Seven Years Into Personalized Medicine Foray, Mohr Davidow Stays Patient, Keeps Betting on Big Idea

7/22/10Follow @xconomy

Personalized medicine is one of those big ideas people have been talking about for a decade, and it still hasn’t made much of an appearance in the doctor’s office. But to Menlo Park, CA-based Mohr Davidow Ventures, after seven years of bets on this big idea, it still has all the promise of a field in its early days.

“Personalized medicine is happening,” says Bill Ericson, the managing partner at Mohr Davidow. “The thesis is sound. It takes years to develop these products, it doesn’t happen overnight.”

It was worth a broader conversation with Ericson, given that we’ve reported on a flurry of deals in personalized medicine this month. Menlo Park-based Pacific Biosciences raised a whopping $109 million for faster, cheaper gene sequencing machines intended to enable more precise diagnostics. Emeryville, CA-based Tethys Bioscience secured $33 million in equity and debt for the commercial rollout of a test that predicts a patient’s risk of developing diabetes. And we profiled Waltham, MA-based On-Q-ity and its effort to develop a test to predict which types of breast cancer are likely to relapse.

Much has been written ever since the heady days of the Human Genome Project at the turn of the last decade about how a deepening understanding of genetics will put an end to reactive, one-size-fits-all medical treatments. It was supposed to bring about a more nuanced view of an individual’s state of disease and wellness, offering powerful new information that physicians can use to predict problems before they become full-blown symptoms, and possibly prevent them.

Ericson was inspired to follow this path back when he was part of the founding team at Kirkland, WA-based Rosetta Inpharmatics. That company did pioneering work on cancer genetics and was ultimately sold for more than $600 million to Merck in 2001. It was the early days of personalized medicine, as the BRCA1 and 2 genes had been identified for their link to higher rates of breast cancer in women, and Genentech had won FDA approval for a breast cancer drug, trastuzumab (Herceptin), that was approved specifically for a certain subpopulation of patients with another genetic mutation.

Bill Ericson

Bill Ericson

Ericson joined Mohr Davidow in 2000, and soon went to work on forming a thesis on how to invest in personalized medicine. He spent 2-3 years working out the idea, figuring out what parts of the technology were mature, and which parts weren’t. He focused on improvements in measurements from samples, essentially getting a lot more information than ever before out of a drop of blood or a tissue biopsy. But equally important was what that information could enable a physician to do that he or she couldn’t before. “It was about ‘How do you measure and enable? How do you apply the measurement to disease states?’” Ericson says.

Seven years into this strategy, Mohr Davidow counts one clear success story—ParAllele Biosciences’ 2005 sale to Santa Clara, CA-based Affymetrix for more than $130 million. Some of its more recent companies, like PacBio, Tethys, On-Q-ity, Raindance Technologies, and Artemis Health, haven’t yet had their big payday. Ericson wasn’t about to go on the record making any predictions about exits for any of them, but he said the field still looks promising enough for the firm to keep putting money into it.

“There’s always a lag between vision and reality. We’re in the phase of moving toward the reality,” Ericson says.

The movement toward personalized medicine isn’t going to flip like a switch, like, say, when everybody seemed to start using e-mail or ATMs overnight. It’s more likely that personalized medicine will catch on in certain market segments first, like breast cancer, where the need is acute and the products have been in the game longer. Tethys is far along with a commercial product to predict diabetes risk, and it should begin to capture much bigger market share as awareness climbs over the coming years. Other fields may take a few years, or even a decade, for the evidence to emerge to support the value of some of the new personalized tests to the healthcare system.

“It’s hard to generalize, but 10 years from now, I think it will be widespread,” Ericson says.

To hear Ericson talk, it’s OK to wait. Mohr Davidow, which has $2 billion under management in nine funds, still has about half of the capital left to invest from its most recent fund of almost $700 million, Ericson says. While a lot of VCs are clearly shooting for lower-risk, more incremental, short-term bets that could help improve their return-on-investment stats when it’s time to raise their next fund, Mohr Davidow’s latest investments don’t appear to be following that trend. The firm has decided it will stick with the idea that if it can get in early with a groundbreaking field of technology like personalized medicine, it will be rewarded.

“It’s who we are and it’s in our DNA,” Ericson says. “If you try to switch to late stage consumer e-commerce, it won’t work well. We are who we are. We want to be early-stage investors.”

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