Tag Archives: Biotech

Celebrating a (too rare) Swiss IPO: Molecular Partners

I could have said: Celebrating a (too rare) European IPO. Molecular Partners is a spin-off from the University of Zurich, founded by Professeur Andreas Plückthun, Christian Zahnd, Michael Stumpp, Patrik Forrer, Kaspar Binz and Martin Kawe in 2004. It was funded by private investors: a first round of CHF18.5M in 2007 and a second round of CHF38M in 2009. Molecular has also signed a number of agreements with pharmaceutical companies, which explains the high income for a biotech start-up. The University of Zurich is also a shareholder thanks to a license agreement signed in 2004, through which it also receives royalties.

Molecular-CapTable
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I think it is interesting to illustrate the evolution of its ownership trhough the financing rounds, including the IPO that has brought about a hundred million to Molecular.

Molecular-Dilution
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I also like to mention the age of the founders. The IPO document provides data and I “guesses” the others from the academic career (based on a age of 18 at university entrance…) It gives an average of 33 with a range of 20 years between the extremes. I know that money is a taboo; Europeans do not like to disclose their wealth, which remains highly theoretical, because one does not sell shares in a biotech as easyly as a Facebook employee… But it seems to me important to celebrate the success of founders and their investors … Congratulations to all!

Molecular-Founders-Age

Biotech IPOs, not so different

I just read Biotech IPOs Start to Show Some Modest Signs of Life from Xconomy. It’s an interesting article because it focuses on Biotech, a field that many people consider as very different from other high-tech start-ups such as Internet, Software or IT in general. The general idea is that it takes much longer to succeed in biotech. You should read the article if biotech is of interest for you and I will not comment it more than mentioning that the good news is that there have been recent biotech filings and IPOs, the less good news being that the market capitalizations are not huge.

What I am more interested in is updating my regular analysis of start-up data (I have now 131 start-ups; see my latest analysis in March 2012 for example with 116 companies) and see how biotech behaves. Here is the synthesis (if you are interested the detailed list is provided at the end).

So what do I see as specific to biotech start-ups? First it does not take them longer to go public. 8 years vs. an average of 7 years. The difference is not in the exit time. They raise $98M on average, but this does not look so special either. But, and here is the but, their sales are only $11M when they go public. So, it takes them much longer to reach revenues. But it does not prevent them from going public (or even be acquired when they begin to have good results in clinical trials).

Another specific element is about founders. The founders’ average age is 41 (similar to medtech and semiconductor) whereas it is 35 on average. Why is that? because many founders are established, recognized university professors. Often times, they do not work full-time in the start-up but have a role of chief scientist. Indeed, the ownership of founders in the start-up is smaller than average (8% vs. 15%).

I should also add that the founders/employee shares ownership is much smaller too (25% vs. 40%) and the reasons are manyfold:
– founders have fewer shares as I just mentioned
– investors have more equity (50% vs. 45%)
– IPO shares are higher (25% vs. 16%). This comes from the fact (I think) that in order to raise the same amount of money, it is more dilutive for a company with less revenue…
– I did not mention another statistical element, which is they have fewer employees. The detailed table below imples about 100 employees (and you may see many of them have even less than 50 or 20 employees). This induces a smaller amount of stock options… (On average my 130 companies have 500 employees when they go public).

I thought this data was of some interest. Please react or comment!

Appendix: detailed data (notice that I am missing the Amgen data)


click on table to enlarge

Robert Swanson, 1947-1999

This is again one of my recent readings from old Red Herring. I had already published a post on Bob Swanson, the co-founder of Genentech. This RH article is not that different and I thought it would be important to mention the story again of Boyer and Swanson and the beginnings of the biotech industry. Here it is.

The cofounder of Genentech also founded an industry.

ON THE OCCASION of their deaths, the founders of technology companies can take some satisfaction that they started something From nothing. The best will be able to claim they founded companies that changed the world, and a lucky few will have built organizations that lasted. But almost no one will be able say they founded a company that created an entire industry. Robert Swanson, who died from brain cancer at his home in Hillsborough, California, on December 6, would be very justified in claiming to have started the biotechnology industry.

DREAMS 0F GENIES

Mr. Swanson was a 29-year-old venture capitalist with the firm that today is Kleiner Perkins Caufield and Byers when he collared Herbert W. Boyer, a scientist at the University of California at San Francisco who was researching recombinant gene therapy. Recombinant DNA is formed when DNA from different sources is combined to create new DNA molecules. Dr. Boyer thought that combining DNA—or gene splicing—would allow scientists to design the proteins necessary to treat particular diseases, and would liberate scientists from trial-and-error methods of protein testing. In 1976, venture capitalists, and even most academics, did not believe in the immediate commercial value of such research. Dr. Boyer himself was uncertain when gene-splicing would be a business. Nevertheless, Mr. Swanson convinced Dr. Boyer to grant him a ten-minute interview. “Here cornes this brash young entrepreneur filled with enthusiasm and ideas and ready to go,” Dr. Boyer says today. “I recognized right away that he had the drive and the understanding.” They formed Genentech, which is generally thought to be the first biotech company, later that year. Twenty-three years later—and in the very winter of Wall Street’s discontent with biotechnology—it is difficult to remember how revolutionary Genentech was. In 1977, Genentech produced the first human protein by splicing a gene with bacteria. Later Genentech created human insulin, the first drug produced by genetic engineering, which it licensed to Ely Lilly for the treatment of diabetes. It was the first biotechnology company to sell a drug it had developed on its own: human growth hormone, for children whose bodies do not produce enough of the hormone. And Genentech was the first biotechnology company to offer its shares in an initial public offering—which, until the Internet boom, was among the most spectacular Wall Street had ever seen. Genentech’s example made biotechnology possible by demonstrating to venture capitalists, entrepreneurs, and scientists that a sustainable business could be based on genetic engineering. Today, there are more than 1,000 biotechnology companies in the United States, and Genentech remains one of the most successful.

INGENEOUS

Mr. Swanson was born in Brooklyn, New York. He attended the Massachusetts Institute of Technology, receiving an undergraduate degree in chemistry and a graduate degree from MIT’s Sloan School of Management. Before becoming a partner at Kleiner Perkins, Mr. Swanson was a VC at Citicorp Venture Capital. He was Genentech’s chief executive from the company’s founding until 1990, and was its chairman from 1990 to 1996. After retiring from Genentech in 1996, Mr. Swanson formed K&E Management, a private investment – management firm. He was also chairman of Tularik, a biotechnology firm that was preparing to go public in mid-December. As an entrepreneur he was courageous, ingenious, stubborn, and slightly crazy. “If you told him that doing something violated the rules of physics, he’d tell you the law must be wrong and you’d almost believe it,” said Arthur D. Levinson, the current chairman of Genentech. Friday afternoons at Genentech were devoted to theme parties, called Ho-hos—on Hawaiian theme days, Genentech’s chairman would invariably don a grass skirt and dance the hula for his employees. Mr. Swanson wished to change the world by commercializing, and therefore making widely available, new drugs based on gene splicing. He got his wish. Last year new pharmaceuticals developed by Genentech scientists (that is to say nothing of established drugs still being sold) earned more than $4 billion in revenues, according to MIT, and saved countless lives—if not, sadly, Mr. Swanson’s own.

Write to jason@redherring.com.

Biotech data – part 3/3: A short synthesis

After Genentech, Chiron and Genzyme, let just me do a simple analysis of biotech start-ups. The table which follows summarizes it all and I added Amegn but it is obviously a little tough to read. You can enlarge it however. So you can see data about the companies themselves, foundation year, IPO year, revenues and profit/loss at IPO, current status and then data on founders, their age at foundation, what they were doing before the creation and what they did after the start-up adventure. Then I provide a link on them.

So what is interesting about the companies themselves?

– On average, it takes them 3 years to go public. So the myth that biotech start-ups develop slowly is linked to the revenue/profit status, not the exit status.
– Indeed, when they go public, they have very small revenues and lose money. Compare to Apple for example, on the first picture.
– They are very similar to Internet companies of the late 90s: they go public very soon without revenues and still losing money.
– Finally, they are acquired by European players. This is in total opposition to IT companies where the only buyers are American (check for example slide 36 of the pdf I published in the past).

Now the founders.
– First, they are not young people. Compare again to the same document, slide 27 now. American founders in the slide are on average of 27 year-old, and Europeans, 33 year-old.
– Many had an academic career they did not have to leave. They may have taken sabbaticals but many went back to their academic life. It is obviously related to the previous point.

These 3 posts have shown my small knowledge of biotech but also the fact that they are interesting not to say major differences between Biotech and Information Technology.

Biotech data – part 2/3: Genzyme

Genzyme is the second topic of my biotech series. Same approach as with Chiron. Genzyme was founded in 1981, went public in 1986, in less than 5 years. It had two founders, Sheridan Snyder and Henry Blair. It should be added that Henri Termeer was instrumental in the company success. Snyder was 45 and an entrepreneur who after Genzyme will create again new companies. Blair was a researcher at Tufts and was 37. He would become an entrepreneur again.

Genzyme had some revenues but no profit when it went public. Oak was the main investor and both Advent and Rothschild had about 5-6% of the company. Interestingly enough, just like Genentech (with Roche) and Chiron (with Novartis), Genzyme has been recently acquired by a European pharma: Genzyme has been acquired by Sanofi-Aventis for $20B.

Next: a few features about Biotech founders and start-ups.

Biotech data – part 1/3: Chiron

Biotech is a strange world for me. I am an IT guy and I have never really understood much about biology. The biotech start-ups are also very different from IT companies. It is well-known that it takes them years to reach revenues with products (not R&D revenue), not to say profitability (just like the semiconductor industry). It does not prevent them from going public early (just as Internet start-ups did in the late 90s!). So it is a strange mix of features of hardware and software companies.

In a series of documents on the biotech history, I could find the following quote related to Genentech: “Late in 1979, Tom Perkins pushed the idea of a public offering. Although the technology was young, and we were early on in the development of products, there was enough interest in the public to get a public offering done. This was a foreign concept at the time. While we had a couple million dollars in revenue–! think it was $3.5 million in revenues in 1979-there were no product revenues or profits generated from products. Whether or not you could take a company public that didn t have product revenue, didn t have commercialized products, and didn t have significant profits, was an unknown. In the mid to late seventies, if companies went public, they had revenues and earnings. You d have at least $10 million in revenues and at least a million dollars in profit, then maybe you could have one of the small high-tech underwriters take you public.”

Secondly, the founders are seldom the typical nerds with some great business vision (Gates, Jobs, Brin/Page, Zuckerberg) but often university professors/researchers. They do not have to quit their academic position and often take the title of chief scientist. (This also happens in the hardware academic spin-offs, with Atheros as an example I mentioned in a recent post).

As a first illustration of all this, I will just show some data about Chiron. My next post will be about Genzyme and I will conclude with general elements in the 3rd and final post.

Chiron was one of the early start-ups in biotech. It was founded in August 1981 and went public in May 1983… 2.2 years! It had three founders Edward Penhoet, William Rutter and Pablo Valenzuela who were respectively 41, 54 and 40 years old when Chiron was founded. Not kids in their early twenties! Their activity at time of foundation was professor at Berkeley, professor at UCSF, researcher at UCSF.

Here is my usual cap. table followed by the equity pie. Chiron at $1.5M and $0.8M in revenue in 1983 and 1982, there was no profit but a loss of $2.2M in 83 and $0.8M in 1982…

Chiron was bought in 2006 by Novartis and it is not the only biotech start-up acquired by an European corporation as we will see soon.

Next post: Genzyme.

Europe vs. USA: growth in IT and Biotech

It is an exercise I usually like to use as an introduction to high-tech entrepreneurship: give me the name of 10 big sucess stories, and I mean (for example) the name of 10 public companies, which were founded as start-ups in the last 40 years. Usually, it is quite easy to give American names, and more difficult to find European ones. So the tables below give such names for IT first and for biotech second.

I had done the exercise in my book in 2007 but some companies such as Business Objects or Sun Microsystems have been acquired. Here I add the sales and profit numbers to the market caps and the number of employees.

What is striking I think, in addition to the difference in order of magnitudes is the difference between foundation to IPO year. Biotech is slightly different, though I am not sure it is fundamentally different… It is however interesting to notice that time to IPO is much more similar between the two continents in biotech than it is in IT.

Bob Swanson & Herbert Boyer: Genentech

Here is my second contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. I began last quarter with Adobe and its founders John Warnock and Charles Geschke, here is now Bob Swanson, Herbert Boyer, founders of Genentech.

Bob Swanson and Herbert Boyer: Genentech

In the start-up world, biotechnologies do not seem to belong to the same world: they seem to always be reserved to high-caliber scientists not to say Nobel prize winners that investors would back with their money. So… where is the entrepreneur?

The story about the Genentech beginnings is probably the best illustration that a visionary entrepreneur is also necessary in biotechnologies. Much more than just a start-up, it is an entire industry that Bob Swanson founded.

The legend says that Bob Swanson, a 29-year old venture capitalist, met Herbert Boyer, a professor at the University of California in San Francisco (UCSF). The money of Bob and the ideas of Herbert made possible the creation of Genentech in 1976, followed by its IPO in 1980. The story deserves however a little more attention. Bob Swanson was not really an investor. He is an entrepreneur. he has been hired by Kleiner and Perkins (KP) who had understood that the real value of a venture capital firm is to create company and not only to fund them. They understood this after the success of Tandem and Jimmy Treybig whom they financed from day 1 in 1974. (See KP first fund).

Bob Swanson is fascinated by the potential of biology and genetics. (He has a BS in chemistry from MIT and an MBA). After helping KP for one their portfolio company, he leaves the fund to dedicate himself to his new passion. He meets many professors in the Bay Area but all of them explain him that their work is about science, leading edge science for sure and very far from commercial applications.

Herbert Boyer is not a typical professor. Together with Stanley Cohen, he is the inventor of a patented technology, which was not common in the academic world of the seventies. Known as the Cohen-Boyer patent, it describes how to manipulate the DNA and it is so fundamental that any new technology in the field needs to use this patent, which means obtaining a license on the technology and paying royalties to its owners, Stanford University and UCSF. In total, more than $250M was generated in royalties over 20 years.

The beginnings of Genentech are a combination of history and legend. Swanson calls Boyer who tells him he is very busy but he agrees on a 10-minute talk on a Friday afternoon. Swanson is obsessed about one single thing: the applications of research. Boyer replies that there is certainly some potential but it will require another 10 years of research. “Why, why, why?” Swanson does not stop saying to the point that Boyer finally concludes “why not? May be it can be faster.” The 10-minute talk has become a 3-hour discussion. Genentech is born, at least in two minds full of beer!

They still have to convince the skeptics. Among them, the potential investors. A week later, Tom Perkins meets with the two men and he remembers: “the technical risks were huge. I was very skeptical. I did not know anything in biology.” Kleiner is however very impressed by the energy of Swanson and the expertise of Boyer. He decides to try, step by step in order to diminish the risks and minimize the initial investment. Kleiner invests $100’000 which will last nine months.

The rest is History. Genentech synthesizes insulin in 1978 and growth hormone in 1979. Genentech also raised $10M with private investors before going public on Nasdaq in 1980. For the first time, a biotech company goes public with no revenue and its first product is not approved yet (it will be in 1985 only). In 1990, Roche and Genentech will sign a strategic partnership which makes the Swiss company its major shareholder. In 2009, Roche acquired all the remaining shares of Genentech.

Swanson was not an investor, but a visionary entrepreneur. Boyer was not a professor in his ivory tower. They were also lucky to have the best of mentors, Tom Kleiner. A lot of energy and passion, great ideas, some money. It is an almost accidental meeting which is responsible for the growth of a industry worth tens of billions of dollars.

Icing on the cake, the Genentech capitalization table at its IPO:

Pour en savoir plus:

Internet Archive:
http://www.archive.org/search.php?query=genentech

The Genentech web site:
http://www.gene.com

Next quarter: Women entrepreneurs, Carol Batz and Sandy Kurtzig

US and UK Biotech: Growth and Form

Another interesting illustration about the differences between America and Europe: growth in the US and UK biotech. The full account can be found in Nature Biotechnology and my friend Andre mentioned the blog Corante where he read about it.

corante.gif

The conclusion of this blogger is:

“What I found interesting about the editorial, though, wasn’t these conclusions per se – after all, as the piece goes on to say, they aren’t really a surprise […] No, the surprise was the recommendation at the end: while the government agency that ran this study is suggesting tax changes, entrepreneur training, various investment initiatives, and so on, the Nature Biotechnology writers ask whether it might not be simpler just to send promising UK ideas to America.

Do the science in Great Britain, they say, and spin off your discovery in the US, where they know how to fund these things. You’ll benefit patients faster, for sure. They’re probably right about that, although it’s not something that the UK government is going to endorse. (After all, that means that the resulting jobs will be created in the US, too). But that illustrates something I’ve said here before, about how far ahead the VC and start-up infrastructure is here in America. There’s no other place in the world that does a better job of funding wild ideas and giving them a chance to succeed in the market.”