Arch Venture Partners co-founder and managing director Bob Nelsen is widely regarded as one of the most astute and successful life science investors and company builders in the game. The list of his portfolio company wins (if you think of raising money, going public, or being acquired as a win, which he doesn’t necessarily, read on) is impressive. In December, Denali Therapeutics raised about $250 million in 2017’s biggest biotech IPO. This January, Juno Therapeutics was acquired by Celgene at a valuation of some $10.97 billion—Juno had gone public in 2014 and Celgene paid $9 billion beyond the large stake it had already purchased. One of the most talked about new companies of 2017 was Vir Biotechnology, headed by former Biogen CEO George Scangos, which has already raised more than $500 million and done a wave of acquisitions. Nelsen is listed as a co-founder of Denali and Vir.
And that’s just a very short, recent list. Nelsen’s successes, using the conventional definition, were enough to vault him to number 5 on the 2018 Forbes Midas List of top investors; he ranked 16th in both the previous two years.
Based most of his career in Seattle, Nelsen moved in September 2016 to San Francisco. I caught up with him recently at a restaurant in his new home city, where we covered an array of subjects. Among them: his overall investment philosophy of thinking long term and not viewing IPOs as exits; how killing bad drug candidates should be celebrated; the convergence of gene therapy and gene editing; the rise of A.I. and machine learning in biotech; and his view that Big Pharma “should be very afraid” of what’s ahead, including the possibility that “insurance companies might become the pharmaceutical companies.”
Along the way, Nelsen shared the story of Arch turning down an investment in Theranos and some at his firm even betting when it would crash. (Here is just one of many recent stories on the spectacular flameout of the blood testing company.) And he declared that given the state of innovation in pharma these days, they should fire the CEO and board of any pharma that buys another pharma. “Fire ‘em all, that day. March them out of the office.”
All that and more, in this edited transcript of our discussion:
Xconomy: You mentioned once how Denali broke the traditional mold of biotech companies. I wanted to get your take on that—and what it says about your investment philosophy.
Robert Nelsen: I think that’s true. I mean, it did exactly what it wanted to do, which was get a bunch of shareholders in the company who want to build a really long-term franchise in neurodegeneration. The blood-brain barrier platform [that Denali has] is unlocking a lot of really interesting biology and allowing a lot of interesting new biology to be tested.
X: So when you say long-term shareholders, you mean people who don’t need a quick return and didn’t see an IPO as the exit?
RN: Yeah. We had 90 percent of our Juno [stake] at the acquisition. I think the problem with the industry is too much short-term optimization and not enough long-term optimization, which leads to poor choices, poor decision-making, too much focus on single clinical assets, too much focus on not killing programs that should be killed. Both in pharma and in biotech. In pharma, which is not a meritocracy, nobody ever wants to shelve anything because it’s like eliminating their jobs. And in biotech everything’s dependent on a single clinical asset. Even if you’re a platform company, whatever’s in the clinic first is what you get judged on, and nobody wants to kill that either, even if it should be shelved.
The biggest problem of the industry is the lack of killing stuff. But we’re in a highly innovative time, so if you feed the funnel with really interesting stuff you should have a lot more things to replace the stuff that you shelve. If you’re a company like Denali, or Vir, nobody’s worried about having enough stuff to work on, even if you kill stuff. So the idea is not just to have a portfolio. The idea is to
