Career Choices

Since I’ve had some time off, I’ve been thing about career choices lately.  I’ve always thought that it was important to find a job that you enjoyed, but lately, I’ve begun to question this notion.  I’m starting to think that it’s more important to find a job that you can be really good at.  I realize that enjoyment and proficiency often go hand-in-hand.  How can someone be really good at anything if they don’t enjoy doing it, right?  However, correlation does not always equate to cause and effect.

After reading Malcolm Gladwell’s Outliers, my perspective has changed a bit.  In Outliers, Gladwell suggests that people start to enjoy doing something once they get good at it.  Like playing a musical instrument, you don’t really enjoy it until you get proficient.  If anything, if you’re good at a certain type of work, it should give you more time to do what you enjoy outside of work.

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Genzyme Acquisition

Sanofi-Aventis (SNY) offered to buy Genzyme (GENZ) for $69 per share last year; GENZ wants $89 a share. The main reason for the discrepancy in valuation is Campath, an experimental multiple sclerosis drug. GENZ believes Campath can generate as much as $3.5B in sales, while SNY is forecasting less than $1B.

I believe SNY will eventually get a deal done for a number of reasons. Mainly, SNY has a huge revenue hole to fill due to upcoming patent expirations. The French drug maker is also very interested in GENZ’s biologics technology. Many of SNY’s competitors, such as Pfizer, Merck, etc., have already made biologics acquisitions in recent years.

So what is the probability that SNY and GENZ will close the deal? If the two companies fail to reach an agreement, one could argue that the price of GENZ shares will fall to approximately $53, the price prior to SNY’s announced acquisition intentions. It’s difficult to say exactly what the price will be if the two companies do reach an agreement. Let’s assume that SNY will be willing to pay $79 (half way between $69 offered by SNY and $89 that GENZ is asking for). I actually think it will be more like $75 + $4 with CVRs, but I’m not accounting for CVRs just to keep the math simple. GENZ is now trading at about $73.5 a share. Based on these assumptions, the market is forecasting a 79% probability that SNY will acquire GENZ for $79 and a little over 93% that the acquisition price will be $75 (see calculations below).

(79% x $79) + (21% x $53) = $73.5

(93% x $75) + (7% x $53) = $73.5

These probabilities seem pretty reasonable considering how close to an agreement the two companies are. Keep in mind that these numbers should be taken with a grain of salt. The probability calculations are simple but flawed; there’s no chance that the final price will be greater than $89 and the numbers break down if you assume the acquisition price is less than the current share price. Nonetheless, the probabilities provide you with an idea of what the markets might be thinking.

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Investing Advice

“Avoid stocks whose names begin with Bio or end in -ics or -ix.”

-David Brown, Producer, New York City

 

Source: Esquire Magazine.

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All Good Things Must Come To An End

As I’ve mentioned previously, the venture industry is undergoing a contraction period. Unfortunately, the venture fund that I’ve been working at for the past two years has not been immune to the current trend.

It is with great sadness to have to leave the fund. It’s been a wonderful experience working in venture. I’ve met a ton of very smart people and learned a lot about emerging technologies and markets.

Unfortunately, it’s a tough time for the venture industry as a whole, and I believe a very difficult time for life sciences investors in particular. While a ton of innovation still exists, healthcare reform and regulatory headwinds have made early-stage life sciences investing more risky. I believe the pendulum will eventually swing back the other way, but it’s hard to say when it will at the moment.

Branding Emerging Bioscience Companies to Attract Investors

Sasha Strauss, Managing Director at Innovation Protocol, gave a very interesting presentation at the SoCalBio Investor Conference in Santa Monica. He argues that even start-ups need to consider a branding strategy right from the start. Given the limited capital, does it make sense for a start-up to spend money on branding? Would VCs interested in investing even care about a company’s brand?

To be honest, branding usually does not come to mind when evaluating an investment opportunity. Management, business model, technology, etc. are probably more important. While I don’t argue that branding is important, especially as a technology gets closer to market, if there are issues with any of the other criteria, branding becomes irrelevant.

Investing in People, Not Products

It’s a cliche that “VCs invest in people first and foremost.” VCs will argue that the an experienced management team knows what it takes to commercialize a technology. But does it make sense to invest in entrepreneurs without a technology or product? Apparently, VCs think so.

Clovis Oncology raised $145 million earlier this year without a single product to commercialize. Clovis’ management team consists of former executives from Pharmion, which was acquired by Celgene in 2008 for $2.9 billion. Clovis plans to acquire or license and develop oncology products. Investors include Domain Associates, New Enterprise Associates (NEA), Versant Ventures, Aberdare Ventures, Abingworth, Frazier Healthcare Ventures, and ProQuest Investments. ProjeX Therapeutics, which is backed by Sofinova, Ascalon, and Kineta are also pursuing similar acquisition/licensing models.

Given the risks and costs of developing drugs, investing in companies pursuing acquisition/licensing makes sense. Why invest in five separate companies with five seperate products and five management teams, when you can get a portfolio of products all managed by one, experienced management team. Investors still get a say in what products/technologies to license/acquire as long as they have board representation. It’s simply much more efficient and cost-effective.

I think we’ll start to see more and more companies like Clovis get funded in the future. It will be interesting to see how successful these companies become. Unfortunately, if this trend continues, the individual entrepreneur will have an even harder time raising capital.

Next-Gen Genome Sequencing Attracting Investors

Despite the financial conditions, companies developing next-generation genome sequencing technology have been able to raise significant amounts of money. In August, Complete Genomics raised $45 million while Pacific Biosciences raised $68 million. Don’t forget that Pacific Biosciences just raised $120 million in 2008. Both companies are pursuing the “holy grail” of genome sequencing, being able to sequence an entire human genome for less than $5,000. Keep in mind that the first human genome (Human Genome Project) took 13 years and $3 billion to sequence. See the recent article in Forbes for more on Pacific Biosciences.

While some people argue that sequencing the entire genome is not necessary, especially since 90% of the genome contains “junk” DNA, for less than $5,000, it doesn’t really matter. The initial customers for genome sequencing technology will likely be drug companies for use in clinical trials, but as costs decrease, consumers will eventually become the customer. Look at the success of companies like 23andMe.

A number of next-next-generation companies, pursuing complete genome sequencing for less than $1,000, are chasing the tails of Complete Genomics and Pacific Bioscienses. They include Halcyon Molecular, Genovoxx, Lucigen, Sequenom, Oxford Nanopore Technologies, ZS Genetics, Anvantome, and VisiGen.

Highlights from California Bioscience Business Roundtable

A number of topics was discussed at the recent California Bioscience Business Roundtable including the venture financing environment, follow-on biologics (biosimilars), and health care reform.

Doug Kelly, MD from Alloy Ventures gave a pretty bleak outlook on venture financing; he even used the word “Armageddon” in describing the current environment. I was actually surprised to hear that he was not looking at any biopharmaceutical drug investments at the moment. Uncertainty surrounding biosimilars regulation and the FDA approval process were making it difficult to make any big bets. Adding to that is the financial crisis that is limiting the ability of VCs to make investments. Bill Gurley from Benchmark Capital has a great explanation of how the financial environment is impacting VC on his blog. I thought I was relatively pessimistic but Doug Kelly really depressed me!

Lori Reilly from PhRMA and Sam Youngman, White House correspondent from The Hill, discussed health care reform. The Democrats have not been doing a good job advocating health care reform apparently. Although, the recent passing of Senator Ted Kennedy might be a catalyst that galvanizes the Democrats. President Obama should start making an even bigger push for reform as a result. It’s difficult to see whether any legislation will get passed by the end of the year given the amount of time Congress has left, but eventually, a compromised bill that doesn’t make anyone happy will get signed. If the Democrats cannot get something signed soon though, the opportunity for health care reform will eventually die, similarly to what occurred during the Clinton administration.

Geoff Eich, Director of Regulatory Affairs at Amgen, highlighted the success of follow-on biologics regulation in the EU. For example, interferon biosimilars had different characteristics than branded interferon and caused relapses in patients. Ultimately, the EU rejected the interferon biosimilars. Human growth hormone (hGH) biosimilars suffered problems with side effects initially until it was discovered that there were problems with the purification process. Once the problem was solved, EU regulators approved hGH biosimilars. These examples clearly show that there will be a number of technical hurdles for biosimilar manufacturers to overcome. Just imagine how difficult it will be to manufacture antibodies if it’s this difficult to do more simple proteins.

AARP Got Follow-on Biologics Analysis Wrong

As the health care reform debate rages, I have been been looking at the potential impact of follow-on biologics (or biosimilars) on the drug industry. I came across an article from the AARP Rx Watchdog Report (May 2009) that made an argument in favor of follow-on biologics regulation. Granted, the AARP is not necessarily impartial, but the analysis from the AARP’s Public Policy Institute is a bit misleading.

The AARP compares the treatment costs for small-molecule drugs and biologics and argues that biologics are too costly when used to treat the same condition, such as rheumatoid arthritis or multiple sclerosis. This argument can be misleading because the AARP does not compare the efficacy and safety of small-molecule drugs vs. biologics. It’s like comparing an old Pinto to a brand new Mercedes Benz and saying that the Mercedes is too expensive. Of course, people are willing to pay more for the Mercedes because there is more value in such a car, as should insurers for better treatments.

The AARP also argues that sales of the top selling biologics more than cover the average cost of developing a biologic ($1.2 billion). First of all, the sales have to cover the development costs in addition to other costs. Otherwise, drug companies would not be in business for long. Secondly, it’s unfair to cherry pick only the top selling drugs; it’s not an apples-to-apples comparison.

I agree with the AARP that biologics have (to a certain extent) contributed to rising health care costs. I’m not a pricing expert, but some biologics (not all) do seem to be overpriced. It’s obvious that rising health care costs are unsustainable. I also believe that follow-on biologics regulation is inevitable. Refer to the FTC findings on follow-on biologics competition for more analysis.

Top Life Science VCs

FierceBiotech just released a list of “top” life science VC firms. The article includes descriptions and different deals of each firm. It’s a good resource to learn more about the life science VC firms listed, in particular what types of therapeutic areas and at what stage of development they are focused on. The definition of “top” here can be a bit misleading though. I believe that the term “top” used in the article really means most active. Nonetheless, all of the firms listed have a very good track record of making investments. There are many more VC firms that invest in life sciences, so entrepreneurs looking for financing shouldn’t limit themselves to this list only.