The annual biotech pilgrimage to San Francisco has come to an end, and the upbeat, optimistic sentiment from #JPM14 bodes well as a barometer of the healthcare industry.
Amidst the presentations and partying, there was lots of bullish thinking about biotech delivering innovative medicines, commentary that stocks were trading high but on “fundamentals”, and comparisons of the current market to the Genomics Bubble were wrapped in a “this time is different” story. While there are real drugs and actual profits today (unlike most of biotech in the Genomics Bubble), and those are important differences, we are still bound to the realities of capital market cycles. Right now, we are clearly still in the bullish phase of a 3+ year biotech cycle, but by definition cycles come and go. What most of us hope is that the sector matures (or has matured) so the cycles become less volatile: where the troughs aren’t as deep, even if the euphoria isn’t as high, and we can operate in a more balanced biotech market environment. Where hope and hype play less of a role vs actual data and patient value. This seems reasonably likely given the depth and diversity of the biotech private and public universe of companies today – and lots of momentum coming out of #JPM14 is indicative of this sector maturity. But only time will tell.
As early stage venture investors, we spent the whole time on the “sellside” around JPM, with around 40 Big Pharma/Big Biotech meetings over three days. Sometimes we wonder about how valuable these meetings are, but in the end its all about relationship building over time and these are important outreach and engagement meetings. Throughout those dialogues, I heard at least four common themes on the Pharma-Biotech-Venture ecosystem worth sharing:
- Pharma embracing new innovative startups. Echoing a similar theme from 2013 (here), it’s clear that Pharma eagerly wants to engage with early stage VCs like Atlas (and presumably Third Rock, Polaris, Flagship, etc…) on creative new models of innovation. Our seed pool and new class of a dozen startups (here) consumed significant airtime in our meetings with Pharma teams, as did the discussions around starting new companies from scratch in concert with them in 2014. Most of our existing and new seed investments have already or will soon be syndicated with Pharma venture groups as one element of this theme.
- The Build-to-Buy structured deal concept is here to stay. This model, exemplified by Arteaus and in the news because of our Lilly deal (here), was also a frequent hot-button topic in our discussions. How did it work, what does it entail, can it relieve our P&L “compression” issues, can we do one of these together, etc… With the first full validation of the model complete, I would guess that Pharma pursued these build-to-buy conversations with every venture group willing to listen. I expect we’ll hear about a bunch more of these AVDC-like deals getting started over the next few quarters.
- Lots of pending IPO indigestion of the buyside. As I wrote earlier in 2014 (here), the number of companies trying to get public over the next few weeks is likely to cause indigestion from the buyside investment community. Some 12 or so biotech companies are beginning their roadshow tomorrow – as I understand it, that’s the largest number of simultaneous road shows ever in the biotech, even more than in the peak of 2000. Some 25 companies in the queue are trying to get out before their financials go stale on February 14th. Lots of bankers both excited and apprehensive about what the next four weeks will bring. If the companies have done solid crossover rounds already, or have really comopelling assets, the offerings and their pricings should be fine. But if not, good luck to them as it’s likely to be tough.
- Will there be enough money to go around? The list of venture firms either raising new funds currently, or about to raise new funds in 2014, is getting a lot longer. I heard of at least six quality firms on the road, and there are presumably many others. Whether there is enough LP interest in venture right now to support all the funds will be an interesting question. And these are the survivor funds that made it through the last five years. Lots of cocktail reception gossip about that topic for sure. Further, crowdfunding in biotech, a theme I’ve mentioned before, continues to gain momentum. Poliwogg’s official “launch” and Dennis Purcell’s role as an advisor there, raise interesting opportunities for venture and the crowd to work together for funding new startups.
On the disease area side of things, three themes captured the most attention both at the meeting and in our dialogues with Pharma/Biotech:
- Immuno-oncology is hot, hot, hot. All of our discussions with Pharma that have even a fleeting interest in cancer involved an extensive dialogue of immuno-onc. The continued compelling PD-1 data from BMS and Merck (and the latter’s decision to file quickly), the CAR-T immunotherapy explosion around Juno’s monster Series A, and the excitement around the next wave of immune-modulatory oncology targets, kept this theme at the forefront of the cancer dialogues. Expect 2014 to see some further excitement from this field – more deals, more startups, more data. We joke that we should rename all of our companies to include I-O buzzwords in their description (e.g., “we are an immuno-oncology cardiovascular company”).
- NASH, the new HCV? Intercept’s early stopping of the FLINT study rocked the house and put NASH into the spotlight. Like HCV, this liver disease is a huge unmet medical need and multi-billion dollar opportunity (see Adam Feuerstein’s post here estimating the NPV of the Intercept drug is $6.5B). Historically though, its long been hard for companies to wrap their heads around how to develop drugs for NASH – the success of the FLINT study may change that. And although the FDA has yet to issue a guidance document on the topic, this is expected in 2014. But it’s clear the data have triggered real interest in the space: in multiple Pharma conservations, we heard real interest in the NASH – what do you have in the field, what have you seen, etc…. I suspect any and all metabolic disease programs across the industry were getting renewed interest this week. We certainly heard a good deal of interest around two clinical candidate stage programs in our portfolio: Nimbus’ Acetyl-CoA Carboxylase (ACC1/2) and Zafgen’s metAP2 cardiometabolic program.
- RNA therapeutics are back in vogue. Alnylam’s double-header deals on Monday, acquiring the Sirna assets from Merck and partnering with Genzyme/Sanofi,, sent their stock price through the roof (up 36%) and put oligonucleotide drugs on the center stage. Other players in the oligo field have also done well this week as the tide came in: Tekmira up 29%, Arrowhead up 11%, and Regulus 14% (vs Nasdaq Biotech Index up only 5%). Dicerna’s IPO prospects certainly got more interesting. And we heard renewed interest in miRagen and RaNA, our two RNA therapeutic plays, especially around their specialty/orphan disease areas like fibrosis, cardiomyopathy, and muscular atrophy. Its great to see the RNA field maturing – its breadth and diversity (RNAi, antisense, exon-skipping, microRNA, long non-coding RNA, mRNA replacement, etc…) has huge potential to impact disease, and chalking up some “wins” will be important to adequately capitalizing the R&D in the space.
Darlings of the recent past – rare ultra orphan diseases and cancer-directed immunokinases (like BTK, PI3Kd) for instance – were still actively discussed and have lots of promise – but its fair to say the above three disease areas probably caught the most airtime.
That’s my wrap-up from JPM – reflections from the plane back with a bunch of other Boston biotech geeks. Time to get back to work.
