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The Promise and Hope of Biotech


In our latest episode of the Dallas on Download Series, Peter Kolchinsky, Ph.D., co-founder of RA Capital and published author, and Kush Parmar, M.D., Ph.D., managing partner of 5AM Ventures, join us to discuss a timely topic during a global pandemic: The Promise and Hope of Biotech. This discussion covers:

  • How biotech varies from other sectors and why it’s a specialized field
  • The evolution of the biotech and big pharma ecosystem
  • Balancing financial acumen and medical knowledge in a highly technical field
  • Why the NPV model doesn’t tell all and how to source investments
  • The role of biotech in the COVID pandemic
  • Innovation and building the industry of the future


Peter Kolchinsky, Ph.D.
Managing Partner | RA Capital Management

Peter is a founder and Managing Partner at RA Capital Management, active in both public and private investments in companies developing drugs, medical devices, diagnostics, and research tools. Peter also leads the firm’s engagement and publishing efforts, which aim to make a positive social impact and spark collaboration among healthcare stakeholders. He serves as a Board Member for various publicly- and privately-held companies, and is also the author of "The Great American Drug Deal" and "The Entrepreneur’s Guide to a Biotech Startup."

Kush Parmar, M.D., Ph.D.
Managing Partner | 5AM Ventures

Kush is a Managing Partner at 5AM Ventures. Dr. Parmar serves as a Director on the Boards of Akouos, Entrada, Homology (NASDAQ: FIXX), Rally Bio and Vor Biopharma. He also serves on the Advisory Boards of Penn Medicine, Princeton University’s Department of Molecular Biology, and the Grace Science Foundation. Prior to 5AM, Dr. Parmar was an NIH-sponsored M.D./Ph.D. Physician Scientist Fellow in the Harvard-MIT Health Sciences and Technology Program. At Princeton University, Dr. Parmar worked on developmental genetics with Eric F. Wieschaus (Nobel Prize in Medicine in 1995).

Greg Dowling
Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Podcast Transcript

Greg Dowling (00:09):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. As we all stay home to do our part to flatten the curve, our current series, Dallas on Download, highlights speakers who were originally going to be featured at our Dallas Investment Symposium that was canceled due to the coronavirus. This limited series will offer insights across a variety of asset classes and styles, including energy markets, credit markets, value investing, and biotech.

Greg Dowling (00:58):

Our latest episode is "The Promise and Hope of Biotech." This discussion was planned in conjunction with our Dallas Investment Symposium, where we were hoping to shed some attention on an area that investors may be under-invested and under-aware. Well, that was before a global pandemic cancelled our conference and most activities around the world. As the financial and national news broadcasts provide nightly updates on various treatments and vaccines under development, we are lucky to have two industry experts to help us understand the opportunities and pitfalls of biotech. Today, we have Peter Kolchinsky of RA Capital and Kush Parmar of 5AM Ventures. We're going to start off by having each of our participants introduce themselves and their firms. Peter, do you want to kick us off?

Peter Kolchinsky (01:48):

Thanks for having me, Greg. So I'm a scientist by training. I did HIV research back in grad school and quickly--and kind of by accident--kicked off my career as an investor. It was focused on biotech and I managed money for my mentor, the "RA" of RA Capital, really focusing on the public biotech markets. And at the time--back when I started in 2002, I started with a little bit of money. To me, every one of these companies was an opportunity to trade around my insights into data and perception and misperception. I was really focused on a lot of drug companies and devices, diagnostics. I hired my partner Raj in 2004 and together we grew the firm to what is now over 90 people. It's about $4 billion under management and we invest across the spectrum: drugs, devices, diagnostics, but also public and private companies. And we build companies now. So at this point we've got a really great vantage point of all the science that's going on around the world, trying to tackle breast cancer, multiple sclerosis, and rheumatoid arthritis, and now, of course, COVID. The big push to try to save the world from COVID.

Kush Parmar (03:00):

Greg, thanks for having me as well. Great to be here with Peter. My background is as a physician scientist. I trained here in the Boston area, did my MD and PhD. And during that time I actually started to dabble a little bit in entrepreneurship, working with some other venture capital firms in the Boston area. I've been in venture capital proper for the past decade now. I've been with 5AM Ventures since 2010. 5AM Ventures started in 2002 and the name really indicates what our focus has been through our entirety, which has really been to be there at the beginning of biotech breakthroughs. We want to be building, shaping companies from the ground up, and that's been our focus for the past 18 years now. Those companies, of course, do go into the public markets--we'll talk about that a little later--and the firm now manages 1.5 billion for our LPs across a number of different funds. And we've certainly gone from not just companies that stay private and ultimately partner in the private markets to strategics, but also building themselves into long-lasting, standalone companies and public markets as well.

Greg Dowling (04:13):

Perfect. Well, thanks for that. I'm going to ask each of you some fairly specific questions, but I really wanted to start off by throwing a handful of more general questions at both of you. And to the listeners out there, don't worry, we're going to talk about COVID. We'll talk about innovation, health policy, all that good stuff. But I wanted to start off with how is biotech investing, healthcare investing, different than other forms of investing? Whether private or public, you often don't see a focused manager on consumer non-discretionary or materials, but you will find a lot of very specialized healthcare and biotech managers. What is unique about this industry that really lends itself to specialization?

Peter Kolchinsky (05:00):

I would say that because it's an incredibly technical field, you've got to devote a fair amount of time to learning the language. The trouble, I think, with a lot of other sectors that maybe also require deep technical expertise would be that there aren't enough companies in them to sustain a team and a fund, or at least not an industry of funds, whereas biotech is actually quite large in terms of number of companies, number of possible investment opportunities, and the billions of dollars--the tens of billions of dollars that flow into it from a combination of both venture capital and public financings. So there's an opportunity there for a lot of us--Kush and me and dozens and dozens of our peers--to be busy trying to identify the best of these companies.

Peter Kolchinsky (05:55):

If you were to specialize in material science, and that is its own world, how many startups are there in material science? How many of them go public? I mean, a lot of these fields, they tend to be game of kings. Like ag biotech, it's a game of kings. There's a handful of major acquirers like Bayer and Monsanto, and if you don't get acquired by one of them, it's really difficult to make it from being a small company to a big one. The public markets aren't there to fund ag biotech, they're not familiar with it. It's very rare to see a breakout. There's plenty of precedent of small drug companies making it, funding their massive $200-$300 million budgets to run a phase 3 study from IPOs. And if it's precedented, then it allows a lot of other people to imagine that the next company can do it. So biotech's got a lot going for it to attract managers like us to specialize and keep busy.

Kush Parmar (06:55):

And I would just add to Peter's comments. Certainly on the public side, the nature of the companies today that are public, they look a lot different relative to other kinds of sectors and the companies in those sectors that go public. Those can be established businesses showing revenue and traction. You can model those things pretty well without a lot of huge unknowns or other kinds of risks, of course, with those businesses. Here, the risks and the upside as well, and the opportunity, is really making smart decisions around the science. It is a very rapidly developing field, the connectivity between breakthroughs and academic science and the clinical implications of those has gotten narrower and narrower. So that's why it really does support very specialized managers in the public, and also certainly in the private.

Greg Dowling (07:48):

Hey, Kush, staying with you. How has the ecosystem evolved over the last 10 years or so, especially between big pharma and biotech?

Kush Parmar (07:58):

It's a really good question. Pharma ran a very expensive and long-lasting experiment for a number of decades where they had these huge campus setups where they would try and discover the next big breakthrough drug. And it would be kind of in a dark room somewhere and the world would wait for them to come up with that breakthrough after years and years of doing lots of chemistry and seeing how the trials look. I think that world has... We've been seeing a massive and steady rational unwinding of that. That experiment really didn't go well, and the reason is that I think the data spoke for itself. Their efficiency in discovering important medicines and making those--bringing those to the market--just didn't yield fruit. And if you look at the medicines today that they're launching, two thirds of them at least, they did not discover in their own walls.

Kush Parmar (09:01):

So they're not just recognizing that, they've been very steadily embracing that in this externalized model. Pharmaceutical companies are becoming more and more... They need to understand science so they know what medicines are good to acquire and partner, for sure, so you can't gut that entirely, but they've realized that they're great at later stages of development and also for delivering these medicines--getting them approved around the world, and delivering the medicines to the patients. So I think what has arisen is a very symbiotic relationship of them doing what they do really well--they have lots of cash and great infrastructure for late-stage development and commercialization--and embracing the fact that these younger companies which, by and large, are being built by sophisticated investors to develop those next breakthroughs. You need different cultures to take on certain risks, new pathways for how to even get a drug approved by the FDA. It's hard to do that at scale in a pharmaceutical company. And that's the symbiosis that creates the opportunity for investors like us and the pharmaceutical companies that ultimately are delivering these medicines mostly to patients.

Greg Dowling (10:11):

Peter, anything to add to that?

Peter Kolchinsky (10:13):

I see it as an ecosystem, as Kush alluded to. I think that the world parses our industry. When it thinks about drug pricing profitability, you'll see people talk about the top 10 or 20 biopharmas and somehow judge the industry based on that. But if you really take a step back and you see that any one company is really part of a single whole and that the cumulative revenues, the $271 billion that America pays for branded drugs, or did in 2018, together with global revenues, they all feed into the one organism which has a massive budget for R&D that takes two forms--employing people within companies, but also, when a pharma company acquires a small biotech company, that's it's R&D budget, essentially. You've just bought out a particular program, and the excess that you paid for that goes into my portfolio. As an investor, I'm rewarded for that acquisition--with that acquisition--but it goes to offset the tremendous losses on all the companies that don't get bought out and that have failures.

Peter Kolchinsky (11:29):

So if you really think of it as this development stage pool of companies that has inflows from acquirers and has outflows in the form of salaries, you have a much better notion of the ecosystem as a whole. People really should not focus on our industry as a bunch of discrete companies and analyze any one company thinking that they're getting a sense for the whole. You have to take a step back and look at the big picture and the role, really, that investors play in helping to channel the rewards from certain companies into investments and into the next breakthroughs.

Greg Dowling (12:09):

Peter, maybe I'll stay with you on this one. From your perspective, how do you balance the financial acumen required with the medical knowledge? And how can you possibly do a discounted cashflow on a company that's just in early-stage testing?

Peter Kolchinsky (12:29):

That's great. Wow, there's so much there.

Greg Dowling (12:33):

And by the way, aren't doctors terrible investors?

Peter Kolchinsky (12:37):

I would never say that. So I'm a scientist, I'm a PhD, and it really was a struggle over the years to learn medicine and understand enough of medicine to understand how doctors make decisions. I analyze data. I love experiments. I can see the flaw in an experiment when someone hasn't included the right control arm and therefore you cannot actually conclude what this company says you can conclude. And so much of developing a drug is in fact running the right experiments. But at the end of the day, you also have to serve an unmet need. On the one hand, patients have an unmet need--they're the ones with the disease. But doctors are in charge of how to treat those patients, and the decision-making process that doctors use can sometimes be... I wouldn't say irrational. It's rational, it's just not entirely rooted in the Hippocratic Oath. It's not always in the best interest of the patient.

Peter Kolchinsky (13:42):

I'll give you one example: women who suffer from uterine fibroids. They can be treated with hormones--or really anti-hormone treatments--to try to shrink the uterine fibroids. So medical treatment, drugs. But there are a couple of other procedures that you can do. You can perform a hysterectomy, basically excise the uterus. But in between drug therapy and just cutting out the entire uterus, there's something called embolization where you image the blood vessels that feed into these fibroids that form, and you inject beads that basically clog up the blood vessels in those fibroids and starve them. And that's a less dramatic procedure than cutting out a woman's uterus, right? The trouble is that the gynecologists that start a woman on therapy with drugs oftentimes are equipped to also do the surgery, to just do an all-out removal of the uterus, but they would have to refer that woman to an interventional radiologist to perform the embolization procedure.

Peter Kolchinsky (14:59):

I remember learning years ago, how it was a real struggle for the companies developing embolization. That in your pure, paper-based market research, you would conclude that all the women that get hysterectomies ought to first prefer trying to go through embolization so that they can preserve an organ and avoid major surgery, and yet, for some reason, the numbers weren't there, embolization was not being done. Why not? Because doctors don't like to refer a patient out to another doctor for a different procedure if they can just take care of it themselves, is how they see it. And it was such an eye-opener for me early on to realize that I have to learn essentially the "freakonomics" of medicine.

Peter Kolchinsky (15:44):

The way that doctors will talk themselves into what they believe is in the best interest of the patient, they'll say, "Well, embolization, it can really be painful and it's really not a cure-all. Trust me, this is better." So they don't really feel like they're violating their duty. And yet, from the outside, based on the data, I would think that there should be more embolization than there is. I've since seen this. I'm now considered a somewhat grizzled investor--I've got gray hair on my chin--but when you see newbies entering this space, you'll oftentimes see them making the same mistakes that I made. That they'll think that a certain therapy is logical, it's rational, it ought to get used, and yet, if you call up the docs and you really know how to ask them questions about how they think about treating the patients, how they get paid for what they do, you realize that some innovations are really not going to be welcomed by the decision-making doctors that will determine whether or not to use them.

Kush Parmar (16:45):

Well said, Peter. Greg, you mentioned that doctors... I know you're just being a little facetious there, but it is true. Your community doctor who's not a professional biotech investor is probably not the best stock picker. That aside, I think I'll comment, if we have time, on the private side, on the venture side, about what it takes to be a good investor. How do we value... Those companies that we get involved in, they're science projects out of academic institutions. So how we're thinking about an NPV and all that... We don't do that, I'll just be very honest.

Kush Parmar (17:24):

What we're trying to measure ourselves by is... AML patients. If you're diagnosed with AML, you have a 20% chance you're going to make it 5 years. Can we make that much, much, much higher? That's sort of the question we're trying to address. Because there's so many unknowns between starting and making that impact, you need to feel great that you're making a dramatic impact in a patient's life. And yes, we have to believe that investors and others, and physicians--patients, of course--will value that. Unfortunately, there are certain areas... We can't be so naive to think that anything gets rewarded, to Peter's point. Certain areas that I would love to make an impact on... Multi-drug resistance in infectious diseases. Right now, it's a horrible, horrible problem. I think society has failed us currently. Not necessarily in how we can efficiently develop them, but in rewarding the solutions that those provide. And we've made investments here. Haven't done that well as investors, I have to say, even though we feel very proud of being part of those and delivering important medicine. So something has to give there, we can't be totally immune to or ignoring that reality.

Kush Parmar (18:42):

I have to say, as an early-stage investor in life sciences, what does it take? Of course, Peter's teams are really thoughtful and you have to be right on top of the science. Not just now. We need to be thinking not just over the next 6 to 12 months, we need to be thinking further out, especially at the entry point we come into. We're not buying and selling stocks, if we're in something we're in it now for the next 5 to 7 years. So that's the trajectory and the viewpoint we need to have, number one, which is not easy because science and medicine is moving rapidly. The second thing is we have to be entrepreneurial. These companies are built by us. We have to be bringing in a lot of passion into these companies, recruiting great management teams. The ability to be a magnet for superb talent is important for success. It's not just being right. We can't just be good analysts, we have to be great builders at the same time, and that does involve a bit of emotion. The classical notion of you have to totally take out all your emotion out of it... To be honest, in those early stages in getting these companies to liftoff and critical mass, it does take a bit of passion and emotion.

Peter Kolchinsky (20:00):

So to your question about NPV models, I teach a course that we invite students and some people that are early in their career into to learn about the business of biotech. And we actually put up an NPV model of an early-stage project and we tweak the variables just a little bit--a little here, a little there--and we show them how you can get to any price you want. It's a Ouija board. So if you badly want to invest in an early-stage company that's trading at $200 million or as a private valuation of $50 million or whatever, you can make the math work. So you really have to be honest with yourself: do you badly want to invest? If so, fine, invest. But don't pretend that the NPV model is the one that justified the investment. More likely what you're basing it on are comparables.

Peter Kolchinsky (20:54):

If you see that there's a gene therapy company, like AveXis, that was just acquired for $9 billion that addresses a patient population of, ballpark, 10,000 patients and it's profoundly effective, then the next company that comes along that also can make a reasonable case that it has a profoundly effective gene therapy but for 5,000 patients, you can roughly say, "Well, that would be worth, maybe $4, $4.5 billion. That's how you do the math. And later, if someone on your team insists on seeing an NPV model, don't worry, you'll be able to whip one up that gets them to whatever number they need to see.

Greg Dowling (21:37):

I love it, that's good. Hey, Kush, I wanted to ask you, on the private side, being earlier-stage... On the public side, I can go to FactSet or Bloomberg and run a screen of every public biotech company. Where do you find a small private company to invest in? Where are your areas where you source ideas?

Kush Parmar (22:02):

It's a great question, Greg. Peter does a lot of this in his team as well on the earlier private side as well. I'd say the spectrum of opportunities that are an entry point for 5AM range from companies that are already existing where there's a management team and they're raising their first series A--their first larger sum of private money to get going--or others where there's a couple of young scientists spinning out of a lab and they're raising a small seed round and they're not really the go-forward senior management team. The other third for us are companies where we're co-founding them so there isn't even a company or a team in place or a business plan. Okay. So the sourcing of those things is obviously different.

Kush Parmar (22:49):

First things first, of course we get hundreds and hundreds of opportunities just because of who we are, and we're known to be building companies and focusing on early-stage. So just by that. A lot of institutions... Relationships we built over 18 years just doing that has built a pretty deep network through our entrepreneurs, other investors, and academic institutions as well, here and also Europe as well. But I'd say we do a lot of proactive research--maybe a little different from Peter's incredible maps. We do proactive research in the following way. We are academic. We geek out. We literally have a journal club in our team. We go through our favorite articles in journals. We, of course, attend conferences. And when we read these journals and come across really interesting areas and insights, we actually invite speakers in. We have a speaker series every week where we invite people to come give academic-style talks in a way that we can build a relationship with them.

Kush Parmar (24:01):

Whether that's a company or not is almost irrelevant. If we think it's kind of interesting and they're doing interesting work, we want to get to know them and we want them to know us as well. So that when the time comes--they have a breakthrough, they have a collaboration with someone, or there is a company--we get the call back about doing something. And sometimes there is a company to be formed. The other thing is we have an area. Because we see so much all the time, we generate a high priority area, sort of a "hit list" of themes, 8 to 10 themes that we carry at any given time. Not more than that, because we want to do them--really drive them deeply. Or we say, "We are going to go reach out to the top scientists in this area because we're seeing something here, but we want to get really smart on this and come up with a thesis and determine if we should be building a company in this area."

Kush Parmar (24:50):

So our efforts in the hearing space, for example, led to us seeding a company that is doing gene therapy for hearing disorders. The way we came across that was talking to lots of academics for about 9 months to a year who were doing great science in hearing disorders. We got to meet certain people who had data that wasn't even published, and we went under CDA with them as a result. They came in on the speaker series, shared some unpublished data which wasn't published till 2 years later, and that's what led to us seeding that company. We thought it was a great nucleus to build a company in the hearing space, very unique. And then we got brought up to the series A and beyond and, lo and behold, we're collaborating with RA Capital on it. So that's an example of how we source. On an inbound, reactive way, we get a lot, but also very proactively and thematically driven outreach.

Peter Kolchinsky (25:48):

So I can share our perspective on this. When we first started out years and years ago, you basically could alphabetize the stocks or whatever, reach out, and start going through them. If nobody knows your name, you're hoping to stumble upon something at the right time. It's easier as a public investor with a small fund. If you like a company, you push a button and you own some of that stock. Later, as we broke into private investing, we discovered that the fact that we were a well-known public fund made it appealing for companies to see that we were interested in them as private companies. The possibility that we might invest in their private round and therefore telegraph to the broader public markets that one of their own peers has done work and considered this company to be high-quality, that badge was really useful.

Peter Kolchinsky (26:45):

We started doing that around 2012, along with a few other funds, and that's what we consider to be the birth of the crossover era of investing in biotech. Now it's actually much more commonplace now. There's a lot of funds that are public but will do some private deals. Venture funds that will also do some public deals and keep investing in companies through the IPO. So the old notion of VCs funding a company up to the IPO and then tossing their company through the so-called IPO window and hoping it gets caught by the mosh pit of public investors on the other side--that's pretty much gone by the wayside. Now there's a continuum of people, and companies are gradually transitioned from a few hands that are holding them up, to, eventually, the mosh pit of the public markets.

Peter Kolchinsky (27:31):

And that's made things a lot easier for management teams. They're not worried about that flight through the window and will they land on the other side. Now, when you are trying to basically compete with your peers to be the first to spot a great company--if you're starting a company from scratch, be the one to incorporate the licensed technology, or if it's a series A, be the one to win the term sheet--then, generally speaking, I'd say that there are two main approaches to being good at that. One is have a really great brand and be known as a high-quality, thoughtful partner in building a company, such that in case a company starts getting term sheets, they still really solicit yours and say, "Look, I'm starting to get them, I really want yours." And then when you give them a term sheet and it's reasonably competitive, they take yours above others.

Peter Kolchinsky (28:24):

We certainly compete on that basis. We don't expect to be the first to find any given company, but we definitely want to make sure that if we put in a term sheet, there's a good chance that a company takes it. We have to be mindful of what a company's full value is, so that we can come in at an attractive price. If someone else thinks it could be worth a billion dollars and therefore offers a company a term sheet at a $300 million valuation, but if we do the work and we're actually pretty confident that it's worth a billion and a half, then we can come in with a $400 million valuation and win the deal. So we're really trying to make sure we understand what the full value is. And we try to have a whole suite of services that we offer these companies, because it takes so much more than money.

Peter Kolchinsky (29:06):

We're always thinking about how can we help companies recruit more effectively. The maps that we create of technology landscapes--these incredibly detailed diagrams--we make them available to our portfolio companies. And to the extent that Kush has a company and he's in the decision-making role there of whose term sheet should this company take, then we want to be as collaborative a partner to Kush. And we've got to do right by every company that we're working on with Kush now, so that he chooses us for the next one. So this ecosystem I was talking about, it really does mean that Kush and I are colleagues--fellow employees of this one larger entity. We're not just distinct investors. We're not necessarily competitors. So investors who think about, "Which fund do I invest in?" The thing that they should probably be looking at is, "Which are the funds that are at the heart of this collaborative network of groups that are building companies?" And if somebody is on the outside, they've got to work their way in. If somebody is at the middle of it, then they're getting a lot of the deal flow and they're being chosen by their fellow peers.

Peter Kolchinsky (30:28):

Now a radically different approach to finding companies is: map out the entire space of all the technologies that are there. Essentially have a diagram of every chess board--the diagram of chess pieces and weaknesses of breast cancer, multiple sclerosis, now COVID. We have these maps. A few of them we've put on our website. COVID we just put out publicly in high resolution so people can see what I mean. Look for where the white space is that's not being well-addressed but where, in theory, you could imagine there being a company there, and then go and form a company to fill in that white space.

Peter Kolchinsky (31:03):

Or spot a company that, while not necessarily raising money, you realize if they were raising money and they came through our offices, we would say, "Wow, this is awesome, I definitely want to give you money." Don't wait for them to come through your offices, call them. We've done that before, and companies were like, "We're not even raising money. How do you even know about us?" It's like, "Well--whether it's based on patents or paper or something--we knew about you and look, you may look small and insignificant, you may think that you're hard to notice, you may think you're a pawn on a chess board, but on this particular chess board you are an incredibly well-positioned pawn. Strategically you enable these other drugs that could be combined with your drug, and so to us you are a very valuable pawn and we would love to invest in you and we would love to show our peers how, while you may seem like an early-stage company in breast cancer, in fact, you are developing one of the most important chess pieces to ultimately beat back breast cancer." So we've won deals on that basis and we've brought in our peers and showed them why a particular, otherwise overlookable company is actually quite special.

Greg Dowling (32:15):

Hey, Peter, you had mentioned it, so, you go there, there's a COVID map. You just updated it. Any general comments, given when we're recording this, about COVID and what's going on? And Kush, I'd love your thoughts on this too.

Peter Kolchinsky (32:32):

Well, we're going to beat COVID. It's going to take a little bit of time, and it's probably longer than people want to be isolated. I hope you love your family and enjoy spending time with them. But we are going to be seeing a tremendous amount of data coming out from drug programs on the scale over the next couple months. The sheer number of programs coming through development inspires me to think that we are going to see some success. Remdesivir is just the first of a number of drugs like that. And those drugs could plausibly become available come, let's say, late fall, I think, maybe October or something.

Peter Kolchinsky (33:11):

But vaccines aren't that far behind them. Right? You've got a whole bunch of different kinds of vaccines. This virus is tractable from a vaccine development standpoint. We never bothered to develop vaccines for SARS 1 and MERS--not because we couldn't, but because we stamped out those infections and so the funding dried up to follow-through on a vaccine. That's regrettable, in retrospect, but we're not gonna stamp this one out, we are going to end up following through and having SARS 2 vaccines. The key thing to keep an eye out on is not when will the first one be available, but when will we start to see hundreds of millions of doses come online. And there's a lot of investment, thankfully, by society, through funding agencies like BARDA or nonprofits like CEPI, backed by the Gates Foundation. It's really important that society realize that it's not particularly critical that a drug be funded through out-of-pocket costs from patients, it just has to be funded. Society has many pockets and we care about solving COVID, and therefore we are taking money out of every pocket--government, taxes, insurance plans.

Peter Kolchinsky (34:27):

And when we do solve COVID, I hope that people realize that for patients who suddenly discover that they have lung cancer, that's their personal COVID. If you're diagnosed with diabetes, that's your personal COVID. And therefore this massive effort that we're making to roll back these diseases and make the treatments affordable to patients with proper insurance, that's the same solution... The same solutions we're implementing now to make sure that everybody has affordable access to COVID treatments are the solutions we need to be implementing across the board for healthcare in order to mobilize innovation and make it affordable to all patients.

Greg Dowling (35:15):

Kush, any thoughts on COVID?

Kush Parmar (35:17):

You know, I think what I would add is that--COVID is bringing, obviously, a great amount of immediacy to the kinds of issues that our industry thinks about every day across many diseases, as Peter mentioned. And I have to say it is also wonderful to see how much collaboration, transparency, and urgency is being felt and implemented by leaders in our industry. In mid-March, one of the top-5 pharma R&D heads did ask me to bring a couple of his peers together, and that's formed a pretty substantial consortium of about 20 major pharma R&D heads. We meet about once or twice a week and it is all about transparency, it's all about data sharing. They're not the only part of the solution here--as Peter said, there are a lot of biotechs and governments and nonprofits--but they are a major part of the solution here and a lot of resources that they're applying to this and the whole spirit of this was, "Let's make sure we're not doing small studies that are redundant and competitive. Let's align the best programs for particular targets. Let's make sure we do one really good trial so we can make decisions based on that."

Kush Parmar (36:50):

And now the focus is very much on helping small companies to advance their medicines very, very quickly as well. There's a master protocol being developed through this consortium as well, that we think, perhaps, the NIH might roll into itself too. So it's really nice to see. Why people go into this industry is to make an impact like this, so it's really nice to see that people are feeling so inspired and responsible to be part of the solution here. And I hope, globally, that everyone's awareness of what it takes to make these medicines--the risk involved in developing them as well, not all of them succeed--will really be a good reminder to the great endeavor of our broader industry.

Peter Kolchinsky (37:38):

Yeah. Actually, one of the things that I'm really going to enjoy doing is documenting from this point forward, when we launched our first map, what happens every two weeks. Which ones succeed? They'll get a green check mark. Which ones fail? They'll get a little red "x." What do you think that map is going to look like in a year, in two years, in three years? It's going to be a reflection of what's been going on in healthcare for decades. The reality is the world is going to win, because it will ultimately have enough successes from this grand effort to roll back the disease. But in the wake of that effort, we are going to have carnage all over as tons of companies drop out and have nothing but losses to show for their effort. They will be, what, failures? No, they will be members of a giant team that tried, and they will be among... They'll be part of the win. It just means that some of them will have lost money for their shareholders.

Kush Parmar (38:42):

That's a great point, Peter, very educational. See what it actually takes. A few things will come out and they will make a great impact and we will get past this.

Greg Dowling (38:51):

Hey, Kush, kind of moving away from COVID, outside of COVID, what's the new technology or what's the game changer in the industry that you're most excited about right now?

Kush Parmar (39:00):

You know, I think what's fascinating right now is the ability to get--this is more thematic, I'd say, rather than a particular thing. But the theme that I'm most passionate about and think is going to change everything, and is changing everything, is genetics. And the genetic insights... Not into rare diseases. I think we've seen it a lot in rare diseases where there's a single gene that causes a disease. But that's now expanding dramatically to more common diseases. And even in COVID, I think there's going to be a lot of genetic insights that really underlie: why is it so heterogeneous? I think it's more than just genetics, but I think it will be a big driver. So the genetic toolkit that gets us to the root cause as a way to hit that lever, to modify a disease for the better--and a patient. Going from rare to more common diseases and/or breaking down common diseases into many rare diseases, that is converging with the toolkit to do something about it.

Kush Parmar (40:10):

And I think that is the macro theme that I see. How we can actually do something about those genes. Ten, fifteen years ago, there was nothing you could do. You could write a nice paper about it and say, "Well, you could maybe have some genetic counseling if you're going to have children about that." That's about it. Now we can do something about it, get to that root cause of the genetic cause of that disease. And whether that's gene editing, gene therapy, or other medicines that are "synthetic modifiers" or genetic modifiers of that, there's a great toolkit and you can model that more and more predictably in a dish. Which means that our success rate in developing medicines for these diseases is going to be much, much higher, and much more efficient as well. That's one macro theme that I'm really passionate about.

Peter Kolchinsky (41:03):

I can complement that with a call-out to technologies that improve the adherence to a given therapy. If the first-gen treatments were drugs that you had to take twice a day or inject once a day, then there are now... Well, we've had a long history of this, but increasingly we're seeing drugs that are more considerate to what it takes for a patient to stick with therapy. So safer versions of first-generation drugs, more tolerable versions, more convenient versions. Because conceptually, in a clinical trial where you watch a patient and you remind them to take their drug, you get maximal efficacy--oftentimes what appears to be maximal efficacy--but in the real world that drops off. And if we're going to develop drugs that are as effective in the real world as they are in clinical trials, we have to make them better.

Peter Kolchinsky (42:04):

You can't just invent a car and say, "Well, technically, if you do this and that, and follow these 47 steps, it'll work like this." No, you have to actually streamline it and make it user-friendly. And the same thing needs to be done to a lot of drugs, so we're seeing that push. What we're seeing is that when you do make these drugs a lot easier to use and for patients to stick with them, then, if you measure the outcomes properly, they work better than the first-generation drugs. And eventually these upgraded drugs--they're going to go generic too, and we're going to have a much better armamentarium of generic drugs. The second thing I'll add is, as we develop diagnostics that allow us to identify, let's say cancer, a lot earlier, you're going to be able to pull on the same toolkit that we have today, but use it earlier to much greater effect.

Peter Kolchinsky (43:01):

And we're going to discover that, for example, in the case of infectious disease, if a person comes into the hospital and within an hour of them coming to the hospital, you've drawn their blood and you know not just what species of bacteria is causing their symptoms, but also what antibiotics that bacterial species is susceptible to, you immediately pull the right generic drug off the shelf and you treat that patient with the right drug or right combination of drugs, and you nip that infection before it gets bad. Today it takes so long to get that answer that you try one antibiotic or two, and it's not quite the right one, and before you've figured out what the right one is, the infection has progressed a lot further, and it's a lot harder to rid the patient of it. So we're going to get so much more from our existing drugs when we can diagnose people more effectively.

Greg Dowling (43:56):

That's great guys. That's a lot of optimism there and hope for the future. The one maybe concerning thing--and this is more from an economic perspective--is that while biotech may be the industry of the future, it tends to cluster in just a handful of cities. There's a lot of biotech in Boston. There's a lot of biotech in San Francisco. If this is the industry of the future, how does flyover country compete? How do we get great jobs in biotech and healthcare in other parts of the U.S.?

Peter Kolchinsky (44:28):

All right, I'll take a stab at that one. I've been reading about this actually, as I think about, "How can America fall back in love with science and innovation?" Because there is a part of America that still loves it. Everybody who celebrates Elon Musk, they've got the spirit. And then you've got a lot of people that are conflicted. To them, every new drug is, "Oh no, that's a new cost." And I think that in the boom that we had after World War II, it was spread a lot more across the country. Places like Los Alamos, arguably in the middle of nowhere, became these innovative boomtowns--and still are. It's got a high per capita income right now, a lot of PhDs in places like that.

Peter Kolchinsky (45:16):

Biotech has been clustered around these historic regions of academic excellence combined with where pharma has focused money, and it's sort of self-reinforcing. Even though there have been efforts--Idaho has tried to nurture a biotech cluster--you never get the critical mass in these regions to really kick it off. I think that it would be quite difficult for the industry to choose to create a cluster somewhere. Maybe a pharma, if it said, "We're just going to shift." If Pfizer said, "We're going to dump $5 billion over the next 10 years in some region of Utah or Idaho," or something like that around some universities, it could conceivably make it happen. You move enough people there and now, especially with videoconferencing, you may find investors will just video-in and meet with those companies. I mean, it's not like I can meet them in person anyway, so it might work.

Peter Kolchinsky (46:17):

But I also think that this is something that the government can do. And even though it's not popular to talk about boosting the NIH's budget, I think if we were to really celebrate the fact that the twenty-first century is only just beginning to show itself as the century of biotechnology and biomedical progress, then if we were to agree that the government really should boost its budget and spread that money across the country and help to create new clusters with massive inflows into, for example, a scale-up of gene therapy production, that would be welcome. It's hard for small companies to afford that, so if there were subsidies to increase the capacity of gene therapy and cell therapy production, but to get that you had to base your company in a given state or something like that, people would move.

Peter Kolchinsky (47:16):

I could see opening up an office for RA Capital or certainly just making sure that we video-in to certain regions of the country where there's a critical mass of certain resources. You're seeing that actually around New York City now, which was never really known for biotech, but there's a critical mass of investment and investors and some pharma down there, and it's starting to take hold. So I think it's possible to spread the bounty across the country. It's going to take some coordination that at the moment I fear is missing, but it can be had.

Kush Parmar (47:53):

Hey, Greg, I'll just add a few comments here on Peter's from our own direct experience. I'll just say, I was a Kauffman Fellow--there's a Kauffman Fellows program--early on in my career when I actually just started in venture capital, and this was my project. To look at how--actually study some of the regional efforts to boost biotech investment and entrepreneurship in different regions, and it was fascinating to look at some of the models. Some small successes here and there, but I'll say just directly through 5AM's lens and our own experiences, some of our best returns have been through building great companies in Pennsylvania, in New Haven, in Florida, in Indiana, in Southern California, and even in Canada. And I have to say that some of the things I recognized in building some companies in these kinds of areas is the pharma talent base.

Kush Parmar (48:47):

To Peter's point, you're right, if Pfizer were to spend $5 million--they already have in Michigan--for example, or GSK, I believe, in the RTP area in North Carolina. That experiment has been done and there's a tremendous wealth of expertise that's there. And our companies--great biotech companies in the Philadelphia area as well--tap into a very experienced base. So I think one of the models that I've actually seen work well... We have a couple of LPs that are in certain regions like these outside of the clusters, and we actually talked to a lot of others that are trying to do this in other regions--Texas or Baltimore area, and other places--and I think a model for success from our perspective is to probably... Some of them try and force funds or become LPs in funds and force them to do deals there and have certain language...

Kush Parmar (49:42):

Unfortunately, there's definitely a selection bias of those firms. The best firms won't really accept that language. So it's much more about having a trusted relationship with great firms, because the best predictor of whether these programs are successful and build momentum is if they do well financially. So if you're doing well--you're building a relationship with RA, with 5AM, or some other firm and you're doing well financially and there's enough trust that there's a soft ask of, "Hey, if we have some interesting things here, would you guys look at it? Would you take the time and would you like getting on a plane and coming down here and at least getting to know some of what's going on?" That's a great way to start to build intelligence, get smart money--the ones that are really driving the ecosystem to be spending time there--and good things happen.

Kush Parmar (50:37):

So we have existing LPs where that's worked really well, mutually. They're happy, they've done well on their returns, and we do spend time. We fulfill our end of the bargain as well--just out of the relationship, not because it's in some language either. So I think that's a good thing. The other thing is knowing what is there and what's realistic to be building with. Great biomedicine is fantastic. You need entrepreneurs. So sometimes science can come from there. The best entrepreneurs might not be there or might not want to move there. But I have to say for those companies that make it and get critical mass, the cost of living and how far you can get on certain dollars is amazing.

Kush Parmar (51:17):

So Arvinas is a company we were founding investors in in New Haven. There was one big biotech in New Haven, it was Alexion. And now Arvinas is a $2 billion company. It's not an Alexion today, but I hope that company becomes hugely successful and people do so well in that company that they can't wait to get out of there and spin out a new company themselves in the New Haven area. I think success breeds success, so you need to get to those "a couple of big wins" in the area.

Peter Kolchinsky (51:46):

And that's actually a great point, because Arvinas could easily end up being one of those companies that gets acquired, so you may be like, "Oh, New Haven just lost it's one shot at another big company." But actually it didn't. All that happened is that that little membrane that happened to encircle the Arvinas team and make them Arvinas dissolved. But those people are still there.

Kush Parmar (52:07):


Peter Kolchinsky (52:07):

And as long as there's something else for them to do--and their kids are already going to school and things like that--then they will find something great to do. They will license the technology out of Georgia if they have to and develop it in New Haven. So it's about the people and creating an environment where those people want to be and live their lives, and have a whole balance across their career. If you try to just pull somebody in and say, "Well, the state of Idaho is providing an extra $5 million to start your company here." You may get a management team that's willing to fly in and join a small team of scientists that's based there, but then as soon as that company's bought, those people are back to their main home.

Peter Kolchinsky (52:48):

So the real sign that you are building a cluster is that the children of the employees of those biotech companies are going to local schools. That's the real sign, right? People call it home.

Kush Parmar (53:02):

Very true.

Peter Kolchinsky (53:02):

I think that maybe an interesting sort of reverse engineering way for a given state or city to build up its cluster is to work with what you've got. Indeed, there have been a number of successes in our portfolio that when I think about it, they were in flyover country. There's a company called Peloton that was a big success based down in Texas. And if there's already such a company there, then you've got the beginnings of an experienced management team and a pool of management talent--make sure that you give them additional resources, additional young people they can hire in. They'll be able to raise the money. They're well-connected, they've gone on the road shows, and they've raised money from investors all over the country, but they call Texas home. So make sure that the schools down there in Texas have biotechnology business classes, that the business schools teach biotechnology. It's going to be hard to import people into Texas in order to grow your cluster. But if you can source each generation, each class of students, and put them to some local purpose in biotech, then you never have to lose your talent. That Peloton management team doesn't have to leave the state for their next project.

Greg Dowling (54:19):

Guys. I wanted to thank you both. I truly feel I am more informed and perhaps even smarter from the time that we spent together. I just wanted to give Peter one opportunity to do a shameless plug for his book.

Peter Kolchinsky (54:34):

Oh yeah. I spent about three years writing a book in response to the American outcry, "Drugs are too expensive," in part because unfortunately our industry did a terrible job of responding to that. It's kind of on display here with COVID that when your insurance plans are turning down coverage, when they don't want to pay for your testing, and yet it's a public health necessity that people who need tests can get testing, all of a sudden it dawns on you that, "Huh, maybe insurance has been the problem all along." And so what I basically flag in the book is I say, "Look, America's got this remarkable bargain with this wonderful innovative sector. Biotech companies make drugs that solve problems and those drugs go generic and they take care of their own costs. But it is the role of insurance to make all those drugs--whether they're brands or generic--affordable to patients."

Peter Kolchinsky (55:34):

So we need insurance reforms that lower out-of-pocket costs for patients and we need to extend insurance to everybody. And then we need to make sure that the biotech industry and the pharma industry continue to make drugs that will go generic. And unfortunately, increasingly we're seeing drugs that are very difficult to genericize, they're uncopyable. And so there are going to need to be some new regulations put in place that after a drug's initial patents have expired, essentially the price is regulated down as if it had gone generic. So these are a couple of novel reforms, but they are very different from the reforms that Congress is talking about, and that's what the real impetus for the book was. Like, we should not be banding about ideas of price controls. That is not the solution for making drugs affordable to patients. You have to reform insurance that will make drugs affordable to patients and then you have to make sure that drugs go generic without undue delay. That will keep all of these innovators continuing to hustle, thinking about, "How do I replace lost revenue by inventing the next great thing?"

Greg Dowling (56:36):

And that's available on Amazon, Peter?

Peter Kolchinsky (56:38):

Yeah. Like everything.

Greg Dowling (56:41):

I told Peter, I bought the book as well, unfortunately during the lockdown--it took like four weeks to get to me, apparently it's not an essential item. But it is good, so go out and read it. And it's certainly probably gonna come up a lot here as we get into the election season all about drug pricing. So big FEG thank you for your time and for your comments.

Peter Kolchinsky (57:03):

Thanks for having us, Greg.

Kush Parmar (57:04):

My pleasure. Great to be with both of you.

Greg Dowling (57:07):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications. And don't forget to subscribe to our event communications at so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.

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