Brook Byers of Kleiner Perkins on Sticking With Healthcare

1/16/13Follow @xconomy

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to say that isn’t obvious, and everybody else isn’t already talking about.

We’d like to find the next Epizyme. We’re very proud of that company. It’s one we invested in from the very beginning. At the time, it wasn’t so obvious. But I think we caught on with epigenetics. We’d like to find the next one of those. What I mean by that is a therapeutics company that is a new paradigm, that could become a platform, that could develop multiple products, partner some, and keep some. They’ve kept most or all of the U.S. rights while partnering out assets, and building up $100 million in cash. It’s a beautiful story. I’d like to find another one of those. I’m not smart enough to know what that new area will be—but I’ve got an idea.

We prowl around the research universities, doing lab crawls—Beth (Seidenberg) and myself. We also have a network of consultants. I should mention that, besides the full-time people, we have a whole extended family of management and employees of the companies we’ve been involved in with life sciences. It’s over 120 now. That’s a lot of our network that we use for diligence, sourcing, recruiting and all of that.

X: Do you mean 120 people, or 120 companies?

BB: It’s people from 120 healthcare companies over time. That’s the way to think about how we operate—we utilize that network a lot. We also are very close to a lot of large companies—device, pharmaceutical, and diagnostics. They call us with ideas or pointers to new startups. Then they help us with diligence. We don’t have to have full-time people. In fact, sometimes full time people don’t know what’s going on out there, because we’re sitting in Menlo Park. Our partners in China tell us about things here, and vice versa. In fact, I was meeting with our China team today (January 8).

In therapeutics, there’s still a lot of unmet need. If you look at the statistics, about 50 percent of the drugs prescribed are not efficacious. Let’s go to the root here of what we think. There must be an opportunity for better drugs that are more targeted. There must be an opportunity for companies developing new drugs that use clever patient stratification. There must be a big opportunity in more diagnostics to do stratification and targeting.

So we discussed therapeutics and diagnostics. Then there’s healthcare IT. We look at patient engagement, cost, compliance. We are, and will be very active, in healthcare IT investing. There was some list a couple months ago about most active firms there, and we were in the top six. We have 5-6 healthcare IT investments already, plus we’re one of the key players in Rock Health [a health IT startup incubator].

We have unique capabilities too. We have a very capable digital consumer and digital enterprise partner set. Those are big sets of eight partners each. We are connected with them on our whole digital health, healthcare IT initiatives, in terms of sourcing and diligence and thinking big. An example is big data. Big data in hospitals, big data for the payers, big data coming off of next-generation DNA sequencers. On our healthcare team, Larry Leisure knows the payers, Beth and I are on the therapeutics side, then we have a young partner [Ray Bradford] who was a startup product manager at Amazon Web Services, so he understands big data. We have Mike Abbott, a partner in digital who was VP of engineering at Twitter. He hired 300 engineers in a year and a half there. John Doerr, the legend. Ted Schlein, on databases and security software. That will be a big part of what’s in the cloud. We have a lot going on there, but we’re not ready to talk about it yet.

In devices, there’s still a lot to be done. A good example is the most recent startup I helped put together, and I love this story. It’s a young postdoc out of Stanford in Paul Yock’s BioDesign program. It’s fabulous. Paul Yock is one of my heroes. They do needs-finding first, and then work backwards, that’s what I love about it.

This is involved in dry eye. About 25 million Americans have dry eye, and about 5 million have it really acutely. It’s very painful. Pharmaceuticals don’t work. Restasis doesn’t really work, or only for a few people, and not persistently. So this is a neurostim insert. You can use neurostim on a nerve and produce aqueous tears. It’s already been tested in humans and it’s looking good, but we’ll see. That’s an example of devices.

Ophthalmology is still a good area. That’s a big interest of mine, and I’m thinking of another startup in ophthalmology.

X: What do the other partners at KPCB think about the opportunities in healthcare? Are they still as bullish on healthcare as you are?

BB: They signed off on it, so they’re fine. I think they are hopeful that 2013 will be a good year. We don’t decide these things. The companies do, and the markets do. But we are told by four of our companies that they are going to file for an IPO in 2013. So what makes another partner happy in another sector is when things like that are going on. With those four companies, one of the things I’ve been doing here (at the JP Morgan Healthcare Conference) is sitting in meetings with bankers. And it’s all been good. There could be a couple M&As as well.

So I think the feeling, the vibe, is good. On big devices, there were a number of CEO changes a couple years ago, and when that happens, they go into strategic review. They are finishing that. So they are starting to get out looking around. We’ve got plenty of portfolio companies that are at that stage, with early human data or early commercialization. The past couple of years have been kind of quiet from an IPO and M&A point of view. But there are a lot of big companies that have huge amounts of cash and market cap that are product hungry. I think 2013 is going to be good, and 2014 will be even better.

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  • Luke Vaughan

    Nimble Epitech LLC, Del Mar CA: Epigenetic Therapeutics, is the next (WAY better) Epizyme… LM Vaughan MD Managing Partner / Co-founder.

  • Stephen Kraus

    To use a medical term, venture capital is a “long twitch muscle” endeavor. I applaud Brook and KPCB for the “long view” they take when it comes to investing. Industry attractiveness is very much a cyclical thing with “highs” and “lows” and healthcare is no exception. But I have no doubt that their diversified strategy which includes a continued dedication to funding innovation in healthcare will pay off.