To raise awareness of and preview the upcoming sessions at the BioExec Institute, Prescience (with UC Berkeley and Deloitte as partners) has been putting on some terrific discussion nights with thought leaders of the biopharma industry. Last night, at one of their typical hip venues in San Francisco, they hosted a panel discussion titled The Corner Office, What Is It Really Like to Be a Biotech CEO? Leading the discussion was Jim Schaeffer from Merck. The panel of CEOs were Pim Stemmer of Amunix, Rich Heyman of Aragon, David Pritchard of KaloBios, Gonul Velicelebi of CalciMedica, and Jay Short from BioAtla. These events are a great chance for industry veterans to pass on wisdom, and I jotted down some highlights from the discussion.
Being Scientist an Advantage
The first issue that came up relates to my blog from the last Prescience event, Will Scientists Take Back the Pharma Industry? Herself a scientist from Torrey Pines Therapeutics, panelist and now CEO, Gonul Velicelebi, said being a scientist as CEO is an advantage. It’s ideal if you have an MBA as well, but if you had to choose one, science gives you an edge. “Technology drove the investment. And science drives the business,” she went on.
Pim Stemmer took a direct hit at MBAs. “There’s a value to learning in practice and not in business school. CEO’s get a fair amount of abuse and the ability to think for yourself is extremely important.” Dr. Stemmer is a successful Bay Area biotech entrepreneur who pioneered the development of DNA shuffling, a technology which provided the basis for the spin-off of Maxygen from Affymax in 1997.
The discussion went on to best ways to incentivize CEOs. BioAtla’s Jay Short said that in every company he’s been in, the science has been the biggest motivation for everyone. “Stock options have little relevance compared to the science,” he challenged. Jay hasn't done bad himself. After being courted to run Invitrogen, he opted for a $1 million signing bonus to be CEO of Diversa Corp which is now British Petroleum. With Diversa, Jay achieved the largest biotech IPO at the time of over $200MM.
How do you interact with the board, discussion leader Jim Schaeffer wanted to know. Dave Pritchard jumped in saying that a good board will be functionally diverse with each member bringing a deep level of expertise. He stressed that a functional board is preferred over a VC board. “There will always be tension between the CEO and the board,” he said. “This is a crazy industry, and CEOs have a tough job. A CEO has to go to the board and say, ‘there’s a 1 in 1000 chance we’ll make it and it will take 15 years. But at the end we’ll get a billion dollars. Who’s in?’”
Pandora’s Box-The Funding Issue
The hottest part of the discussion, on what turned out to be a very hot night on Market Street in San Francisco, came at the end. In an attempt to wrap up the formal part of the evening before networking and drinks, Prescience host Melinda Richter asked if there were any burning questions. She opened a bit of a Pandora’s box as a discussion about being CEO quickly turned into a lively back-and-forth around the room on how to get funding in bio these days.
Oleg Nodelman, a portfolio manager at the Biotechnology Value Fund, sat at the center of this conversation from his table in the audience. I recently heard Nodelman at a conference and he’s not shy. “The difference with this panel today and 15 years ago, is that everyone here is talking about exits. It used to be that we were talking about building a great company.” This provoked immediate laughs in the group, perhaps half in acknowledgement and half in a disbelief of Nodelman’s naivety. But I don’t think Oleg is naive. He’s pushing for new (or older) values in biotech funding. Another member of the audience took him up on his comment asking why VCs aren’t creating 20 year funds. Oleg replied that people will take money wherever they can get it, which often means funding by shorter term funds.
A final issue emerged--as it has in recent conferences we’ve attended--and, as usual, with no answer: who is going to fund early stage companies? Oleg pointed to discussion leader Jim Schaeffer of Merck and suggested big pharma ventures would fill in. “Pharma venture is the new dumb money,” he joked.
During the networking part of the evening, I met Peter McWilliams, managing director of the VC company, Sanderling Ventures. Peter said Sanderling’s focus is entirely with early stage companies. “We’re very traditional in that way. This is what VCs have always done and we believe it’s what we should continue to do.” Peter confirmed that the industry is “absolutely capital constrained.” I asked if this meant he’s seeing better deals. “Yes, he said, but the problem is it’s much harder to get money.” In 2005, he recalled, there was $30 billion in VC funding. By 2010 there was half that amount. “When I check my email, let’s say I get 10 messages: five from companies looking for funding, say 3 from my wife, one junk mail, and one from a limited partner who has invested in the fund. Without hesitation, I pick up the phone and immediately talk to the limited partner.”
I couldn’t help but wonder during the evening who actually wants to be a CEO in biopharma these days with the tremendous current funding challenges. Is this a cyclical issue that will go away soon, or is there a structural problem to the funding system? If there is a problem, how will it be remedied? If it's just part of a cycle, a strong CEO who's been around is a big part of the answer to driving companies through the 'down' period. And who are we kidding? Everyone wants to be CEO.
There’s a natural synergy with the Prescience events and what we do at mendelspod.com. Their speakers are expert and the audience full of those seeking answers. Their educational program, the BioExec Institute, offers industry execs training in high level strategy, and best practices at a critical time. Catch an upcoming interview with Prescience co-founder, Melinda Richter in a discussion of the BioExec Institute and her involvement with the innovation incubators, the BioCenter in San Jose and the incubator at Janssen Labs in San Diego.