If you are a life science CEO, CFO or VC in San Diego, chances are you were at the San Diego Venture Group “debate” on the future (or lack of future) for life science innovation. If not, you missed out. It was an unusual panel in many ways – perhaps the most unusual part about it was that it kept me and the majority of the 320 in attendance completely engaged. I didn’t look at my iPhone one time over the hour long discussion. Incredible.
In the spirit of full disclosure, through my board position on the SDVG, I was part of the group that put together the panel. But, the credit goes to the participants – VCs, Wende Hutton/Canaan Partners, Camille (Cami) Samuels/Versant, Bob More/Frazier Ventures and Kevin Kinsella/Avalon Ventures and referee (aka moderator), Faheem Hasnain and the unique structure of the panel. The panel was posed as a debate with Wende and Cami on the “pro” side, meaning there is a future for innovation, and Bob and Kevin taking the pessimistic view – what we called the “cons”. And like any real debate, score was kept and the points were tallied. Let’s see how things played out.
The debate started with Faheem referencing an interview given by Kevin to Xconomy, in which Kevin calls out ‘big pharma’s short-sighted, brass knuckle behavior is pushing biotech venture almost to the point of extinction.’ Kevin recapped his thesis and the sparks started to fly. Cami was quickest to respond, calling Kevin’s gloomy perspective factually incorrect. The fact is, she said, “potential acquirers go way beyond traditional big pharma. We are seeing greater than 20 deals a year and now you see other groups such as Forest, Valeant, Daiichi and a host of others playing the game and they are good deals with 80% of the anticipated funds being paid up front.” Wende concurred. “It’s a $450 billion industry, I’ll take it! We certainly see it work for Canaan,” she said. Point for the pro side.
Bob had a fast rebuttal, “This is an exceptions business with a lottery ticket mentality. It’s like a math exercise for people who have never taken math. How can we continue to sell this to our LPs?” Bob certainly won the award for the most audience laughs, but the pro side didn’t let the laughs keep them back. Wende agreed with his exceptions point but added, “it’s a hits business and we are glad to participate in the dream of the hits. We think we know how to make fairly good picks and therefore good returns.” Well said.
The panel was so entertaining, I’m tempted to completely recap it here, but that would just make for too long of a post. Instead, let’s fast forward to the close. The last question of the day from Faheem was the most critical: “Are you going to continue to invest in this industry?” Thankfully, a unanimous YES. Score a point for the pro side. Here’s how they all responded:
Our chief pessimist, Kevin noted Avalon will continue to invest because they believe they have the right strategies to make money. “And, I’m not going to share with anybody,” he quipped! Interestingly, earlier this year, Avalon announced they raised over $200M in a ninth fund – at least ½ of this is targeted to go to biotech! In one of our panel prep discussions, I actually asked Kevin if he would have given the interview and participated in this panel if they were fundraising. “Hmmm, good question. Probably not!” he said.
Bob also responded with a yes but repeated a comment he had said earlier which is that he invests in people and is concerned at where the next talent pool is coming from. He’s concerned because when he looks at the numbers, he sees that very few execs are actually making money. He compared this to the teaching profession in that we’re not getting the best teachers anymore because we don’t pay them well. Hmmm. I like comparisons Bob, but this one doesn’t add up. In a 2009 salary survey (one of the gloomiest years for biotech), private company life science CEOs made an average salary of $275,000. Now, I know this doesn’t compare to the multi-millions they could make if they had a fantastic exit, but it is a decent living and certainly far better than the paltry $42,000 average of a teacher. Personally, I don’t think we need to worry too much about talent if it’s only a financial equation.
Our optimists, Cami and Wende are certainly continuing to invest. Wende noted that for Canaan’s two previous funds, they actually invested more as a percentage of their funds in life science companies. Obviously, they are doing this because they have been successful. Wende credits this success to continuously evaluating new models for investing, being disciplined and capital efficient. Today, Canaan is focusing on the most critical programs like infectious disease which they believe is a “screaming need.” Further they actively look for non-dilutive financing options for their portfolios companies. Just in the last month, their companies have closed on more than $300 million in non-dilutive grants. Ok, wow!
Cami, agreed with Wende’s comments and noted that Versant makes good money for their LPs and will continue to do so! One of their solutions to the changing landscape is that they invest in market pull, not technology. Whereas they use to bring in just scientists to conduct due diligence, now they look at the entire market including reimbursement, how things fit in to health reform, etc. “We are smarter than we use to be. You do have to be clever to find good investments.”
Once the panelists concluded their remarks, the pros were in the lead. Given that Faheem is a biotech CEO trying to raise $$$ and might not therefore be considered impartial, he opened the voting up to audience applause. While the cons had a louder round of applause than I anticipated (probably because they were the funnier side), the pros were crowned the victor!
It was a very “edu-taining” program and glad to see our life science industry does indeed have a future. By the way, at a private dinner I attended the night before the event, Bob disclosed his partners at Frazier actually said that they sure hoped he lost the debate! You know you’re one of my favorites, Bob, but I’m glad you did, too!
I hope you join the SDVG at future events. Become a member here! We’ll certainly try to keep the good ones coming.
Carin Canale-Theakston is the president and founder of Canale Communications and can be reached at carin@canalecomm.com.