Early stage investment strategies and dealmaking in the age of COVID-19 became topics during the Biopharm America meeting, itself held virtually this year because of the pandemic. Kevin Johnson, partner and co-founder of European life sciences backer Medicxi, hailed an “unprecedented upswing” on the financial front. “There is no winter,” he said. “It’s amazing.”
Johnson spoke with Steve Dickman, founder and CEO of the consulting firm CBT Advisors in Cambridge, Mass., on the same day that Johnson’s firm closed its €200 million (US$234 million) secondary fund, led by Pantheon with co-lead LGT Capital Partners.
Drug discovery per se is “not the hard bit,” Johnson said; what matters most is understanding the biology of a potential therapy by way of human models. “There is definitely a big role for what I will call computing enterprises to help, particularly with clinical trials and clinical trial management, patient records – that’s hugely laborious and important to get right,” he said. But simply finding a drug, by whatever means, that seems to work in preclinical models doesn’t turn him on. “My old tech colleagues keep sending me stuff” related to mostly unvalidated work. “I’m starting to sound like a stuck record, but I don’t care, is the short answer,” he said.
“The death knell for anything is, ‘We won’t know if this works until we put it into the clinic,’” Johnson said. “I’m sorry, but no. We consider that to be a €20 million bet, and it’s probably more in the U.S.” Even once a set of convincing human genetics data turn up, the matter becomes one of faith. “Early stage drug discovery projects are a lot like religion,” he said. “It’s a question of how much you believe, without necessarily having evidence to support that belief. As you go along, more people come into the church with you, until you get to the point where you don’t need the church.”
Dickman recalled the early days of what would become the breast cancer drug Herceptin (trastuzumab, Roche Holding AG), which had a solitary champion in then-CEO of Genentech, Kirk Raab. Consensus in the company was that the HER2-targeting prospect ultimately would not work and should be discontinued. “The more people you ask, the more likely you are to get a huge range of opinion about anything,” Johnson acknowledged. “The trick with that is to ask as few people as possible.” Dickman wanted Johnson’s best guess about drug candidates or platforms likely to be hot in the coming months. “I honestly don’t know,” he said. “If whatever you’re doing is in the interest of the patients, at some point that’s going to win through, regardless. That’s the only reason any of us is here. Have that as your lodestone, and hope that the rest of the world catches up in sufficient time that you can make a return for your fund.”
Medicxi’s portfolio includes companies such as Z Factor Ltd., of Cambridge, U.K., which was spun out of the University of Cambridge. In August, the firm dosed the first human volunteer with ZF-874, its treatment for alpha-1-antitrypsin deficiency. The drug is meant to act as a molecular patch for the faulty protein, allowing it to fold correctly, relieving the liver burden of polymer accumulation while providing fully functional Z-A1AT in the circulation to protect the lungs.
Despite COVID-19’s forced shift to virtual rather than face-to-face encounters, activity by his firm has “been pretty intense this year” by comparison to previous years, Johnson said. “Obviously we’re doing everything by Zoom, and it’s been surprisingly effective. We’ve managed to do some fairly elaborate things, made new investments, [and did] follow-ons” as well as hiring.
With regard to negotiating via screen rather than handshake, “you can get 90% there with people you haven’t met before,” Johnson said, though “there’s always a little bit of a niggle at the back of your mind that you haven’t finally completed the picture.” He’s on the watch for behaviors that might signal problems later. “I’m not sure you’re going to see them even if you’re face to face,” he said. “You generally only see those in the trenches, when things get tough. If you’ve been around for a while you know very well that some people seem like normal individuals right up to the point where there’s money on the table, and then they display psychotic tendencies. I don’t think you should overstate how much you can read people in an interview or pitching type of situation. Everybody’s selling. It’s not real.” His firm often starts with a small seed financing to “test drive” the other party, he said, pointing out that the situation is “not a one-way street. It may well be that there’s some allergy to us, as well as the other way around.”
Dickman, who previously served as a principal at Techno Venture Management, recalled a certain “energy in the room” when evaluating opportunities. “I always felt that trigger [to do the deal] when it was there,” he said. In the same way that audio technology “cuts off the lowest lows and the highest highs,” maybe the “highs” are lost in electronic interaction, he speculated.
Johnson doesn’t think so. “I’m spending more time with people in this medium than I would in an office situation,” he said, and is able to take the measure of entrepreneurs, who tend to be hard-to-manage mavericks. “People’s energy does come across – you can still read facial expressions and body language.” Some non-verbal cues are missed, but that’s a necessary hazard now. “You put the ‘closed’ sign on the door and walk away, otherwise,” he said.
Biopharm America ends Thursday.