develop enough IP and knowhow that a pharma partner can look to us as the experts in that area, and rather than compete with us under the [guise] of a partnership. So the deals we did, with AstraZeneca and with Alexion [Pharmaceuticals] and Merck, each have Moderna being the [expert] on all things mRNA—and the partner the [expert] for preclinical and clinical development and eventually commercialization. As a result of that, we realized that to develop our own drugs, the best way to do it is to [hire] fully dedicated teams, and have them operate in the entrepreneurial, survivalist mode that startups do. It was a function of the way the company developed itself; not an attempt to create a startup factory within a startup factory.
X: We’re in a biotech boom now, but in the bad times, did Flagship ever change its strategy to manage risk?
NA: We’ve generally tended to support multi-product platform companies that have a major disruption—whether it’s a new drug modality, a new way to make drugs, or a new pathway that can yield multiple products. Those companies have a variety of types of partnerships available to them that allows them to not have to be as reliant on equity capital. Depending on the environment, those companies end up growing differently. If it’s an environment where there’s a lot of equity capital available, we may choose to take more products to the clinic ourselves. If it’s a little tougher, we may split. But if you have multiple assets, then it’s never the case that you do a partnership and all of a sudden you gave up the whole value. So we’ve never done virtual companies, we’ve never done build to buy companies—these option deals that have a fixed upside.
X: But that leads to more risk, and more capital-intensive projects right?
NA: Certainly it means bigger risk, certainly it means more disruptive [potential] because that’s where the opportunity lies in terms of big value creation, but it doesn’t involve big outlays. Denali notwithstanding, if you look back 15 years, our investments have averaged about $15 million to $20 million per company ourselves, which is, I’d say, on the lower end of [most] venture models.
For a reasonable-sized [VC] firm, we’ve actually not been trying to maximize our ownership by investment because in 40 percent of our companies, we are the founders; we own 100 percent of the companies in the beginning—and then we dilute ourselves by issuing shares to academics and other folks to join us as well as to employees. So in those cases, we end up owning 30, 40, 50 percent even after $100 million has gone in. That is pretty different than what others have done in terms of what they call company creation, which is mostly incubation or, let’s say, helping convene people to start a company.
X: You recently took part in a $217 million financing for Denali Therapeutics, an unusually large financing, particularly for a company essentially starting from scratch. What was the thinking behind it?
NA: We’ve looked at everything in that space for many, many years and could really never get comfortable with, for us, the right combination of: science that was maturing enough; a team that was able to both do the science and the drug development; and the capital you need to get to a meaningful inflection point. And this is really the first time we’ve seen all three of those things come together.
X: Why is Flagship so willing to make such a big bet in neuroscience, given all the biological uncertainty and past failures?
NA: We think that the kinds of things we’ve been seeing in cancer recently, totally new modalities showing a profound impact— neurodegeneration is ripe for that. It’s certainly the most sizeable [investment Flagship has ever made in neurodegeneration], and it’s certainly the first in a long time. We’ve been very [reluctant] to be in this area for all the reasons that have caused many pharma companies to get out of the area. But for us, we don’t mind being contrarian when the conditions are ripe, and we think that this has a pretty interesting potential to be disruptive in an area where the need is huge.
X: With all the early-stage biotech VC firms re-upping late and the sector’s momentum, why aren’t there any new firms cropping up?
NA: There have been very, very few [early-stage biotech VC] funds that have been able to create positive returns. And it could be that there just aren’t that many groups that have experience doing this. But there’s still a ton of new blood—maybe five years ago there was one corporate venture group [doing early-stage investments], now there’s probably 15. And they’re pouring money into this space and they’re hiring a lot of people. There are also a lot of [seasoned biotech/pharma] executives who are choosing to take [multiple] companies under their wing. That’s a form of venture capital. So if the money comes from one place, and the rest comes from another place, that’s fine too. That’s an evolution of the venture model.
