The Biotech Pulse S1E5 - Biotech Innovations and Sustainability

An edited transcript of the podcast follows below.

Silva Dezelan: Welcome to Episode 5 of the Biotech Pulse. My name is Silva Dezelan, and I am the Head of impact and ESG at Forbion. As many of you already know, Forbion is a leading global venture capital firm. We have deep expertise in Europe, with offices in Naarden, the Netherlands, and Munich, Germany, and most recently also in Boston, USA. We typically invest in innovative biotech companies and currently manage €3.2B across multiple fund strategies that cover all stages of biopharmaceutical drug development. In addition, Forbion leverages its extensive biotech expertise in human health to also address planetary health challenges through our newly launched bioeconomy fund strategy. This fund invests in companies using biotechnologies for sustainable solutions in areas like environmental tech, agtech and food tech.

Every year we publish the Annual Forbion Impact and ESG Report (View the 2023 report here) [LINK TO BE ADDED]. Since our ultimate goal is to bring novel treatments for unmet needs to the market to impact the lives of patients, in this report, we present key statistics on drug programs gathered with the corporation of our portfolio companies. We furthermore explain how we impact the future of medicine through our investments and illustrate how our portfolio companies perform in terms of ESG. As we get set to launch our 2023 Impact and ESG report, we thought it would be a good idea for this 5th episode to share with you all a fireside chat from our 2023 Annual General Meeting. This discussion highlights many of the issues we at Forbion believe to be integral to the world of investing today. Chaired by former Financial Times journalist and partner at Brunswick, Charis Grasser, I took part in the panel and was joined by Forbion General Partner for the BioEconomy Fund, Alexander Hoffmann, Feike Sijbesma, Honorary Chairman at DSM and Advisor to the Forbion Bioeconomy Fund, and Mark Post, MD and chief scientific officer at MOSA Meats. We hope you will enjoy the discussion as much as we did.

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Charis Gresser: Well, thank you very much. What a brilliant, set of speeches. Thank you both. So we have about 20 minutes to discuss some of the themes that were alluded to in both of your speeches. If I could start with both of you, Mark and Feike, and pick up where you left off. Feike, which is some of those innovations, those biotech enabled innovations that really now have the opportunity to move the needle significantly in sustainability. What would you point to? What really excites you?

Mark Post: We have given the examples of mostly in food and agriculture, because that is where biotech has almost kind of a natural link with the technologies that are out there and the biological processes that are out there. And also because it is a major contributor to all the problems that we have, both in food security, but also in environmental impact of current agricultural practices.

Charis Gresser: Feike, what do you look at? What excites you that that could really move the needle?

Feike Sijbesma: Well, what excites me is that the applications or the possibilities are numerous. The agro food system, that is broken, obvious. Energy, I mean, to ferment waste, etcetera, to create the biogas, etcetera. In energy, we can also do a lot. But even in computing, we can do a lot. We have a computer here (points to head), which is I do not know how much more efficient than any digital normal computer. And it works also just with connections and switches, only in a biological way.

If we can crack that nut, we have something totally different. Not to replace our brains, because we have it already, but to replace normal computers. Now it is taking off 75 years after the discovery of DNA, and I think in this industry, most likely, this will remain before the s curve comes into a plateau. I foresee a future of at least 100 years in front of us. That is a long time investment period. One hundred years in front of us, that new applications, new things, new solutions to the world will remain. This is a technology which has endless possibilities, and we will use it as mankind even stronger. We will need it as mankind because we have created a couple of issues for our society.

Charis Gresser: That is an understatement. Alex Hoffman, you are a General Partner in Forbion's new bioeconomy fund. We have referenced the BioEconomy fund a few times today. Tell us a little bit about the fund and what you are hoping to achieve and the details that you can share.

Alexander Hoffmann: Thank you so much for having me to speak about this. I think very conveniently, we had those previous speakers telling the story for us, and I think they have done this in a brilliant way. To put it very simply, our plan is to invest in the Marks of this world (Mark Post – Mosa Meats) and to then essentially sell them to the Feike (Feike Sijbesma – DSM) of this world, to deliver strong financial returns alongside impact. What this means for us, I think the core theme of the Forbion Bioeconomy Fund, is to apply biotechnology outside of health care into companies that develop products that will ultimately clean and feed the planet.

And so, this is the theme or the two themes that we will follow with, the Forbion Bioeconomy Fund. I think the examples that Mark mentioned, meat being one of many examples. Feike said the possibilities are endless. There are estimates that say up to 60% of everyday products around us, be it the wood, the leather we sit on with the, innovations that Mark is also working on, the shirts we are wearing can be also redone or, made differently more sustainably with biotech. I think this opens up really this massive possibility of the biotechnology as a solution to some of the biggest problems we see. On top of this, what we also want to highlight with most of these examples, and Mark alluded to that as well, is to have a very core focus within the Forbion Bioeconomy Fund is to exactly invest in those companies that through the advancements of biotechnology, will be able to replace existing products like the incumbents with more sustainable alternatives at price parity. I think that is a very important trajectory for us to make sure that all the companies we invest in are able to achieve that because only then the impact at larger scale can be secured as well as also really replacing an existing business.

Charis Gresser: And how big do you think, that we have given sort of figures for the size of market, but how many companies are we talking about? What is the size of that that potential pipeline for a fund like yours?

Alexander Hoffmann: I would say we have definitely seen a surge of very exciting opportunities in the last year. So myself and my co partner, Joy, also here in the audience, have invested in that space previously. Mark and I know each other also from my previous firm where we invested in Mosa Meats. So right now, today, we already have more than 300 exciting opportunities in our pipeline. So that is definitely a surge that we are seeing. There is a lot of activity at the investment stages of seeds, pre-seed, and seed stages. What we do see is that there is currently a significant funding gap for companies that have reached initial data, initial proof of concept, and need to scale from that concept into commercial viability.

So typically at Series A and Series B stages, and that funding gap is mostly characterized by the fact that there are, I would say, a handful of VCs currently that have the right biotech expertise to help those companies get from that concept to commercial viability. And that is exactly the place where we feel we can contribute the most, can identify the most relevant companies, and therefore also deliver the most returns to our investors. I think Feike was the perfect example in showing that it becomes more and more obvious where companies portfolio companies that we invest in will go to. There is a need for corporates to innovate. In some cases, it is, you know, successfully done internally. In the majority of cases, and I speak for myself having spent some time at a corporate, internal innovation is lacking. But for companies identify or seeing start ups that are able to replace an existing product or an existing process with a more sustainable solution at price parity or even a cheaper process while securing the future of the business and even generating impact and helping those companies to achieve their net zero goals, that becomes a very obvious M&A case, and this is also the strategy that we are following, with our investments.

Charis Gresser: Great. Thank you, Alex. Turning now to you, Silva, as Forbion's first dedicated Head of Impact and ESG. You joined Forbion this year, and obviously we have, recently had the 2022 ESG report, that was referenced earlier today. Talk us through a little bit about how Forbion is approaching, and has approached, embedding sustainability and impact in its investment processes.

Silva Dezelan: For those of you who have been here, before the break, maybe if you remember the slide on our investment process. I mean, processes as such sound really boring, but I think it is really the essence of doing things if you incorporate them in every state of what you are doing. Forbion is doing investments, so we should be able to show how we incorporate both ESG, environmental, social, governance, and impact considerations in each step of our investment process.

So it starts with screening the deals and due diligence. And you have probably been looking at the at the logo all the time. I think there is a keyword there “Impacting the future of medicine.” Right? So if there is no impact, there will be no deal.

So in the screening stage and due diligence, the deals will fall off if they do not meet specific criteria, which we summarized in our SUCCESS framework. And then, once we invest, after we get a commitment of the management, even very early stage companies, they will be good corporate citizens and they will do good CSR, then we monitor. We help them become successful companies through my colleagues that have a scientific background, that have, that sit on the boards, and, we monitor the results of that, right, both in terms of ESG, and, of course, in terms of the progress that they make on an annual basis. Because if they do not get through the next stage of the clinical trials, they will be they will not get to the where they actually have impact on the patients and then when that is when the product gets to the patient on the market once approved. So we are doing it in this in every stage, and that monitoring, reporting, we pass that information on to our investors who we think are interested or increasingly interested in that as well.

But it is not very straightforward that we are doing that. That made me think when I was listening to Feike, I started in The Netherlands in the field of responsible investing, which was just started to take off at the same time in 2007 or 2008. And I was lucky, to let us say, be in a country where this was really important. I think we do not realize the Dutch institutional investors, the Dutch banks, many of Dutch companies are the sustainability sector leaders. So the private markets did not pick up pick this up immediately. It started with big pensions funds, then big asset managers, private markets, private equity, VC later on. It is not straightforward that Forbion as VC investor, that we talk about impact in every let us say, almost every minute, every speech, and that we have been doing that for a while. I think, Forbion was probably the first, if not the first, that had a systematic framework of assessing deals on the impact. We are trying to add additional elements because the requirements and expectations, both from our investors but also from the society, from the regulators, keep increasing.

Charis Gresser: So it is really that the implementing of impact and the framework is that as you say, it is complicated. Just using the word really does not do justice to the amount of effort that goes into actually doing it in practice. I want to make sure that we have time for, questions and answers. So, I would like to ask each you in turn to mention 1 or 2 concrete examples of innovations, in the biotech enabled sustainability, if you will, that just grabs your imagination that really excites you. Maybe I could start with you, Alex.

Alex Hoffmann: Definitely. I think, given the large pipeline of opportunities that we are seeing, I think this is a very good example of the endless possibilities that we have. And I think one example that usually always strikes us as a team is a French based company, that is engineering plants to allow extracting nickel from the plants, which replaces or reduces the need to mine nickel that are being used in batteries. So I think also related to the energy transition, so the this is one application, again, where biotechnology can play a role to sustainably change a process that's currently very harmful to the environment. I think this, it is usually one example that, you know, stuck with me very much and I think also with most of the people I spoke to yesterday. So I will leave it at that probably for now.

Charis Gresser: Feike, one concrete example that really excites you when you brush your teeth in the evening.

Feike Sijbesma: One of the examples we had is, you talked about also (points to Mark Post), the emissions from cows, and therefore he is making his cultivated meat, and I am doing the same with Meatable. But DSM said, well, we can also reduce the meat in the emission from cows by an ingredient which was called Ever Clean Cow. We worked for years because we thought this is important also to reduce the emissions via cows. So all kind of people were against it, etcetera. We still did it, and then we had to increase in 35% reduction. We were so happy, so happy we cracked the nut. So we went to the farmers and said, listen. You can continue, and we provide you the ingredient, cost you 1¢ per liter milk. That is not a lot. And then you reduce 35% of your emissions. Farmers said, exciting ingredient, but we will never buy it unless you give it for free. Then we went to the feed guys, after a year going to all the farmers. Then we went to the feed guys. And they were really excited because we were under pressure. So, we did testings, etcetera. They liked it, and then said, before we buy, we want to do more extensive market research. Market research, you know what it is. Not in your case because do you then go to farmers? Yeah. That is our users. That is our market. Do not go there.

I know the answer. And indeed, a year later, we got from the feed guys, forget it. Then we went to governments, and we explained that the Paris agreement, etcetera. Many governments in the world, including ours in the Netherlands, were very excited and do so. I said, no. You need to do so. You need to make it the right. Otherwise, nobody buys it. Farmers are a very delicate group of voters, so let us not do that because we do not make ourselves popular. Year 3. Year 4, still no sales, excited about our invention. We went to the Danones and the Friesland Campinas, and they saw this is the only way to reduce our Scope 3 emissions, and they went passively with us. It shows also that sometimes it is not only the technological innovation and the solution and the impact, but it is also how to prepare the market for that. And if I look to ESG and impact investing, I think many big companies still do not get it.

To be honest, many investors, especially outside this room, still do not get it. But to be honest, most startup companies do get it, because most startup companies in the world come with nowadays an impact investment proposal. But that is not enough. The technology is not enough. You need to bring it to the market and it need to be a market.

And that is underestimated by in some companies, and it takes longer even with a big company like DSM. It takes longer. It is more complicated. We underestimate it, etcetera. And that is what where we can help, which is what I do for a living now, where we can help young companies and do that.

Charis Gresser: Join me in thanking our panellists, for a really, really fascinating discussion.

Silva Dezelan: I hope you enjoyed listening to our 5th episode of the Biotech Pulse. I am Silva Dezelan, Head of impact and ESG at Forbion, and you have been listening to a live panel discussion which took place during our 2023 AGM, where we discussed the role of impact and ESG at Forbion. Our 2023 impact and ESG report can be found on our website at www.forbion.com and you can also follow the Biotech Pulse wherever you get your podcast.