Disruption can come in all shapes and sizes. Sometimes it’s an activist trying to shake up a board. Other times it’s a group of local leaders hell-bent on reshaping a city’s life science culture. It might even come in the form of an executive forced to ax 90 percent of a company’s workforce and move it halfway across the country to survive.
Those were just some of the things people learned last night at our latest biotech event, “New York’s Life Science Disruptors.” The packed house at the Apella Event Space at the Alexandria Center for Life Science yesterday got a candid, in-depth look at some radical perspectives from three sectors of the biotech ecosystem: academics, investors, and company executives—as part of a group of wide-ranging discussions. How is New York positioning itself to take a big leap in stature among the country’s biotech clusters? Where does an activist biotech investor put his cash in a raging bull market? And what in the world was in NPS Pharmaceuticals’s (NASDAQ: NPSP) old headquarters in Utah? Those, and many more questions were answered in what was a lively night on the East Side of Manhattan.
Big thanks to our speakers and moderators: Rockefeller University president Marc Tessier-Lavigne; Eric Schadt of the Icahn Institute for Genomics and Multiscale Biology; Celgene (NASDAQ: CELG) senior vice president of business development George Golumbeski; NPS Pharma CEO Francois Nader (Golumbeski and Nader pictured above, left to right); Sarissa Capital Management founding partner Alex Denner: Acorda Therapeutics (NASDAQ: ACOR) CEO Ron Cohen; and Bloomberg biotech reporter Meg Tirrell. Thanks also to Alexandria Real Estate Equities, our event host, and our sponsors: Halloran Consulting Group, and Guard Dog Brand Development.
And of course a special thank you to Hana & LaCruz for the photos.
With that, here are some of my takeaways:
1) “We didn’t have the same kind of ferment, the same kind of attention. That attention is there now.” When the biotech industry began springing up a few decades ago, space was too expensive in New York and there just wasn’t a focus on it. Companies instead took root in Boston and California, spawning other companies, and eventually clusters, in the other big biotech hubs on the East and West Coast. Tessier-Lavigne says that’s now all changing. The city wants to capitalize on its research power, and there are several government, real estate, academic, startup-based, and funding initiatives to show for it. Among them: The New York Genome Center, the Tri-Institutional Therapeutics Discovery Institute, the Alexandria Center, the New York City Economic Development Corp.’s new $100 million life sciences fund, Harlem Biospace (Manhattan’s first biotech startup incubator). The challenge is to change this statistic: despite New York accounting for the second-highest total of NIH funding grants, the VC investment per NIH dollar is somewhere between “1/10th to 1/15th what it is in Boston or California. “We need to build out the full ecosystem,” Tessier-Lavigne said. “But with the appropriate will, and with the assets that we have I think that we can really help the sector take off in a big way.”
2) While VC money is lacking, research funding, and opportunities in genomics, aren’t. Eric Schadt noted that one of the big reasons he left the West Coast for New York is because of the access to capital from untraditional sources. Philanthropy in New York “is pretty amazing,” he said, also noting the vast number clinical assets at the city’s institutions. Schadt sees New York’s biggest biotech opportunity as the chance to become one of the leaders in using genomic data to change how medicine is practiced. “New York has the right kind of base to enable that transformation if the right kinds of people like [Tessier-Lavigne] and others like the New York Genome Center can come and connect those dots,” he says.
3) New York has a history of competition among its research centers. But that’s changing. Cohen noted that in the past, there really wasn’t a culture of collaboration in New York—rather, people wanted to protect their turf, and didn’t want to team with other institutions, or “sully…academic purity” by teaming with industry. So what’s changed? First, Tessier-Lavigne said there was a “cultural shift.” New leaders like Harold Varmus (previous president of the Memorial Sloan-Kettering Cancer Center) and Paul Nurse (previously of Rockefeller) came in. Science became more collaborative as problems became more complex. Boards of respective institutions started pushing to work together. And animosity towards industry is “gone, there’s not even a residue of resistance,” he says.
Now, all of those research institutions—each individually smaller than the massive ones like Stanford University or UCSF, for instance—are joining together to maximize their ability to translate research discoveries. Partly, of course, because it’s financially necessary due to the federal squeeze in grant funding.
“We’re all smaller, but collectively in a sense that drives us together, because we can’t achieve that economy of scale one institution at a time,” Tessier-Lavigne said. So in a sense, that weakness becomes a strength once we actually got around to collaborate.”
4) The keys to accelerating NY biotech? Cheap lab space, and financial incentives. Despite the research power, financial might, presence of local pharmaceutical powerhouses, and even startup incubators, New York is still needs more to make it all come together and create a sustainable biotech ecosystem. Tessier-Lavigne noted that affordable lab space and financial incentives for VC firms to invest in New York companies are critical. Incubators are sprouting up already to help with the former problem and more such efforts are needed. But the financial incentives are just as important. That’s the idea behind the NYCEDC’s fund. The agency is looking for a VC firm to match a $50 million commitment it’s put up with the help of Celgene, Eli Lilly, and GE Ventures, to form life science companies in New York. That firm will get exclusive access to the NYCEDC’s $50 million cash pool.
“Even if we have the lab space, it’s still easier to start a company in a place like Boston or San Francisco because of the human capital,” Tessier-Lavigne said. “In New York, because the industry isn’t as mature, to start a company it often means importing the talent, which is just harder than poaching from the local community. The way you get investors to not take our ideas and start companies elsewhere is to provide financial incentives.”
5) Sarissa’s got cash, but it’s waiting to strike. The biotech bull market is charging. The IPO window is wide open, and valuations are high. This “paradoxically” makes it harder to invest, because it’s harder to turn that cash into a big return, according to Alex Denner. Because of this, his firm, Sarissa, hasn’t invested a “good part” of its more than $500 million fund yet. It’s only a matter of time though.
“Biotech ebbs and flows. I hope that [the success] continues in this sector, but it probably won’t,” Denner says. “There’ll be some disappointments that take valuations down I would guess.”
6) The attitude towards activist investing is changing. Denner says that years ago, a big part of the fight to get board representation would be to convince big institutional shareholders to vote in his favor. Now, he’ll get calls from those shareholders questioning management. Companies themselves, he says, are also less resistant to activism, despite the management turnover it might cause. Boards are more likely now, he says, to overrule a CEO reluctant to make a deal, seeing instead the value that activism can theoretically create. Denner, the one-time Carl Icahn lieutenant well familiar with boardroom agitation, surmises this will lead to fewer proxy battles going forward. He just got a seat on the board of Ariad Pharmaceuticals (NASDAQ: ARIA), for instance, without having to resort to a contentious shareholder vote.
7) “We look at all the pieces and then figure out, if this were optimally run, what would it be worth?” When Sarissa looks at a potential biotech investment, it comes up with a value for all of its assets and the probability-adjusted value of its pipeline, and tabulates what the company would be worth if it were running on all cylinders. If there’s a big difference between that and its current market capitalization—either because of bad management, debt issues, unnecessary costs or otherwise—and Sarissa thinks it can fix those problems, it will invest, Denner says. With early biotechs, the problems he often sees are “issues of focus,” where a company might have three programs but only two are really worth investing the cash they’re pouring into them.
8) It’s probably a good thing you didn’t visit NPS Pharma’s old Utah facility. More than two decades ago, NPS Pharma was spun out of the University of Utah, originally, to look at the medicinal benefits of spider venom. This strategy didn’t pan out, and NPS Pharma has gone through a number of changes since to get where it is today—a public company with a $3+ billion market capitalization that is developing drugs for rare diseases like short bowel syndrome. One of the key decisions Francois Nader made when he took over the company in 2008 was to ax all of its discovery capabilities, lay off nearly 400 employees, and move the company’s headquarters from Utah to New Jersey. This apparently had one little-known benefit: it made NPS’ headquarters a much more pleasant place to visit. As Cohen recalls from visiting NPS’ former Utah home many years ago,: “It was like a medieval chamber of horrors. You would walk in and it was one aquarium after another in dimly lit rooms with red and blue lights, and hyper-poisonous snails and spiders.”
9) “No one had a clue this would prove to be a great drug.” Apparently, before George Golumbeski joined Celgene in 2009, he had the inside track to one of the most successful drugs in recent history. Golumbeski recalls working for another pharmaceutical company and visiting Celgene in the late ‘90s to talk about methylphenidate, an ADHD drug. Celgene’s head of business development at that time “begged” Golumbeski and one of his colleagues to think about taking the rights to a drug called thalidomide that the company had in-licensed as a potential treatment for leprosy.
“To be frank, we sort of laughed when we got back in the car,” Golumbeski joked.
As many readers know, that drug became the foundation of Celgene. After flirting with bankruptcy several times, the company later turned thalidomide (Thalomid) and a successor lenalidomide (Revlimid), into hugely successful cancer drugs. And Golumbeski, as it turns out, is now the one in charge of finding new products to fill up Celgene’s pipeline behind thalidomide and its derivatives.
10) “We’re looking at some things that are outside of the box.” With the increasing collaborative ties being formed by research institutions in the city comes the opportunity to get creative with deals. Golumbeski said that Celgene has been looking for ways outside of its various early-stage deals to tap into research, and is thinking about “working more closely” with some of the collaborative consortiums that are emerging from academia so it can “broker some of the inventions” coming out of them.
“I think we’ll see over the next five years some experiments—some will work, and some won’t—of better and different ways of working with academia,” he says. “And I assure you, a fair bit of that is going on in our region and this city.”