Tag Archives: Biotech

Crispr Therapeutics Ag, the Swiss start-up also files for Nasdaq

Last April, I published a short post about the hot Crispr Start-ups. At the time only Editas and Intellia had filed to go public. I could build Crispr Therapeutics cap. table thanks to Swiss registers data. Now Crispr Therapeutics Ag has also filed on Nasdaq (see its S-1). I was not so far from the truth as you may check the new and old cap. tables. Interesting data points…

– Crispr Therapeutics from Nasdaq filing
crispr_therapeutics_cap_table_sep16

– Crispr Therapeutics from Swiss register data
Crisper-Crispr

CRISPR Start-ups

There are not many weeks, not to say days when you cannot read something new about CRISPR. I have to admit I do not know much about it given my total incompetence in health related matters. But when I heard there was a battle around intellectual property between universities (see Bitter fight over CRISPR patent heats up for example) and that start-ups were already entering the field, to the point that one was already public and another one filing to be, my interest was aroused… So I had a look at 3 of the more visible companies, and you know what… I could build their cap. tables… here they are:

– Editas Medicine
Crisper-Editas

– Intellia Therapeutics
Crisper-Intellia

– Crispr Therapeutics
Crisper-Crispr

What is worth noticing, at least for me? They are young companies (less than 3 years old. they have raised a lot of money, at least $50M. They have very reputable investors: Polaris, Third Rock & Flagship for Editas; Atlas & Orbimed for Intellia; and Versant, NEA, Abingworth & SROne for Crispr Therapeutics. the founders are alreday quite diluted as they all less own than 15% as a group in each. Additional comments welcome!

The business of Biotech – Part 4: Licensing

The business of biotech is very unique as my previous posts illustrated. Companies go public without any revenue or product; they are often times very small firms in part because they are science-based mostly with a lot of collaborations with universities. Finally, an interesting feature is the biotech is a licensing business. Start-ups seldom produce and sell drugs but license their intellectual property (IP) to large pharmaceuticals companies. They also themselves license IP from universities, where the early inventions are made and protected through patent applications.

One of the best-guarded secrets is the terms of such licenses. I have already published articles about the licensing conditions by universities to start-ups. See for example:
– June 2010: University licensing to start-ups – http://www.startup-book.com/2010/06/15/university-licensing-to-start-ups-part-2/
– November 2013: How much Equity Universities take in Start-ups from IP Licensing? – http://www.startup-book.com/2013/11/05/how-much-equity-universities-take-in-start-ups-from-ip-licensing/
– June 2015: Should universities get rich with their spin-offs? – http://www.startup-book.com/2015/06/09/should-universities-get-rich-with-their-spin-offs/

So I’d like to revisit the topic for biotech companies. In terms of equity, there is not much difference; you can read again the table below. But there is an additional term that I’ve seen less often in other fields. Royalties on sale are very much accepted because Genentech (part 3) and Amgen (part 1) defined the industry rules.

Uni-licenses-startups-2015

Again let me quote my previous articles:“[…] negotiated an agreement between Genentech and City of Hope that gave Genentech exclusive ownership of any and all patents based on the work and paid the medical center a 2 percent royalty on sales of products arising from the research.” [Page 57]

“For an upfront licensing fee of $500,000, Lilly got what it wanted: exclusive worldwide rights to manufacture and market human insulin using Genentech’s technology. Genentech was to receive 6 percent royalties and City of Hope 2 percent royalties on product sales.” [Page 94] Perkins believed that the 8 percent royalty rate was unusually high, at a time when royalties on pharmaceutical products were along the lines of 3 or 4 percent. “It was kind of exorbitant royalty, but we agreed anyway – Lilly was anxious to be first (with human insulin). […]The big company – small company template that Genentech and Lilly promulgated in molecular biology would become a prominent organizational form in a coming biotechnology industry.[Page 97]

“Memorial Sloan-Kettering had filed a weak patent, not knowing what it actually had. Therefore, said my general counsel, Amgen was legally free to process on its own, without paying a royalty to MSKCC. That didn’t seem ethical to me; without Sloan-Kettering, we wouldn’t have stumbled across filgrastim (Neupogen’s generic name). We negotiated a license with a modest royalty.” [Pages 143-44]

Another interesting source of information is KUL (Katholieke Universiteit Leuven) in Belgium and its spin-offs Thormbogenetics and Tibotec. KUL has a long history of licensing with its R&D arm (LRD) founded in 1972. Here are examples of licenses.

KUL-LRD-Licensing

One particular example is the Genentech-Thromobogenetics-KUL relationships with license terms as follows:
Genentech-LRD-Thrombogenetics

as well as royalties
Genentech-LRD-Thrombogenetics-payments

All this comes from http://www.seii.org/seii/documents_seii/archives/colloques/2012-10-12_5_TG%20NV%20from%20lab%20to%20company-COLLEN.pdf

So what is a fair deal? I do not know. If you check the footnotes in the table above, you can see again a 2-4 % royalty range. So let me finish with a text I found many years ago:
– A raw idea is worth virtually nothing, due to an astronomical risk factor
– A patent pending with a strong business plan may be worth 1 %
– An issued patent may be worth 2 %
– A patent with a prototype, such as a pharmaceutical with pre-clinical testing may be worth 2-3 %
– A pharmaceutical with clinical trials may be worth 3-4 %
– A proven drug with FDA approval may be worth 5-7 %
– A drug with market share, such as one pharma. distributing through another, may be worth 8-10%
Ref: Royalty Rates for Licensing Intellectual Property by Russell Parr

The business of biotech – Part 3: Genentech

I should have begun with Genentech this series of posts about Biotech (see part 1: Amgen or part 2 about more general stats). Genentech was not the first biotech start-up, it was Cetus, but Genentech was really the one which launched and defined this industry. All this really began with the Cohen Boyer collaboration. Genentech would have loved to get an exclusive license on their patent about recombinant DNA, but the universities could not agree for business as well as political reasons. Genentech was an unknown little start-up and genetic engineering a very sensitive topic at the time. Swanson had tried even to offer shares to Stanford and UCSF (the equivalent of 5% of the existing shares at the time).

Please note I already wrote about Genentech here in Bob Swanson & Herbert Boyer: Genentech. But this new post follows my reading of Genentech – The Beginnings of Biotech by Sally Smith Hughes.

Genentech-the_beginnings_of_biotech

Chronology
– November 1972 – Meeting of Cohen and Boyer at aconference in Hawaii
– March 1973: First joint lab. experiments
– November 1973: Scientific publication
– November 4, 1974: Patent filing
– May 1975: Cohen becomes an advisor for Cetus
– January 1976: Meeting between Swanson and Boyer
– April 7, 1976: Genentech foundation
– August 1878: first insulin produced
– Q2 1979: 4 research projects with Hoffmann – La Roche (interferon), Monsanto (animal growth hormone), Institut Mérieux (hepatitis B vaccine) and an internal one (thymosin).
– July 1979: first human growth hormone
– October 1982: FDA approval of Genentech insulin produced
– October 1985: FDA approval of human growth hormone

I have to admit I had never heard of the Bancroft Library’s website (http://bancroft.berkeley.edu/ROHO/projects/biosci) for the Program in Bioscience and Biotechnology Studies, “which centerpiece is a continually expanding oral history collection on bioscience and biotechnology [with ] in-depth, fully searchable interviews with basic biological scientists from numerous disciplines; with scientists, executives, attorneys, and others from the biotechnology industry.”

The invention of new research and business practices over a very short period

Swanson was captivated: “This idea [of genetic engineering] is absolutely fantastic; it is revolutionary; it will change the world; it’s the most important thing I have ever heard.” [… But Swanson was nearly alone.] “Cetus was not alone in its hesitation regarding the industrial application of recombinant DNA technology. Pharmaceutical and chemical corporations, conservative institutions at heart, also had reservations.” [Page 32] “Whatever practical applications I could see for recombinant DNA… were five to ten years away, and, therefore, there was no rush to get started, from a scientific point of view.” [Page 32] “I always maintain” Boyer reminisced, “that the best attribute we had was our naïveté… I think if we had known about all the problems we were going to encounter, we would have thought twice about starting… Naïveté was the extra added ingredient in biotechnology.” [Page 36]

The book shows the importance of scientific collaborations. Not just Boyer at UCSF but for example with a hospital in Los Angeles. A license was signed with City of Hope Hospital with a 2% royalty on sales on products based on the licensed technology. “[…] negotiated an agreement between Genentech and City of Hope that gave Genentech exclusive ownership of any and all patents based on the work and paid the medical center a 2 percent royalty on sales of products arising from the research.” [Page 57]

Even if in 2000, City of Hope had received $285M in royalties, it was not happy with the outcome. After many trials, the California Supreme Court in 2008 awarded another $300M to City of Hope. So the book shows that these collaborations gave also much legal litigation. [Page 58]

In a few years, Genentech could synthesize somatostatin, insulin, human growth hormone and interferon. It is fascinating to read how intense, uncertain, stressful these years were for Swanson, Perkins, Boyer and the small group of Genentech employees and academic partners (Goeddel, Kleid, Heyneker, Seeburg, Riggs, Itakura, Crea), in part because of the emerging competition from other start-ups (Biogen, Chiron) and academic labs (Harvard, UCSF).

“On August 25, 1978 – four days after Goeddel’s insulin chain-joining feat – the two parties signed a multimillion-dollar, twenty-year research and development agreement. For an upfront licensing fee of $500,000, Lilly got what it wanted: exclusive worldwide rights to manufacture and market human insulin using Genentech’s technology. Genentech was to receive 6 percent royalties and City of Hope 2 percent royalties on product sales.” [Page 94] They managed to negotiate a contractual condition limiting Lilly’s use of Genentech’s engineered bacteria to the manufacture of recombinant insulin alone. The technology would remain Genentech’s property, or so they expected. As it turned out, the contract, and that clause in particular, became a basis for a prolonged litigation. In 1990, the courts awarded Genentech over $150 million in a decision determining that Lilly had violated the 1978 contract by using a component of Genentech’s insulin technology in making its own human growth hormone product. [Page 95] Perkins believed that the 8 percent royalty rate was unusually high, at a time when royalties on pharmaceutical products were along the lines of 3 or 4 percent. “It was kind of exorbitant royalty, but we agreed anyway – Lilly was anxious to be first (with human insulin)” […]The big company – small company template that Genentech and Lilly promulgated in molecular biology would become a prominent organizational form in a coming biotechnology industry. [Page 97]

The invention of a new culture

Young as Swanson was, he kept everyone focused on product-oriented research. He continued to have scant tolerance for spending time, effort, and money on research not tied directly to producing marketable products. “We were interested in making something usable that you could turn into a drug, inject in humans, take to clinical trials.” A few year before his premature death, Swanson remarked, “I think one of the things I did best in those days was to keep us very focused on making a product.“ His goal-directed management style differed markedly from that of Genentech’s close competitors. [Page 129]

But at the same time Boyer would guarantee a high quality research level by encouraging employees to write the best possible scientific articles. This guaranteed the reputation of Genentech in the academic world.

A culture was taking shape at Genentech that had no exact counterpart in industry or academia. The high-tech firms in Silicon Valley and along Route 128 in Massachusetts shared its emphasis on innovation, fast-moving research, and intellectual property creation and protection. But the electronics and computer industries, and every other industrial sector for that matter, lacked the close, significant, and sustained ties with university research that Genentech drew upon from the start and that continue to define the biotechnology industry of today. Virtually every element in the company’s research endeavor – from its scientists to its intellectual and technological foundations – had originated in decade upon decade of accumulated basic-science knowledge generated in academic labs. […] At Boyer’s insistence, the scientists were encouraged to publish and engage in the wide community of science. [Page 131]

But academic values had to accommodate corporate realities: at Swanson’s insistence, research was to lead to strong patents, marketable products, and profit. Genentech’s culture was in short a hybrid of academic values brought in line with commercial objectives and practices. [Page 132]

Swanson was the supportive but insistent slave driver, urging on employees beyond their perceived limits: “Bob wanted everything. He would say, If you don’t have more things on your plate than you can accomplish, then you’re not trying hard enough. He wanted you to have a large enough list that you couldn’t possibly get everything done, and yet he wanted you to try.” […] Fledging start-ups pitted against pharmaceutical giants could compete mainly by being more innovative, aggressive, and fleet of foot. Early Genentech had those attributes in spades. Swanson expected – demanded – a lot of everyone. His attitude was as Roberto Crea recalled: “Go get it; be there first; we have to beat everybody else… We were small, undercapitalized, and relatively unknown to the world. We had to perform better than anybody else to gain legitimacy in the new industry. Once we did, we wanted to maintain leadership.” […] As Perkins said “Bob would never be accused of lacking a sense of urgency. “ […] Even Ullrich, despite European discomfort with raucous American behavior, admitted to being seduced by Genentech’s unswervingly committed, can-do culture. [Page 133]

New exit strategies

Initially Kleiner thought Genentech would be acquired by a major pharma company. It was just a question of when. He approached Johnson and Johnson and “floated the idea of a purchase price of $80 million. The offer fell flat. Fred Middleton [Genentech’s VP of finance], present at the negotiations, speculated that J&J didn’t have “a clue about what to do with this [recombinant DNA] technology – certainly didn’t know what it was worth. They couldn’t fit it in a Band-Aid mold”. J&J executives were unsure how to value Genentech, there being no standard for comparison or history of earnings.” [Page 140]

Perkins and Swanson made one more attempt to sell Genentech. Late in 1979, Perkins, Swanson, Kiley and Middleton boarded a plane for Indianapolis to meet with Eli Lilly’s CEO and others in top management. Perkins suggested a selling price of $100 million. Middleton’s view is that Lilly was hamstrung by a conservative “not invented here” mentality, an opinion supported by the drug firm’s reputation for relying primarily on internal research and only reluctantly on outside contracts. The company’s technology was too novel, too experimental, too unconventional for a conservative pharmaceutical industry to adopt whole-heartedly. [Page 141]

When Genentech successfully developed interferon, a new opportunity happened. Interferon had been discovered in 1957 and thought to prevent virus infection. In November 1978, Swanson signed a confidential letter of intent with Hoffmann – La Roche and a formal agreement in January 1980. They were also lucky: “Heyneker and a colleague attended a scientific meeting in which the speaker – to everyone’s astonishment given the field’s intense competitiveness – projected a slide of a partial sequence of fibroblast interferon. They telephoned the information to Goeddel, who instantly relay the sequence order to Crea. […] Crea started to construct the required probes. […] Goeddel constructed a “library” of thousands upon thousands of bacterial cells, seeking ones with interferon gene. Using the partial sequence Pestka retrieved, Goeddel cloned full-length DNA sequences for both fibroblast and leukocyte interferon. […] In June 1980, after filing patent protection, Genentech announced the production in collaboration with Roche.” [Page 145] Genentech could consider going public and after another fight between Perkins and Swanson, Genentech decided to do so. Perkins had seen that the year 1980 was perfect for financing biotech companies through a public offering but Swanson saw the challenges this would mean for a young company with nearly no revenue or product.

New role models

The 1980-81 period would see the creation of a fleet of entrepreneurial biology-based companies – Amgen, Chiron, Calgene, Molecular Genetics, Integrated Genetics, and firms of a lesser note – all inspired by Genentech’s example of a new organizational model for biological and pharmaceutical research. Before the IPO window closed in 1983, eleven biotech companies in addition to Genentech and Cetus, had gone public*. […] But not only institutions were transformed. Genentech’s IPO transformed Herb Boyer, the small-town guy of blue-collar origins, into molecular biology’s first industrial multimillionaire. For admiring scientists laboring at meager academic salaries in relative obscurity, he became a conspicuous inspiration for their own research might be reoriented and their reputation enhanced. If unassuming Herb – just a guy from Pittsburgh, as a colleague observed – could found a successful company with all the rewards and renown that entailed, why couldn’t they? [Page 161]

*: According to one source, the companies staging IPO were Genetic Systems, Ribi Immunochem, Genome Therapeutics, Centocor, Bio-Technology General, California Biotechnology, Immunex, Amgen, Biogen, Chiron, and Immunomedics. (Robbins-Roth, From Alchemy To Ipo: The Business Of Biotechnology)

Following these three posts, I might write a fourth one about academic licenses in the biotechnology if and when I find some time…

The business of biotech – Part 2

After a short analysis of Amgen through the book by Gordon Binder – Science Lessons – here’s a more statistical description of the world of biotech. I am considering a third part about Genentech as a conclusion of this group. For several years, I have been manually building the capitalization tables of start-ups in general thanks to their IPO documents. They probably contain errors as the exercise requires attention and accuracy, but I imagine that these errors are averaged. I have today more than 350 cases, which are published on Slideshare.

At the end of this document, I have added some synthetic data from which I extract the following. Remember that my sampling is done as I find new companies, so it is not totally random or statistically neutral …

Biotechnology represents a significant part of my data, I will return to this later. VC fundraising is not more important than in other areas, which may seem surprising but it is because a biotech start-up goes public in term of maturity well before the start-ups of other fields. Besides their sales level ($11M on average) is much lower than the others ($114M for the average of all). Also they count 71 employees against 521 for the full set. The Amgen example illustrated that an IPO in fact more a complementary VC round than a market validation. However the first round is much bigger, probably because of the resources required for the initial proof of concept. The (profits and) losses are similar to other areas (excluding software and internet).

BiotechDataFeatures

Now a small digression about the founders and the sharing of equity. They are much older (45 years) than average (38 years) and only come close the founders of medtech start-up. Probably because of the specific domain (length of academic curriculum and difficulties in inventing without a long experience). Another consequence of the dynamics of the field (including the uncertainties), the founders retain less equity at the IPO and investors get a larger share.

BiotechDataFeatures2

I now return to the biotech industry through its geography first and its timeline later. One known fact – the importance of the Boston area and the East Coast of the USA in general – and perhaps a surprise – the just as great importance of Silicon Valley and California more generally. It is often believed that the Boston area is the site of biotechnology, which is true with respect to other areas, but the West Coast is just as creative and entrepreneurial.

Cap_Tables_Fields_vs_Georaphy

Finally it would be wrong to believe that the Internet has removed biotech. The periods here represent the years of creation of the startups. Biotech is the main field (over one third) since the 2000’s whereas they accounted for less than a quarter before. Again remember that my sample is not statistically validated …

Cap_Tables_Fields_vs_Period

Cap_Tables_Fields_vs_Period_percent

The business of biotechnology – Part 1 : Amgen

I do not know much about biotechnology (my background is IT). Though a start-up is a start-up, I always had the feeling that biotech was a different world. You often read that it easily takes ten years to develop a drug, so that biotech start-ups do not have any sales from products for even longer (with revenue coming only from R&D deals with big pharma). You also hear about going public through an IPO far before your product is on the market, something unusual in the IT world (except during the Internet bubble). Finally the financing needs from VCs seem to be much larger than in IT.

I have already written articles about this topic and you can find them under the tag biotech but I plan to write soon three new posts on the topic, related to recent readings and analysis:
– this post deals with my reading of Science Lessons – What the Business of Biotech Taught Me About Management by Gordon Binder, former CEO of Amgen & Philip Bashe.
Amgen-ScienceLessons

– I will then give an update of cap. tables with 350+ companies. I will focus then on biotech firms.
– Finally, I should read soon another book, Genentech – the Beginnings of Biotech by Sally Smith Hughes. Hopefully it will be as good as Science Lessons. (And here is my synthesis, Part 3: Genentech.)

The Business of Biotech

Amgen is probably the biggest biotech firm today (with a market cap. around $100B in 2015). “The company debuted on Nasdaq stock exchange on June 17, 1983. Considering that Amgen didn’t have any products at the time, going public seemed premature to some observers. And it was; an IPO wasn’t in the original timetable at all. But our other sources of capital had shriveled up like foliage during Southern California’s dry season, leaving an initial public offering our only option.” [Page 6]

Amgen’s secret weapon

From the beginning, Amgen was a magnet for gifted, innovative men and women. How does an organization attract outstanding employees? […] Certainly we offered attractive salaries and benefits, and the stock options made available to every Amgen employee no doubt induced some folks to stay who otherwise might have sought opportunities elsewhere. As numerous studies have established, however, pay and perks aren’t what foster long-term employee loyalty. It’s something more profound, something that speaks to the very soul of a company. […] Because a company’s culture emerges from its values, we interviewed hundreds of staff members in all areas of Amgen to learn which values they believed constituted the core of that culture. Today it seems that every company under the sun (or under a cloud) has a values statement. Some are written by the CEO, and others are concocted by the public relations or human resource department. Sometimes they’re written by consultants who don’t even work there. More often than not, the statement doesn’t truly reflect the organizations values; it’s either a wish list of what the company aspires to be or a PR tool for impressing customers, suppliers, and investors. [Page 9]

As Amgen grew exponentially, we constantly wrestled with the same quandary that confronts most flourishing companies at some point: how to remain nimble when you’re no longer a small start-up. You do it by decentralizing power, of course, but also by establishing an entrepreneurial culture that embraces change and encourages innovation. For that to happen, management must empower its people and then support them 100 percent, because staffers do not offer ideas freely if they secretly believe they will be hung out to dry should their promising project flop. In an industry such as biotechnology, failures abound. Had Amgen not lived its principle “Employees must have the freedom to make mistakes,” we would not have survived. [Page 14]

Amgen’s financings

Amgen was incorporated on April 8, 1980. Then Bowes the cofounder and 1st investor “coaxed six venture-capitalist into putting up roughly $81,000 apiece in seed money.” [Page 18] George Rathmann became the CEO and only employee in the company. When the company needed a serious series A funding, Rathmann was convinced it needed much more than the typical $1M first round and looked for $15M. No VC would have agreed, so he convinced first corporations. Abbott invested $5M (which would be worth $700M in 1990). Tosco added $3.5M. And New Court (managed by Rothschild) would then invest $3M. The Series closed with $19.4M on January 23, 1981. Then the IPO brought $42M in 1983, but this was only another beginning as more public financings would follow: $35M in 1986 for the “secondary” and $120M for a third financing the next year.

Here is the cap. table of Amgen at IPO:
Amgen-CapTable

Though biotech start-ups have longer horizons that IT firms, the intensity of activities is very similar. Binder shows examples such as Amgen’s IPO (chapter 2), the discovery of EPO (chapter 4) and its FDA approval (chapter 5). There is however a major difference. Biotech is about science and research. “It’s fair to say that at many companies, if not most, sales and marketing dominate corporate strategizing; the scientific or creative end may be behind the wheel, but ultimately the sales-and-marketing people commandeer the road map, barking out directions from the passenger seat. Not so in the field of biotechnology and certainly not at Amgen where even the company’s location was chosen to attract first rate scientists. Our headquarters sat more or less equidistant to the three principal research centers in southern California: the University of California at Los Angeles (UCLA), the University of California at Santa Barbara (UCSB), and the California Institute of Technology (CalTech), in Pasadena”. [Pages 57-58]

Amgen’s partners

“Success is the ability to survive your mistakes.” George Rathman

Chapter 6 (Partnerships Made in Heaven – and That Other Place) is a must read. Binder explains how critical good and bad partners may be and again this is linked to values and ethics. Binder claims that managers are much more careful when they hire someone than when they sign a partnership.

“Our search for a corporate partner started at home. Much to our shock, not a single U.S. pharmaceutical firm showed interest. […] Abbott Laboratories, one of Amgen’s original investors, had the opportunity to be involved in the Epogen project. CEO and Chairman Bob Schoellhorn turned it down. He’d been influenced by Abbott’s chief chemist, who apparently didn’t think much of drugs based on large proteins. As we would discover, that bias was not unique to Abbott; in fact it dominated traditional pharma. One company’s representative informed us that his bosses were passing on Epogen because the opportunity was too small; their market research department predicted sales would never eclipse $50 million per year (For the record, the drug generates $10 billion in annual revenue. Some market research!).” [Page 126]

Their first partner would be Kirin, the Japanese beer company with which trust, transparency and little paper work helped in building a great partnership. This was not the case with Johnson & Johnson. “To this day, contempt for Amgen’s former partner runs so deep that many employees proudly proclaim their homes to be 100 percent “J&J free.” Considering that Johnson & Johnson and its many businesses sell more than one thousand products, from Band-Aids to Tylenol, that’s no small feat.” [Page 133]

Amgen also has academic partners: “Memorial Sloan-Kettering possessed a mixture of about two hundred proteins. But it didn’t have the technology to separate them. Amgen did. […Amgen] discovered the human gene that produces G-CSF, located on chromosome 17. Once isolated, the gene was cloned using the same process as for human EPO. Memorial Sloan-Kettering had filed a weak patent, not knowing what it actually had. Therefore, said my general counsel, Amgen was legally free to process on its own, without paying a royalty to MSKCC. That didn’t seem ethical to me; without Sloan-Kettering, we wouldn’t have stumbled across filgrastim (Neupogen’s generic name). We negotiated a license with a modest royalty.” [Pages 143-44]

Finally for now, here is Amgen growth curve – revenues & profits. When a biotech start-up is successful, the numbers are impressive…

Amgen-Sales-Profits

Recent exits in Swiss biotech show interesting features

In the last 12 months, 3 biotech start-ups from the Zurich area have experienced an exit. Molecular Partners went public on the Swiss stock exchange (see my post from Nov. 21) and two other start-ups have been acquired, Covagen by Janssen (see news release dated August 2014) and GlycoVaxyn by GSK (news release from Feb. 2015), both for about CHF200M. I had already written a post entitled Swiss Founder’s Dilemma in Decembre 2013. But I had not at the time published precise individual capitalization tables. Here they are.

EquityTable-Covagen
Covagen cap. table – click on image to enlarge

EquityTable-GlycoVaxyn
GlycoVaxyn cap. table – click on image to enlarge

The next table compares some interesting features such as levels of investments and dilution:
SwissBiotechDataFeatures
click on image to enlarge
I could have added the university equity which was in the 5-8% range at incorporation to be reach 0.2-1.8% range at exit. An interesting additional point is that the IPO seems to induce less dilution and more value creation than the M&A.

The liquidation preference is another interesting feature. The Glycovaxyn case was interesting with a complex mechanism. Despite its complexity and because the acquisition price was much higher than the amount invested by the VCs, the resulting stakes were similar to a plain vanilla prorata shareholding.

I just added these companies with a couple of others to my series of cap. tables and updated my file soon!

In the French speaking part, EPFL has enjoyed some exits too in the last two years: Jilion, Sensima, Aimago, Composyt. Interestingly the exit values were lower and VCs non-existent. But VCs have been active too in the last 5 years. Hopefully some nice outcome will happen in the near future…

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
click image to enlarge

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
click image to enlarge

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.