BioPharm Executive: Biotech Is for the 1%

Published: Apr 28, 2016

Biotech Is For The 1%
April 27, 2016
By Karl Thiel for
Others Need Not Apply

Biotech has no shortage of billionaire patrons, but one who has received little notice—until very recently—is Osman Kibar. The Turkish entrepreneur has been stealthily working on a company called Samumed that now can boast being the most valuable biotech startup in history.

Samumed has already raised $220 million and is in the process of raising another $100 million at a stunning $12 billion valuation, according to a recent article in Forbes. As author Matt Herper notes, Samumed is able to raise so much money because the company is so ambitious—it is working on the Wnt signal transduction pathway with the aim of making all kinds of cells robustly regenerate. It is going after baldness...then arthritis...then onto things like degenerative discs, cancer, Alzheimer's disease, and perhaps aging itself.

I won't rehash Herper's piece—it's worth reading yourself—but I will echo the commentary of In The Pipeline's Derek Lowe, who noted that Wnt pathways represent "one of those wiring boxes that you find in biochemistry, with about four Godzillion wires heading in and out of it, but the problem is that (like most such boxes) it has abig 'Do Not Touch' sign on it." It's not that Samumed can't possibly be successful; it's just that there is an enormous amount of risk, yet the company is valued as if there's none.

Yet I'm more interested in what Samumed—and other recent trends—say about the state of biotech funding and investment. While Kibar is, at least for now, only a billionaire on paper (he owns a third of Samumed), people with 10- and 11-figure net worths are becoming an increasingly central part of the biotech. Moreover, for better or worse, they may be the only people who can move certain kinds of research forward.

Rich and Selfish?

Recall another recent startup gone wild, Juno Therapeutics . It raised over $300 million in a single year, going from Series A to IPO all in one year. Like Samumed, its earliest investors were wealthy angels, in this case including CEO and founder Jeff Bezos. Juno competitor Kite Pharma won major backing from billionaire hedge fund investor George Soros, while billionaire David Bonderman joined in Kite's opening round and remains on the board.

Google's Sergey Brin and Larry Page decided to go after aging through startup Calico. Google Ventures' Bill Maris has sunk millions of investment dollars into companies like Flatiron Health, Editas Medicine and 23andMe. Paypal co-founder Peter Thiel has made a huge bet on cancer through Stemcentrx , among many others. Like Samumed, this is another private "unicorn" that at least recently commanded a multi-billion dollar valuation. Facebook's Mark Zuckerberg has made fairly modest biotech investments to date, but has promised it will be a cornerstone of the 99 percent of his stock he eventually plans to give away.

It's easy to speculate on why the mega-rich are spending their money this way. For a few years there, one needed to look no further than good old-fashioned capitalism: Biotech was a great investment with great returns. (George Soros, for instance, made a well-timed exit from Kite—not to mention Valeant Pharmaceuticals —in mid-2015).

But it's also clearly personal. Peter Thiel has publicly discussed his intention to live to the age of at least 120. And there seems to be something of an immortality cult going at Google: Ray Kurzweil has acknowledged his intention to live forever, with Maris echoing that he "just hope(s) to live long enough not to die." And Larry Page has talked about Calico's long-term plans to add 100 years to the human lifespan.

But while self-interest—both financial and otherwise—may be playing a big role in rise of regenerative and longevity research, it may also be the case that the industry is evolving in a direction where nobody but billionaires can really push things forward.

Egocentric Benefactors

While Bill Gates has described a younger generation of tech billionaires as "egocentric" for their personal focus on longevity, he actually has something in common with them. All the way back in 1992, he lured National Medal of Science winner Leroy Hood to the University of Washington with what was then the largest individual donation UW had ever received. He supported Hood's notion that advancing biology would require cross-disciplinary approach of a kind previous unknown in either commercial or academic settings (Hood took this further several years later by establishing Seattle's Institute for Systems Biology).

The fact is that biotech in many ways doesn't follow the rules of capitalism. Certainly we see that in prices of drugs and the ridiculously opaque system that supports them. But traditional capitalism is also increasingly straining to support the creation of new drugs. The cost and time required keeps creeping higher, yet investors' patience seems to be growing shorter. There are growing hints that the current window for biotech IPOs is finally closing (see Money Talk), putting more pressure on companies hoping to fund early-stage ideas. But even before this, the money going to early stage companies has been dwindling in favor of late-stage programs, and particularly around specialty pharma. And perhaps that shouldn't be surprising: Even the high net-worth investors who back venture capital funds expect a timely return.

In other words, if the merely very rich can no longer be counted on to back new ideas because they expect a decent return on investment, we may have to rely on the mega-rich who are either willing to give their cash away or are content with hugely long and indefinite timelines.

That's a small group of people, but for now they keep coming. Another billionaire—Napster founder and ex-Facebook president Sean Parker—last week announced a $250 million donation to support cancer immunotherapy.

Of course, massive generosity comes with strings attached, and these billionaires will support the research that most interests them. That means for every Bill Gates looking to improve sanitation and communicable disease in the developing world, we're likely to see a dozen plutocrats trying to get a few extra decades in which to enjoy their wealth.

Maybe you think that's not such a bad thing. Google's ability to take "moonshots" with its immense wealth, after all, may push forward technology in ways that could not otherwise happen. But it's nonetheless disturbing for the same reason that the increasing concentration of wealth in this country is disturbing: It doesn't serve anyone well in the end. The wealthy can talk about being job creators, but to paraphrase another billionaire, Nick Hanauer, it's really the middle class that create jobs. Entrepreneurial ideas are meant to serve broad audiences—even the wealthiest people don't buy a thousand smartphones, nor do they consume thousands of times the medicines of others. Businesses created to serve only them will fail. In an industry as risky as this, that's worth keeping in mind.

-Karl Thiel

Read the BioPharm Executive online newsletter April 27, 2016.
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