In Vivo: 医療用医薬品・医療機器産業の経営層向けニュース
01 Apr 2020
As the global shut-down caused by the coronavirus pandemic continues, sponsors are rushing to adapt clinical trials that can move...
> Sean Harper and Beth Seidenberg have developed a novel business proposition for their new enterprise, Westlake Village BioPartners.
> Citing their local geographic expertise as a competitive differentiating factor, they want to advise start-ups that are seeking a foothold in the Los Angeles metro area – an emerging biotech hub with the science and services links vital to future industry growth.
> Science is on an upward trajectory that shows no signs of abating, said Harper, so the prospect of a “biotech bubble” is remote.
Harper told In Vivo that the big challenges for VCs today are how to conduct due diligence in an era of accelerating scientific discovery; declining trust between VCs and start-ups, accentuated by the big money flowing into the sector without any knowledge of drug development; and getting the “human factor” right in helping a new business with good fundamentals to reach its potential.
In all cases, intuition derived from years of accumulated exposures and experience is invaluable – an asset that many new VC firms lack.
In Vivo, together with Editorial Advisory Board member Ken Schultz, CEO of Los Angeles-based biotech start-up Trethera Corp. met with Harper at the recent Biosciences Innovation Day conference hosted by the University of California at Los Angeles (UCLA) technology development group. The following are excerpts from the conversation:
(Q) In Vivo: You and your partner, Beth Seidenberg, have created an enterprise largely defined by its geographic orientation. What led you to choose metro Los Angeles as the brand behind your business proposition in advising, investing and partnering with the local life sciences community?
(A) Sean Harper: Proximity is an underestimated asset in the VC space. It is easy to drop in and take a stake in someone’s series A or B round, but today’s life science entrepreneurs expect a lot more. They value someone being there with them right from the start, with the incubating support and seed money that builds traction with key stakeholders. That full-on kind of assistance works best at close quarters and it is much harder to do it remotely. Geography counts – in fact, it is the premise that led Beth and I to launch Westlake Village BioPartners in September 2018 with $320m in committed capital. Los Angeles was a natural fit for our mission because both of us have deep roots here. I am a fourth generation native Californian and most recently served as global head of R&D at Amgen Inc., based in Thousand Oaks. At Amgen I was frequently asked to advise scientists and entrepreneurs on how to take their discovery work beyond the lab by creating a commercial business. I told them that, while the academic infrastructure and talent was abundant, Los Angeles lacked a venture capital presence sufficient enough to attract enough seed money to help a start-up become a functioning pre-revenue biotech. It meant that funding usually had to be found outside the area, in places like Boston, and when the IP went back east with the money, the business itself was airlifted out of here as well. It was a message I had to convey many, many times. When Beth approached me about leaving her post at Kleiner Perkins in the Bay area to move closer to her home in Thousand Oaks, both of us realized that our collective experience and reputation could be leveraged. Together we can fill the business need for a supportive pool of funding dedicated to local innovators here in Los Angeles. After 17 years in the R&D business at Amgen, I too was ready for a new challenge. With the creation of Westlake Village BioPartners, we can fill the missing money link in the local life sciences ecosystem, helping entrepreneurs find new places where capital and talent can find a productive home.
(Q) In Vivo: How do you define that geography? What has your progress been thus far and were clients hard to find?
(A) Harper: Our area of focus is Los Angeles county and the four others surrounding it – Ventura, Orange, Riverside and San Bernardino. It constitutes the second largest metro area in the US and has a population of more than 18 million. We have five client companies in contract, all of which are able to benefit from our deep expertise in the local start-up scene. There is no magical formula of superior IP: what is coming out of UCLA is not qualitatively better than what you find at MIT or Stanford. Instead, I think it is pent up demand, with many new small firms having warehoused ideas that were attractive but still needed some work, so non-local VCs took a pass. That is where we see opportunity. We are prepared to advise them of flaws, like not prioritizing crucial tests – the outcome of which might either kill or validate the portfolio. We do not mince words. It is a liability if you ignore such tests out of fear it might torpedo the entire project, because capital always avoids uncertainty. You must do that killer experiment. If it works out, then your business is effectively de-risked and VC money will flow. Giving that kind of advice and developing pitches that work is a lot of what we do now. And the more we dig into the weeds with start-ups, the better we do in uncovering those interesting technologies that haven’t found a sponsor. UCLA’s tech transfer office, and those at other local academic institutions, recognize the value of working with us because we see them not on an occasional fly in, but daily, on the ground. VC people who come in from Boston or even the Bay area are not going to be able to pursue due diligence with the intensity we can. It is also important to recognize that we can bring IP from anywhere and use it to build a great company in the Los Angeles area. The technical advice and project oversight we provided over the past two decades in our shared roles as company executive and industry investor differentiates us from most other VC firms. We are just doing what we’ve always done, but in a different format. Founders of the start-ups out here are usually talking to advisers who have never worked outside the finance field. There is no historical perspective in advising companies in good times – and bad. I am not exaggerating: the end game out here is to take the IP and move the business to the east coast, preferably Boston. What Beth and I want to do is capture the IP at Yale University, to use a hypothetical example, and move the business out here, where we can be present and active at the gestation phase and beyond. In some cases, a company founder might want to retain a lab relationship at a university outside of the Los Angeles region, but the root and branch enterprise should be here. We think this is a model that works.
(Q) Ken Schultz, CEO of Trethera Inc. and member of In Vivo’s Editorial Advisory Board: Don’t you anticipate some challenges to the model, especially the absence of homegrown expertise in areas like general management, regulatory or contract manufacturing services? Are there gaps that will force start-ups to look elsewhere for roots in places with that diversity of talent?
(A) Harper: The local talent situation is improving. Amgen is working hard to create an ecosystem of biopharma human capital in the Los Angeles region that can match Boston or the Bay area. As the most recent head of Amgen R&D, I’d get emails every day from people in the industry who are looking to relocate to the area because of a spouse that has landed a management job in the services sector here, which is as large or larger than other US metro areas; or I went to med school out here but did my post-doc at MIT and want to come back. Amgen, for example, has recruited great people from everywhere, in diverse fields related to life sciences in general. With time, it has forged a pool of expertise that gets larger every year. At Westlake Village BioPartners, our record so far speaks for itself: five companies started and we’re still rolling.
(Q) In Vivo: Since you have moved to active VC investor from the research lab, what have you witnessed in terms of new science? Which therapy areas excite you the most?
(A) Harper: The trajectory of industry innovation is often one of long fallow periods followed by a spurt of explosive growth. This is true of biology. Innovation in human therapeutics was flat for decades but is now producing exponential returns. Gene therapy is a great example: it languished and was even abandoned after some bad safety signals in the 1990s but in the last five years it has become a viable treatment path starting with two FDA approved products in 2017. Today, there are some 350 companies active in the field, with hundreds of products undergoing clinical trials. We are in a new golden age of drug development, paced by computational biology, robotics and so many other technologies that add up to a far more predictable pathway to treatments that actually work in patients. It is a far cry from what I thought was possible in human therapeutics a decade ago. What really excites me are all the new technology platforms like human genome sequencing, including the ability to sequence individual tumors as an entry point for precision medicine. Computing power brings the capacity to take target discovery and validation beyond the mice models directly to humans. That’s a transformative change itself. One of the best things we did at Amgen was to acquire Iceland’s deCODE Genetics, a major source of population-based data that provided us with the information necessary to identify drug targets from large-scale screening of genes associated with many common diseases. When we bought deCODE, no one had been able to sequence an entire population – some 300,000 people – in all its genetic diversity to obtain those targets. Now we can. In my view, it gives Amgen’s R&D team a deeper understanding of the underlying biology of disease, putting them much closer to finding cures. But this is not all. Back when I was a post-doc at MIT, we could spend 10 years solving the crystal structure of a single protein. Today, the technology exists to structure the smallest molecule in that protein or to co-crystalize different proteins interacting with each other – an inter-disciplinary feat that bridges the physics of movement with biology. And a single company can produce 500 of these in a single year, not a decade. I know that artificial intelligence and machine learning get over-hyped, but these are emerging fields that already show promise in advancing unheard of efficiencies in areas like clinical trials. Add this up and you see that science and technology are working together to bend the curve on what’s possible for patients. There is vast potential for investors willing to get into the weeds for a closer look.
(Q) In Vivo: With that in mind, in an era where science opportunities are abundant but moving fast, how do you handle the due diligence work that is essential to striking the best deal?
(A) Harper: No doubt about it – it’s hard, for several reasons. First, the sheer volume of activity out there makes the search for innovation seem like entering a labyrinth with a blindfold on. You can look at interesting technology coming from the universities, where claims abound that the next generation of cell-based therapy is about to spring from their labs. But good luck in trying to compare the formal academic work with what’s going inside the walls of dozens and dozens of privately-held companies, many of which have been founded by academics, and also have the abundant capitalization to ensure they can operate for years in stealth mode. Second, the money flowing into biotech adds an extra measure of uncertainty because it raises the stakes in being able to find a truly innovative, commercially differentiated drug. You have to account for the herd mentality – going all-in on cell-based cancer therapies – that raises the bar on success in getting beyond the hype. This does not mean due diligence is impossible. VC firms can provide the expert oversight, technical tools and input on how to administer the process. The challenge is putting the diligence in context, particularly in those crowded therapeutic fields popular with investors. In fact, we believe it falls to old-fashioned intuition in making that crucial distinction of whether an asset opportunity is incremental or potentially transformative. What we know is, in an over-capitalized field, a transformative technology – say, CAR-T 2.0 – is going to be the investment that makes a difference in the long game. It can’t be a tweak in the current standard of care; and Beth and I do not want to make a play in that space. In all honesty, the lack of clarity in assessing commercial prospects in this brave new world of biotech discovery is what keeps me up at night. There is no clear line of sight into what all those private companies are doing, though an extra measure of accumulated experience and street smarts can help in making sense of it.
(Q) Schultz: Many of our readers are CEOs or CSOs. You have taken a career path that now seems in vogue, moving from a big pharma firm to a smaller VC or start-up. How have you managed that transition and what advice might you offer to our readers?
(A) Harper: The opportunity set in biopharma has changed significantly. Today is a true golden age in the history of biotechnology. Three-quarters of all products in late-stage development come from smaller enterprises relying on venture capital as their principal source of funds. Roughly a third of new launches into the marketplace originate from independent biotech firms. The excitement about the innovations coming from the start-up community is real; evidence from the number of FDA novel drug approvals over the past few years indicate this is not a fluke. Frankly, as a veteran of R&D in the big established players, I think the start-up culture is hard to replicate. Big money and large-scale resources result in people getting too comfortable and losing their edge. It’s one reason why I think all these funding mega-rounds can be dangerous to the scrappy mindset of a start-up because it makes things too comfortable, too complacent. You lose the advantage over the people who are working on the same therapeutic target at Pfizer. Too much money and more time means you lose that focused hunger to succeed. Bigger still is what I call the sustainability factor that tends to afflict R&D in the biopharma top ten. Let’s consider if you are head of R&D in one of these companies five years ago. You’ve studied hard, consulted wide and conclude that the company needs to make a big investment in gene therapy – enough to be a leader in this emerging field. Then you stop and realize how many existing priority programs would have to give way to finance this new effort, especially when your board will default to the position that gene therapy investment must come from the existing budget. Does that mean you as R&D leader will have to find the funds by halting safety surveillance on a marketed product? Powerful internal forces will slow you down because it risks the work they’ve been pursuing for years. Building a gene therapy capability within the company becomes a no go. But consider if you took an alternative path and decided to march into the boardroom with a plan to acquire an emerging company – say Spark Therapeutics – along with its potentially transformative lead asset in gene therapy. In that scenario, you not only get the money from the balance sheet to purchase the company outright, you’ll also be given the P&L dollars to operate the new acquisition going forward. The incentives are aligned to buy the technology, not create it in-house. This is a fairly universal truth in big pharma. It’s a long way of explaining that making the transition from a major operational role in big pharma to the boutique VC space is logical because the momentum in innovation is now with smaller companies with a pressing need for financing. We are filling a major unmet need in the drug development ecosystem. I don’t see the dependence of big pharma on start-up innovators going away soon.
(Q) In Vivo: Any other learnings from making this transition?
(A) Harper: Well, the VC model is not perfect either. We now have some people in this field who are unscrupulous, or ignorant or both. They end up doing nasty things to entrepreneurs and the founders of start-ups. You also have a growing herd mentality, with money pouring into projects just because others are doing it; there is no detailed analysis or financial metrics, just seeing one high-profile VC doing a deal that others feel they should copy. One unhappy result of this is a growing lack of trust between VCs and the start-ups. Today, academics and young, inexperienced entrepreneurs assume that the VC people will take advantage if you don’t map a proper defense – the “only the paranoid survive” perspective. It may be a healthy response to a threat, but it makes it harder for me and my partner Beth because we have never operated in a manner that is any way exploitative. Reputation is critical to us; we are transparent operators and make sure our clients understand which kind of dilution they will experience over time as fund raising proceeds. No surprises that I appraise our co-investment VC partners as closely as the start-up.
(Q) In Vivo: What capabilities are needed to improve trust and raise the talent bar in VC work?
(A) Harper: There are too few people who combine science and technical know-how with leader behaviors and management savvy. It’s also important to understand the mechanics of finance and legal issues, which can be a steep learning curve for newcomers. Overall, however, it’s not rocket science. More important than the skill set is the great intangible called experience or intuition: namely, the right scientific package to bet on, and the people necessary to deliver on that bet. Such a background is most commonly found among people like me, with years of exposure to details on developing a drug for approval and marketing in a large, diversified organization like Amgen. Rarely do such people go into VC. Corporate life gives you structure and is mostly rewarding and comfortable; it is still possible to work till age 65 and then go on to perhaps become an advisor to a VC if not an actual investor. Experience can help to differentiate from the current VC situation here in southern California. We see people with no knowledge of the industry sitting on the boards of biotech start-ups, providing seed capital yet knowing little or nothing about drug development. They are flush with funds and looking for opportunities to put the money to work. Predictably, the process breaks down, financers get disillusioned and start withdrawing capital. We call these zombie companies. Eventually, people like me enter the picture to reverse the decline by restructuring the pipeline, recapitalizing the operation and replacing the board. It can get very political. That makes a rescue operation hard work.
(Q) In Vivo: How does this scenario usually play out?
(A) Harper: The cycle begins when a new company obtains the initial series A funding, which is usually only enough to get it halfway to that critical inflection point of demonstrating to investors the value of the enterprise or asset(s). No one wants to give the company any more funds; it finds itself dead in the water. So even if we like the technology, we must go out there and convince the founders to restructure, and that often entails convincing them to accept a smaller stake in the enterprise, in return for us making it more valuable over time. It’s a hard sell. Very often we just have to walk away. This result is all too prevalent in the Los Angeles region due to the inadequate amounts of capital directed by people without the experience to understand how to succeed in biotech drug development. The amount of money being misdirected is really unsettling. It’s the same story – an angel investor who has a nephew with a disease wants to do well for the kid, so he invests in an unproven asset that may cure him yet in doing so actually blocks any hope of commercialization by replicating the blunders I just described. It’s like no good deed goes unpunished. I don’t see this in other sectors outside life sciences where the VC community keeps investing in assets or technologies it doesn’t understand. I think it’s unique to life sciences.
(Q) In Vivo: Intuition – that feeling from the gut -- seems to be fundamental to your own investment value proposition.
(A) Harper: It is. But where does the intuition come from? It is experience stemming from pattern recognition; seeing hundreds of programs that have failed for any number or reasons. It’s like saying “I’ve seen this movie before and it doesn’t end well.”
(Q) Schultz: You have spoken a lot about the importance of the product asset – the biologic compound or diagnostic. How much do you look at the composition and quality of the human capital – the team?
(A) Harper: This is hugely important. We can embrace multiple models of human capital after we determine the quality of the overall team is first rate. If it’s an experienced team, with a track record of doing something well in the past, and we know them and find them trustworthy, we will invest in them. Or we will invest on the word of a single CEO because of the trust factor. In both scenarios, they can go look for new technologies and be assured of our total support, at a level beyond the actual funding. We are making a total bet on the people.
(Q) Schultz: Which has the better chance: a great team and a bad drug, or a bad team and a great drug?
(A) Harper: Both scenarios are bad because, if you wish to succeed, neither one can trump the other. My view is great technology is the consequence of having the right people in place. Projects come and go, but if you don’t have a strong rooted culture of human capital those great results are difficult to sustain. Think of what happens when you pursue a technology at all costs and make the people expendable. Nothing very good. It follows as well that its critical to match the right people to roles in the organization. A talented person in the wrong post can be disastrous, especially in a team situation. A classic example is a chief science officer who excels in that position who aspires to the CEO title even though he has a reputation for endlessly pondering the evidence when making a decision. Clearly, if you install that person at the top there is going to be no end of pain. The genius is in convincing that CSO to stay and do what he or she does best. This is where a good VC partner adds value – delivering that prescient judgment call on people. Knowing many of them already, like Beth and I do, is an obvious help.
(Q) In Vivo: What will Westlake Village BioPartners look like a year from now?
(A) Harper: One year in, we are moving forward on a lot of fronts. Our plan is simple – keep building on our unique geographic business model to expand our portfolio of quality investments in great new science. You can expect to see an evolution toward a commercial presence in each of the five companies we have invested in to date. Of course, in some cases the technology will not work as planned so we will need to adapt and put in place a plan B. Nevertheless, we do not anticipate any of our companies failing outright. The technology may falter, the CEO may not work out, and people will have to be reassigned or replaced. But Beth and I have embraced a model that we think will make our investments successful in innovating to improve the state of care for patients. It’s so challenging to create these innovative start-ups in the first place that it’s folly not to be able to make that mid-course correction to plan B when plan A is demonstrably not working. We refuse to opt for the easy route of just injecting more money into the same approach. We adhere to that thesis 100%. I expect you will see continued maturation of our companies toward commercialization of their many promising assets. The performance metric is this: in this interview, we are talking about our VC, Westlake Village BioPartners. A year from now the conversation will be about our companies. We may be in stealth mode about our investments right now, but the time is coming when our companies will hold center stage.
(Q) In Vivo: Is a second funding round for Westlake expected soon?
(A) Harper: Not yet. We have raised an initial tranche of $320m, which gives us the resources to start 10 to 12 companies. We are gaining on that objective right now with our opportunities squarely focused on the Los Angeles environs, cementing Westlake Village BioPartner’s unique geography-centric business model. It’s enough to make us a catalyst in tagging Los Angeles as the newest global biotech ecosystem. As other VC start-ups follow, we do intend to initiate a second funding round of similar size, putting 10 to 15 more companies on the metro area map.
(Q) In Vivo: We are close to the start of a new decade for the biotech industry. US private venture-backed companies are on track this year to raise around $150bn. Is the VC market ready for a big correction? If so, how will this influence prospects for biotech start-ups and the options they have in going it alone as emerging growth companies?
(A) Harper: There will continue to be significant investments in biotechnology. We see a convergence of three factors that will be driving early-stage investments. First, the speed of technological progress is increasing in a non-linear fashion while costs are coming down, thanks to enablers like artificial intelligence and automation. Second, we are gaining new insights into understanding human biology that we never had before. Third, we have more tools to interdict disease pathways. We can now engineer more than a dozen different molecules or modalities to influence biological targets. So, our efforts in the lab are more precise and laser-focused. Regenerative cell therapies, nanoparticle delivery systems, gene-based therapies, viruses, CAR-T cells and nucleic acid are just some of the examples of new modalities that can overcome previously impenetrable barriers to treating disease. Overall, the future of science looks good.
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