikely to significantly improve the lives of patients. Conversely, Millennium’s bone marrow cancer drug bortezomib (Velcade) has greatly improved the health of patients, with 2008 sales of more than $1.1 billion.
—Understand the different philosophies of the venture arms of pharmaceutical companies, because they are becoming more popular sources of early-stage financing for young biotechs. Campbell Murray, managing director of Novartis Venture Funds, and MedImmune Venture’s LeFlore explained that there are firm firewalls between their parent organizations and the portfolio companies in which they invest. So biotechs that accept investments from pharma-affiliated venture firms can expect many of the same terms as they get from traditional venture backers whose sole purpose is to generate returns on investments. Jean George, managing partner of Advanced Technology Ventures, noted that her firm did a survey that showed pharma companies were investors in about 10 percent of 191 recent Series A and B rounds closed by biotech firms. “We used to always ask whether we wanted pharmas involved in those companies,” George said, “and that’s changed.”
—A big question for biotech investors and entrepreneurs is when the IPO window is going to reopen for venture-backed companies. Murray noted that prior to 1999, two-thirds of biotech exits were achieved through IPOs, but since then the mass majority of exits have been by way of M&A transactions. This has a lot to do with the lack of appetite among public investors to make bets on biotech IPOs, especially after they’ve been burned on previous ones. (See Luke’s story about how Seattle-based biotech Omeros’ badly performing IPO could adversely impact other companies seeking maiden public offerings.)
—Don’t be afraid to tell your story far and wide. “We were not a stealth company,” Westphal joked. “We were out there telling our story to the media and investors. Within 18 months of founding, we started meeting with people on the [public equity] buy-side in Boston.” Sirtris was also featured on Barbara Walters and graced the cover of Fortune Magazine, among other high-profile media exposure. Westphal and his scientific founder David Sinclair of Harvard Medical School are well practiced at talking about how their company is focused on activating genes that control aging to treat diseases. “A very easy story is an important thing.” Westphal said. “Straightforward and simple stories are good—if they are true.”