Yesterday, we ran the first installment of an extended interview with Steve Gillis, the biotechnology pioneer who’s now a managing director at Arch Venture Partners. Today, we have the second half of the conversation, in which Gillis talks more about ways biotech entrepreneurs can adjust to the tough fundraising climate, and Seattle’s realistic assets as a biotech cluster—when it’s unlikely anyone will ever create another Immunex or Amgen.
Xconomy: Do you have any advice for the scientific entrepreneurs out there now who are in their late 20s or early 30s?
Steve Gillis: Jump in with both feet. What’s the downside? If you have technology that will lead to products that help people treat some unmet medical need, first and foremost before you think about financial return, that should be a motivating factor. Whether you’re going to be public or bought. If you’re worried about the fact that if you’re successful you’ll be acquired and likely out of a job, and therefore you shouldn’t be successful or shouldn’t be acquired, that doesn’t really make sense to me. So what? If you’re bright and entrepreneurial, you can do it again.
At Arch, one of the things we tend to do is back people who made us money in the past. It’s a lot easier hurdle for someone who’s been successful to say, “I’ve been successful with this, and now I want to start something else, and damn it, I can be successful with that.” It’s a pretty good argument. It certainly takes management risk off the table, of risks you’re talking about when you’re considering making an investment in a startup company.
X: You mentioned that the IPO market no longer really exists for startup drug companies, and some people like to say the venture model is broken for biotech. What do you think is going on?
SG: I don’t think it’s broken at all. It used to be that you could raise $100 million in private money, take a molecule through proof of concept in man—whatever that means to whatever audience you’re talking to. But usually it meant the product had a tolerable safety profile, and you knew it worked in some set of patients. You might not have done a study that was highly statistically significant as compared to the standard of care, but as one of my partners once said, you knew there was a pony there. And you could be rewarded with a public valuation of $500 million.
Today, you can get through those same steps, having put $100 million into a company, and be rewarded with a public valuation that’s $50 million. That’s no fun for anybody. So you have to be able to get to that same proof of concept on less money. And presumably, a shorter period of time. The way to do that is with bright people who have done it before. Platform technology with multiple product opportunities, and yeah, maybe you license off one or two product opportunities so you can have non-dilutive capital in your company and not always be beholden to investors for capital. You get there, and get there in a way that some bigger fish is not just interested, but feels they have to have you for dinner.
X: Are there a couple good examples here locally that you think are following this new model?
SG: They are all following the model. They are all bright people. They all know the public market is not a viable option for them or their investors. We’re pushing all our portfolio companies to find sources of opium. As in “OPM”—other people’s money. Whether it’s DARPA, stimulus money, licensing deals. They all hear us. They are all doing it, and will continue to do it.
X: Cancer and immunology are a couple of historic strengths of this cluster, and seems to be gaining prominence globally within Big Pharma. How does this position the Seattle cluster for the future?
SG: I think it positions the area well. There are a lot of good things happening here. But it’s Seattle. Try as you might, it’s not going to be Boston or Cambridge. It’s not going to be
