The Biotech Pulse S1E8 - Special Edition with Cambridge Judge Business School: Smart Capital, Leveraged Science: How VCs Unlock Biotech Potential

An edited transcript of the podcast follows.

Nektarios (Aris) Oraiopoulos
Thanks for coming to our session today. It is a panel with some of the most credible voices, and I think these kind of events. I am going to keep this under one minute. But the reason we are having this event is that there is a lot of noise out there about, what the biotech industry might do, what VCs do, how the funding works, about the future of medicine. So it's important to sort of get down to some credible signals from how this industry operate and hear from some people that they have done it successfully. So I'll keep it very short, really delighted to have Sander, Mihriban and Carmine here with us. The plan is to ask them for about half an hour some questions, and then I'm going to open it to the audience to ask any questions they might have. And I'm going to kick off with sander, and I'm going to ask about the concept of transformative science, because Forbion has invested a lot of and as a lead investor in those called transformative companies. And my question is, how do you know if something is transformative at quite an early stage, when the data are not there yet? If you could, and I know it's a complicated topic, but if you could just explain to us how this process works, especially at an early stage that will be really helpful.

Sander Slootweg
Just for background, so we do invest in existing companies in Europe and the US for about two thirds of what we do, but also 1/3 of the companies we invest in are companies that we build, and then we build them either around discrete assets that we have sourced elsewhere. For instance, if pharma decides to spin out some assets that are non core or around a team that has proven itself, that has made us money before, and to back them on their next journey, or it could just be some cool biology that has been elucidated that gives rise to new targets that we can start a drug discovery campaign, again, so it's a difficult question, because you your question pertains to the early stage judgments. The art is to project what you have today, actually many years into the future, and have to sort of assess how a novel molecule against a certain disease, how it will benchmark against other early approaches that you also have to project into the future. And so you kind of have to shape the whole plan, and that includes, you know, IP strategy, you know, preclinical, manufacturing, clinical, everything, several years ahead. And you have to sort of map out what the financing requirements are, what the discrete milestones are, and then you can start to form an investment case. And so it's, I think it's part of the art, or what makes actually our jobs quite difficult, as you have to based on a lot of assumptions, and has to be some early data, of course, to make you excited that something could be transformative, but then to decide whether to back something at this early stage or not, and yeah, I guess that's part of what we do.

Nektarios (Aris) Oraiopoulos
and just to follow up on that, if you could give us an example of a due diligence process that you thought it worked out well, and you were able to have to conduct those experiments or to get those signals from an early stage company, that would be great.

Sander Slootweg
Well, let me give a local example of a company that we backed here in the UK, and there was already data. In this case, it's a company called Synox. We started this company based on earlier work that had been done at Roche. It's one of these examples where there is an asset that had been tested in a certain oncology indication and it didn't work sufficiently. And then Roche, before deciding to call it quits, they did a POC study in another oncology indication, which is called Tenosynovial giant cell tumor (TGCT). So they're like benign tumors that grow in the joints of patients, and they had shown promising, yet early results and but the indication was too small for them to work on, because now the threshold with some pharmas to work on projects is even an annual turnover of 2 billion that has to be in the cards. And in this case, it was a few 100 million because of the rarity of the indication. But for a biotech that could be a very interesting business, and of course, also for the patients, it could be most helpful. So in this case, we looked at this early data. The manufacturing had to be taken out. There was a management team that wanted to run with this, but there were sort of more academic in nature. In the end, we had to research everything from the IP position, competitive landscape to also small this was an antibody approach. There were also small molecules targeting this indication that were already a little bit more advanced, that data didn't look super good. There were some side effects. The antibody showed a quicker onset of action, longer duration of action. But anyway, to make a long story short, so we finally found that we had a well rounded case, and we embarked on the on the journey. However, then we had to do a second due diligence, because then it turned out that competition, the data at six months was sort of moderately attractive. But then after 18 months, actually the efficacy had gone up. So it took longer for the full effect to be to become apparent, and then we had to actually take the decision, are we going to continue with our approach, is there still a competitive edge? Are we still good in terms of our projections to see a potential turnover of several hundreds of millions, and we had to do a complete new market assessment. We commissioned market research. We hadn't done that before, and so this was another complete piece of due diligence that took several months to convince ourselves that there was still a case, although the market environment had changed and we continued. And in fact, the company has now recruited in a pivotal study ahead of plan. So in that sense, the patients are definitely there. Company has done well in the execution, but it was like a very long due diligence effort that had to consider many aspects of the business as an example.

Nektarios (Aris) Oraiopoulos
Great. Thank you. Mihriban from the other side, from the founders perspective, for that, for fundraising, if you know, to collect that evidence to convince the investors, because I know you've been in different roles over your career, and more, most recently, the fundraising side of a transformative company. Could you sort of share your experiences and how the process looks like, or any lessons that you could share?

Mihriban Tuna
Sure, my first proper fundraising experience was a few years back. I was the chief scientific officer of an oncology startup in London called Adaptate. And this was in 2021 the world was quite different. Biotech was saving the world. You know, investment sentiment was is pretty positive. And I would say that that that aside, I think you still have to have a defined and very clearly articulated proposition of value and what you're addressing in terms of the therapeutic landscape. So at the time, we had a very a unique biology that has been unlocked due to academic research. Quite recently, we were first in class. We had a very clear differentiation story, and we had actually achieved quite good progress with our seed investment, so we only have to go to our existing investors and got all the money that we needed, and off we went. We had an exit in less than three years. Everyone was happy. Today, I'm CEO of a Cambridge startup, again, an antibody based therapeutic startup in a different disease area. This is more of a what's classified as a rare disease, systemic amyloidosis, and we are developing the next generation therapeutic approach to remove amyloid that's accumulated in other organs than the brain. So we're not tackling neuro but we're tackling when you have amyloid in your heart or liver kidney that causes lots of problems. We are not first in class, we are going after already some clinical experience, which, you know, in our view, is helping us. But we believe, obviously the drugs out there are suboptimal. So we have the case to present this very clear data package to say how we are different, why we think that difference is going to, you know, be better for patient outcomes. And to Sander’s point, what I found particularly productive and positively impactful in terms of the investor interactions I'm currently having in the fundraise, is that macro view of the future. So, you know, as a small startup, we are. Five person company in Cambridge, so we are focusing on generating preclinical data, on executing the next immediate steps to go to the clinic, but through the detailed discussions and deep due diligence with good teams at good VC funds, what we end up kind of evolving our strategy and our scientific direction in a way that makes us better because of that interaction that we've had with the VCs. You know, we're having to then start thinking, what does the therapeutic landscape look 10 years down the line? Who might be approved, who might not be approved? What could they be? What their readout could be? How are you going to better that? I find it a very, a very fascinating process in terms of, you know, it definitely is an incredible value add for founders or CEOs of small companies, because first, you don't first have the capacity to think about it, but when you're challenged, you make the time, you learn, you do the research, and you just go through this continuous process where you are challenged. You know, at level one, it's easy. At level two, it gets deeper, and you know, you keep on being challenged on a lot of different aspects of what you're selling. But it's, in my view, has been a very productive experience. So far this year, we started fundraising in February, and so we are currently building resilience and learning how to navigate the fundraising process. But it's, it's so far, it's been really good.

Nektarios (Aris) Oraiopoulos
Carmine, I know we've had discussions, well, a lot of discussions in Cambridge and more broadly in Europe, about sort of scaling up the biotech companies. What do you see as feasible scale up process. What could be the roadmap that look like to once you go past some proof of concept and some of the, you know, perhaps inflection points or key points in that process, you see, and you know, to what extent we can make that a bit more feasible path for companies in Europe?

Carmine Circelli
Yeah, so it's a great question. I think there are two main aspects. The first is what's available in Europe, and what's the difference between that and what's available in the US? And then the journey of a biotech ultimately from clinical POC all the way up to what is being done in the US, in terms of building very large companies like Vertex. And the point here is there is an equity gap between the UK, Europe and the US. It equates to around 3 billion a year. And our focus at the British business bank is ultimately addressing that market gap and demonstrating it's a great asset class. So there's a benefit, both for patients and investors, that then attracts more capital, that helps companies ultimately go on that journey fund themselves to build real scale. In biotech, it's quite unique. There are two key risks, the first is clinical, and the second is commercial. And the reason why biotech is unique is very often pharma companies will buy companies at that clinical proof point. So the exit window, pre clinical phase one, phase two does exist. But ultimately, how do you go beyond that? There is a question of whether we need to continue to try and develop the European public markets. That's a open question at the moment, given the fact that most of the capital in biotech, in a public sense, is on NASDAQ. There are also things like royalty deals, so ways that pharma companies and biotechs can work together to generate a partner agreement which is ultimately non dilutive capital that helps companies grow in a very capital efficient way, particularly if they've got multiple assets. And lastly, the royalty deals that I mentioned is another way of drawing value from assets earlier on to be able to pay for late stage clinical trials or cover that final inflection point of dealing with commercial risk. And those are different ways and different options that as a government focused LP we're looking at the moment. So how can we build that market, that layer of late stage growth investors, the crossover investor group, and then ultimately, how do we interact with the wider capital pools in order to build a properly functioning capital market, which has a diversity of products that helps companies grow through the various phases of clinical POC, and then ultimately, dealing with that fun, commercialization nest

Nektarios (Aris) Oraiopoulos
great and many of Forbion’s portfolio companies have scaled up. And when we were writing the case about Forbion, a lot of partners highlighted the importance. And you know you described Forbion strategy as connecting the dots. Dots of a rather fragmented European ecosystem. So if you could elaborate on this sort of the building process of those companies and what connecting the dots means, and how do you achieve that, especially a lot of the questions that we've had after we published the case was, it's great to have an ecosystem of partners, but how do you start when you are still a small fund or a company?

Sander Slootweg
It's a very good question, and I think Europe has great science, as evidenced by publications that are highly cited with European authors and patents with European inventors. But I think what's still lacking, especially compared to the US is experienced entrepreneurs. And so, our business, the way we see it, it's really a long term relationship business. So even if you start small, if you build a track record, and you've worked with people, and it has been a successful collaboration, our philosophy is to stay close to these people. And in fact, you know, Matt Cooper is one such example. We jointly worked on Inflazome, which was then acquired by Roche. And then we started with, with Matt and part of the team, Sitala. And we have plenty of such examples. For instance, going back to the early 2000s we invested also in a UK company called Biovex, which was the first one to take an oncolytic all the way to market. In fact, while they sold it to Amgen, they took it to market, and then with part of the founder team, we worked on a company called UniQure. So Philip Ashley Spark, the previous CEO, he became the president us, in fact, of UniQure European company, to help them to export their business to the to the US. And then when this was done, we started with him and part of the buybacks team a new company called Replimune. And also, again, in the UK, at some point, unfortunately, due to bigger capital needs, we transplanted that company also to the US, but also different examples. For instance, when we sold one of our Dutch companies called Dezima pharma in the high cholesterol space, we sold it to Amgen. The person representing Amgen on the BD side was Ray Barlow. And then when Ray moved into biotech, we then made him the CEO of Synox. So if you think of it, and if you map, sort of how the how the ecosystem in Europe works, it's a small community. And my advice is to everyone that if people are good at what they're doing, and if there's a good relationship, keep close and yeah, try to make it really a long term relationship. That's how we go about business.

Nektarios (Aris) Oraiopoulos
Great. Then, you know, Mihriban or Carmine, if you have any thoughts about the European ecosystem, and particularly sort of the role of relationship, because that's the other thing I often hear talking to people, is that it's a people business, which on the other side is also, you know, science data, and, you know, try to reconcile those, I think, if you've been for a while in there, so you understand what it means. But if you could clarify, like, what's, what's the relationship component that people side, like, why it's so important, the culture, for example, in this science based world.

Mihriban Tuna
I can start, I have very current experience, I guess, my view of how actually the investment and the fundraising, so investment from the VC side and the fundraising from the company side is really about becoming one team from both sides and building that relationship, building trust, and building common understanding of where you know the company should go. It even starts from the very beginning with a relationship. So let's just kind of go two steps back. If you're doing your initial outreach, your chances of success are much higher if you go via personal connection or another VC introduced you to a VC through a warm introduction that that is already a connection, because people have worked together before. They have a pre existing relationship, and even just the fact that somebody takes a call or not is sometimes actually as simple as you were introduced by the good collaborator that they have worked with before that they have had a good experience with and then, from then onwards, the investment process, or the fundraising process, is a pretty structured affair. So you have your initial pitch, you move on to confidential discussion. We move on to Q and A with a VC team, deep due diligence, all the way to, let's say, to investment team, or IC presentation. Through that journey, you know if you're in in a good place, and you know you, you know you're in a good place ff you have a partner, principal and associate turn up to all your calls, and you start building that relationship with the team. You have a deal team on the VC side, and they interact. So you actually tell them about all your data. You tell them about all your plans, you discuss, you evolve, and that whole journey culminating then going to the whole investment team, all the partners and advisors of that VC fund, where your mini team from the VC they are also with you, actually selling the opportunity to the wider group. So this is all built on this kind of personal relationships, people feeling as a team. And I say, I would say that, you know, the culture of the fund and the culture of the company there play a big role as well. So there is a lot of things that come together when all of these opportunities eventually become a fruitful kind of investment, because all of these things are very important factors in how your journey evolves towards the ultimate investment. And in my experience that is at times, you know, it requires a lot of work. I, work every night because I'm too scared to not answer VC email, for example, you know. It does require a lot of kind of investment of time and building that relationship, but it is what it is, you know, you just kind of go through the process, and you go through that journey, and when you build good relationships, I think things become easier.

Sander Slootweg
Maybe another example would be we work over time, of course, with various service providers, because most of our companies are relatively lean, they don't do all the things in house. So we work with CDMOs, with CROs, and of course, there are ones that you work with better than others, and you develop also our relationships there, and we finally decided to institutionalize that and to have our preferred vendors and have a Strategic Framework Agreement in place with them that stipulates at the level of service the fees and everything that we can immediately hand over to our company so that they don't need to negotiate for months with some service providers. They can at the best terms, at sort of the big pharma terms, they can engage with service providers that we have really good experience with, plus, if things somehow do go wrong, that we have the high level access at the C-level at the service providers that we can immediately intervene to see if things can be resolved, if they don't work out. And I think that is another relationship part to the business that I think our companies have found hugely beneficial, that it speeds things up, and they get the better rates, and they get also preferred slots, if things are difficult to get a slot for whatever preclinical experiments. So I think that's another good example of how relationships are important in this business. Just

Carmine Circelli
From the investor point of view, funding biotech can be an expensive business, $50 or $100 million rounds funding those clinical trials very often takes more than one investor, ultimately, getting a group of investors together and having them align around a plan is easier if you've got good relationships and you can have open conversations on the basis of data, and then culturally speaking, it's about having a diversity of thought around the table so that they're really interrogating that plan from multiple different angles and having the objective discussion about what is the best use of proceeds and how you're going to optimize value for the company and ultimately deliver medicines to patients.

Nektarios (Aris) Oraiopoulos
And is that something? I guess this applies to all three of your question is, like you look into the hiring process, in the partnering process, do you nurture it internally, once you have it, but it's, you know, it's, I mean, nobody would disagree that you want to have a bad culture, but getting the culture right is the hard part. So any advice on how you actually build that culture, would be beneficial for all of us.

Carmine Circelli
One of our key tenants is that diversity of thought that ultimately makes for good decisions or better decisions. There's an element of knowing people you've worked with before. I'm sure Sander has got many examples of excellent people that he's worked with and will work with again. You know, good experience is a positive flywheel, but also in the recruitment process, we want to make sure that we have balanced candidate lists that we are bringing in new thinking from new areas. You know, biotech is a global business. Occasionally, that experience isn't ultimately based in the UK. We might need to find someone who has that specific expertise that the company needs at that point in time, and they might be based in Europe or the US. So the first thing is ultimately thinking about what sort of cultural philosophy you want the company to have, the diversity of opinion, but ultimately ability to agree. On a course factors, and you can work through that in in hiring processes, in controlling that really, in some ways, by building on good experience to maintain that lasting relationship and really build by

Sander Slootweg
When I look at how we've built the firm, we've always tried to attract the best talent, male or female, from all over the globe, essentially. So we now have 13 nationalities, but we do try to keep the, I would say, the Dutch culture, which I think is very egalitarian, so it's not super hierarchical. We do solicit input because people have different technical or medical or business backgrounds. And it's, as I already mentioned, it's a quite complex business that we're in, so everyone should really weigh in to get to the best decision making. And then we have also different layers of people that we can call upon. So we have the core investment team, and around that, we have what we call our venture and operating partners, which are people that have earned their marks in the industry, and that can hands on, can help out with specific investment opportunities as a chair or as a CSO or on the Scientific Advisory Board. Then around that, we have our retained advisors, and then we have a network of key opinion leaders that are, of course in their respective fields, the people that everyone listens to, pharma, the regulators, VCs. Then we have the broader the broader network around that. So there is different layers that can weigh in at different points in time. I think that's the only way to get to the most balanced, informed decisions. And that is really, I think, how it works in our industry.

Mihriban Tuna
I think from the interactions between the company and the investor standpoint, but also through the journey of any company in, you know, doing drug development, I think it's very important to be transparent, to look at the data and to be to look at the data without positive kind of bias. Or, you know, sometimes founders or the people who have been working on a particular drug, they feel it's their baby. They feel it's their asset that they need to protect. But sometimes data tells you otherwise, and it's very important to react and to be transparent with everyone involved, investors, management team, the whole team. And to be able to actually react drug development is a very, very high attrition business, and things fail all the time. I think to be able to have those hard conversations is very important, and that's why relationship is very important, because you can have hard conversations with people you respect, or you know, have good relationship with. I feel that in our business, in drug development, some of the kind of shame of why we arrive in some maybe more negative views, is that people just try to push certain things because they've invested too much already, and they go to the next level, and it's kind of a diminishing returns situation. I think this is where good management teams, or people with prior experience that know how to react to bad data or know how to pivot and change the strategy of the company to make out of a science failure. Because science fails, you know, we don't understand biology enough to always get it right. So there's a lot of different failures. So you can't stop science failure, but you can stop many other failures by having a good communication and a good relationship all around.

Nektarios (Aris) Oraiopoulos
have to admit that, as an outsider in the science part of the business, the more I understand it, the more I appreciate how hard it is. Thank you everybody, and thanks very much our panellists.