LOCAL BIOTECH INDUSTRY VETERANS DISCUSS THE MARKETPLACE FOR HEALTHCARE INVESTMENT

Interview Published in Philadelphia Business Journal, February 1, 2017

Dr. Scott Dessain, as founder and chief technology officer of Philadelphia-based Immunome Inc., and Scott E. Fishman, as president and CEO of Envisage in Doylestown, have experienced the joys and heartaches of launching, running and investing in biopharmaceutical startups in this region. They recently decided to team and share their career experiences and thoughts on building a better life sciences ecosystem in a new book called Preserving the Promise: Improving the Culture of Biotech Investment.

Dessain and Fishman talked to me about how they met, why they decided to write a book, and what they hope people get out of it.

How do you two know each other?

Fishman: About ten years ago, we were introduced to each other by business development guy who knew one of us [Fishman] was a potential investor and the other [Dessain] had a biotech startup that needed money. While there was mutual interest in the venture, that transaction never happened, for a variety of reasons: the ask was too high [$100,000], one of us wanted to be involved in managing the company and the other just wanted a check, the technology didn’t have a therapeutic target yet – and not incidentally the stock market had experienced the worst crash since 1929 just the day before.

Why did you two decide to write Preserving the Promise?

Dessain: About three or four years after that first meeting we were in a panel discussion at the University City Science Center, about early stage biotech and biotech investing. The common thread among the panelists was the struggle of early-stage biopharma and medtech companies to make it through the “valley of death,” why it’s so hard for companies to survive long enough to make the science work, and how early- stage companies can encourage a more productive funding response from investors and Big Pharma. Over lunch, we started to discuss the problems I had as an entrepreneur and he had as an investor.

Fishman: The question of how to get important technologies to the clinic was on the mind of every one in the room. But of course the perspectives were pretty variable: What’s worthwhile to scientists doesn’t necessarily align with what’s important to clinicians; the technologies universities would like to see commercialized aren’t necessarily the investment proposition that most interests Angel investors; and the IP that has the greatest prospective social impact may have little to do with a pharmaceutical company’s search or a particular solution to an unsolved development puzzle. These parties are all looking for a successful outcome, but there are substantive differences in their short- and long-term objectives, in the financial and other rewards that drive them, and even in the language they use to describe what they’re doing. The result is practices that from a distance look like they should be aligned, yet in reality are often at odds with each other – even though ostensibly everyone’s idea was to build a successful company and make a drug. We realized that the problem wasn’t companies failing in the marketplace, it was a dysfunctional marketplace for ideas, codified as IP and investment theses, failing the companies.

Dessain: There was frustration in the room, too, especially among those trying to start a company with inventions they had discovered. I’d had the same experience myself. As a scientist and entrepreneur, it was bad enough to realize that universities owned everything I invented, but to experience how technology transfer offices have the power to maim or kill promising technologies was, to say the least, disheartening, and it happens much more often than you would think.

Fishman: From the other side of the table, the frustration is the sheer number of pitches investors see where the business plan is fuzzy, the outcomes nebulous, and the entrepreneurs seem not to have given enough thought to what they’re going to do with my money – or even how and when I’d ever get it back. The net of all this... we came up on the spot with a plan to write all this down – and that turned into a book. Preserving the Promise isn’t intended to filter through one lens or another, but to provide a fresh look and perhaps some useful guidance to everyone in the early stage ecosystem: about how to make better investments, about surviving the valley of death, and about how to improve the chances that important clinical advances actually make it to the clinic.

Dessain: It ultimately became a mission, for both of us, because we weren’t just writing about how to make a successful company. We were explaining why there is an almost absolute breakdown between what biotech and pharma is designing and what we, as a society, actually need it to make. If we read a news report about a great scientific breakthrough for an important medical problem, we assume that a cure is on the way, but it’s simply not the case, because innovation does not equal invest-ability. There’s a reason the Ebola vaccine sat on a shelf for 10 years when it was ready for clinical testing – nobody could figure out how they would make money by investing in it. And, when companies cannot connect their innovation to commercial investment, we all lose out.

Fishman: Take Superbugs, multi-drug resistant bacteria. Last week there was a report of a woman in the United States who died of an infection that was completely resistant to all known antibiotics. We’ve got a system that generates a solution to the terrible problem of a double chin (you can see it advertised on any give night), but that hasn’t introduced an entirely new class of antibiotics for decades. We talk about this in the book: as a fundable proposition and from the perspective of Big Pharma's return on investment, antibiotics are not as good as a “lifestyle” drug. They’re also less commercially valuable, often dramatically so, than an orphan drug designed for a small population with an urgent need that can be introduced with “value-based” pricing. There’s the additional problem that some diseases – we cite pediatric brain tumors in the book – are virtually un-investable and therefore unlikely to garner significant early stage development attention. Look, we have to make this all work better if for no other reason than that those we love don’t die of solvable medical problems.

How would you describe the process of writing the book?

Dessain: The book actually started as a conversation, a series of back-and-forth essays. I was writing from my perspective as a scientist and entrepreneur, and Fishman was writing as an angel investor, entrepreneur, and professor. Sitting for hours at various Panera restaurants (free refills on coffee, free WiFi). And the topics were inspired by what we encountered in our day-to-day lives: tech transfer, due diligence, term sheets, conflicts of interest, entrepreneurial missteps, and so forth. We didn’t catalog our experiences directly, however, but used them as a jump-off point to look at biotech commercialization from different perspectives.

Fishman: I happened to be teaching an MBA global management course at the time, and one of the key insights that emerged from a Panera discussion was that Michael Porter’s Five Forces of Competitive Analysis was a productive template for looking the early stage funding. We had realized that early stage biotech companies weren’t differentiated so much on the basis of their technology, as on the quality of the investment thesis: in simple terms, this means how well they would appeal to an Angel or other early stage investor. Early on, biotech, small molecule and medical device commercialization is really just buying and selling investment products, regardless of whether the drug will cure Ebola or make your chin look better. So if the business is buying and selling and investment, then we could use classic models, like Porter’s, for understanding why most biotech companies fail.

Dessain: It has a lot to do with the excessive power of investors and universities, which from the lens of Porter is “buyer power” and “supplier power." These led to our definition of the Translation Gap, the three main obstacles to commercialization of academic technologies. At that point, the structure and scope of the book became clear – though starting out it’s fair to say we weren’t clear on how much there was to examine, or how much work it would be. We had a first draft in about a year and a half, but we pretty much did a complete rewrite starting in spring 2014. Writing the final version wasn’t much different from completing a graduate thesis, except that it lasted for two years.

Fishman: I’m pretty sure we passed, since the book made it to print with a major academic publisher. What are the two or three things you hope people take from the book?

Fishman: There are really no villains here. It’s about good people operating in silos that prevent them from seeing how their actions actually hurt the biotech commercialization. We need better awareness and better transparency to work more effectively in concert. There are things to improve throughout the biotech investment ecosystem. For example, there needs to be greater clarity about clinical, social and financial objectives, and greater understanding among all parties of what the investment community will and won’t support. It’s not just a question of the mechanics of non-dilutive vs. dilutive funding, but whether something clinically valuable that’s not fundable with private money needs a different plan. Because what we have right now, in Philadelphia, is an enormously productive research community generating lots of innovative companies that end up cannibalizing each other in a hyper-competitive funding environment.

Dessain: Exactly, and the problem is that the vast majority of biotech startups depend on Angel funding. If Angels don’t think they can make money in therapeutics, or that it takes too long and is too risky, they stop investing and the route to commercialization closes down. We really need to think about starting fewer, better companies and making sure they have the wherewithal to make it to an exit. A lot of this starts with the universities that own the technologies, so a good part of the book talks about common but unproductive technology transfer practices, and provides examples on how people are starting to fix them.

Fishman: Another problem is a lack of objective information and a mischaracterization of what everybody is calling “due diligence.” There are some really good recent efforts, but historically no one has comprehensively assessed the inputs and outcomes of this early stage investment process and it’s probability of return. It’s a bit odd: would you invest $100K in a mutual fund without reading a historical prospectus? These are just a few of the questions we address in Preserving the Promise. We don’t think we have all the answers. But as we note in the preface, we hope we’ve taken a useful step in stimulating an important and overdue discussion.

John George

Senior Reporter
Philadelphia Business Journal