Arch’s Bob Nelsen on Big Biotech and Why Pharma Should Be Very Afraid

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have a better decision model, so that you make better decisions in general that are data driven. Then you’ve developed a culture like Denali or Agios have where they celebrate the kill. I mean, every time they kill a DC [drug candidate] at Agios, they have the same party that they have when they nominate a DC or they go into the clinic. Same party. Same speeches. Same everything.

X: Well, that gets to not being afraid of failure, and feeling confident that if you fail it’s not really a failure, if you’ve learned a lot.

RN: If you’re in our business, if you don’t fail, you’re not taking enough risks. It’s ok to fail.

X: Speaking of risks, there seems to be a lot of money thrown at new companies these days. What’s your philosophy on that?

RN: There’s a lot of money available–for good things and some for not good things. I think if you have the right science and the right team, they can use a lot of money and put it to work. People will always ask us, “How come you’re raising so much money for these companies—is it just because you can?” And I always tell them that we don’t actually think of it that way. We think of it as shareholder recruitment. So we’re just trying to find the long-term shareholders and then have them invest the minimum amount that they can to get them in, but for them to be invested in a way that we think that they’re going to stay with the company. In none of these companies, including Grail [Editor’s note: Grail is an early cancer detection company that has raised over $1 billion and has many high-profile investors, including Arch.] or Vir or Denali, did we take all the money that was on the table. None. It’s always a question of trying to figure out the optimum long-term shareholder base.

Even in the IPO, it’s not about taking all the money. It’s about figuring out how to allocate to the people who are long-term. And then the management teams are free, hopefully, to make the right decision. So, you know, if you just copy the phenotype you don’t get the strategy.

X: Can you elaborate on that?

RN: There’s a lot of people that are copying the phenotype [by] raising big rounds, and unless you have companies that can truly be a $10 billion company or a $15 billion company, you can’t justify raising $250 million or $500 million rounds and make a venture return.

X: It’s kind of staggering to me the way the dollars seems to go up, even for the Series A. Is that necessary these days?

RN: No. I mean, if the science is revolutionary, it’s fine. It’s an expensive business. But if you’re just aggregating all the rounds into one round and not changing the algorithm, you’re going to get the same result that they did in the ’90s and in the 2000s when they tried that, which is get a 1X [return] after five years. Which generally sucks as a return. Unless you can make 10X or 20X, that’s not venture capital.

X: Fair enough. Let me switch gears a bit and ask if Arch is raising a new fund and how big it might be? The last one you announced was in 2016. You’ve been pretty steady raising $400 million funds. That’s not going to cut it anymore, is it?

RN: We haven’t really commented on our fundraising. [But] we have considerably more money than that in multiple funds.

X: I’m looking for a little news here.

RN: I can’t comment on fundraising. But I would say, in terms of series As and series Bs, I think we’ve been investing at a pretty good pace.

X: All right. What percentage of companies that you invest in are what’s called venture creation, ones that you’ve created, versus people pitching you on their ideas?

RN: Probably 70 percent of the dollars, and maybe 50 percent of the companies.

X: So it’s still possible for an entrepreneur with an idea to come to Arch?

RN: Sure. In the last two years, we’ve probably done 10 deals that are in the $500K to $3 million range. People think that we just do the big deals, but we actually do quite a lot of small deals. And then, we’re pretty good at figuring out how to combine multiple deals into one bigger deal. So, you know, Juno is multiple companies. Denali is multiple companies. Vir is multiple companies.

X: Really? That you had previously invested in?

RN: Some that we’d invested in, but some which we just bought, or merged.

X: What has you most excited these days? What big trends do you see?

RN: Gene editing is going to be really interesting. I was a personal investor in Editas at the beginning. Other than that, we have Arbor, eGenesis, Homology [it went public in March], KSQ Therapeutics, and another one or two. And we’ll have something [new] in that space soon that we’ve been working on for a long time. I think you’ll see gene therapy, cell therapy, and … Next Page »

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