in recent years, he can lay claim to being one of the founding fathers of the Seattle biotech industry. Since the early 1990s, the Microsoft co-founder (who had a brush with Hodgkin’s disease as a young man ) has supported many biotech companies, particularly cancer drug developers. The list includes Seattle notables like Dendreon, Seattle Genetics, ZymoGenetics, Rosetta Inpharmatics, and PathoGenesis.
The short answer from Hall was, essentially, don’t hold your breath. Despite the win with BiPar, Allen and his venture team are all too familiar with the staggering challenges of investing in drug development, which takes a decade or more, and hundreds of millions of equity dollars before seeing any real revenue. After all that, the success rate of drugs entering clinical trials is estimated to be only about one out of 10. So Hall made it sound like BiPar was potentially an exception rather than an example of a new and improved investing model for Vulcan.
“We still think there are big opportunities there, and certainly with our recent BiPar outcome, we are quite bullish on the return potential in general,” Hall says. “But overall, our challenge with biotech is that it’s a capital-intensive, higher-than-usual risk relative to other venture areas we invest in. You need upwards of $50 million to $100 million in capital to get to an exit inflection point. The IPO market which has traditionally been a key source of capital for biotech is closed, M&A has gotten more challenging as the Big Pharmas are trying to do more license deals to technology versus full take-outs. While we remain convinced there are opportunities at the science level, the structural dynamics to funding the biotech sector as a venture investor are really challenging. We deliberately dialed back our activity there as a result.”
BiPar’s backstory does sound like it would be hard to duplicate. The PARP inhibition science was studied for decades at UC San Francisco, where researchers cobbled together almost $30 million in funding over the years from a variety of corporate, government, and foundation sources to push it forward toward clinical trials, Kranda says.
Kranda, a former chief operating officer from the early days at Seattle-based Immunex, and CEO of U.K.-based Oxford Glycosciences, got the tip about the potential for this research from Kirk Raab, the former chairman at Oxford and the former CEO of Genentech. Instead of attempting to build a company with all the in-house expertise needed to take this drug forward, as Kranda’s previous companies did, he was determined to do the necessary development with a small team of no more than a dozen employees who directed outsourced contractors. This approach, called the “virtual” company model, is now becoming much more popular with VCs than it was in 2005.
The reason Kranda wanted to go this direction is that many biotech companies, even those with a lot of capital, spend it on building up in-house capabilities and then end up cutting corners for clinical trials. That means they fail to generate a bulletproof result that can stand up to scrutiny from Big Pharma partners and the FDA, and often end up failing in Phase 3, he says. Instead, the BiPar investors decided to place bets on the kind of rigorous clinical trials that would cost a lot, but provide a clear-cut answer about whether it works in the middle stage of clinical trials. This is the result the company plans to present at ASCO, from a randomized, double-blind placebo controlled clinical trial-the gold standard for determining whether a drug works.
“We gambled, and it paid off,” Kranda says.
Kranda left his full-time Vulcan position back in 2007, although he remained on BiPar’s board through the sale to Sanofi. Vulcan Capital’s venture team doesn’t have a full-time biotech expert in-house anymore, Hall says. But Kranda, who is now CEO of South San Francisco-based Anesiva (NASDAQ: [[ticker:ANSV]]) remains a consultant to Vulcan. “I certainly continue to feed Paul ideas, and will continue to do that,” he says.
I pressed Kranda on whether the BiPar success means Allen might have renewed interest in life sciences, and the answer, while non-commital, leaves the door open to the possibility. “It certainly doesn’t hurt to have a financial winner, and a very interesting drug to now be associated with,” Kranda says. “I’m certainly someone who likes to eat well, but I also like to sleep well, and we’ll sleep well knowing what this drug can do for cancer patients.”
