Rachael Craig, MotionHall: Good morning Chris! Thanks for joining us on our latest in our series of executive webinars from MotionHall.
This is the first of several special editions focused on the unique times we find ourselves in, and I’m very pleased this morning to have Chris Garabedian with us to speak to some of the challenges that are top of mind for leaders at this time.
Rachael: I'll be hosting us today.
My name is Rachael Craig. For those of you who don't already know me, I’m the co-founder and CEO of MotionHall. MotionHall exists for one reason - that's to help ensure your company closes the most valuable licensing or M&A deal possible.
MotionHall is a Silicon Valley technology company serving Business Development Executives in the Life Sciences with modern cloud-based tools. These tools sit on top of the most comprehensive data available and empower our premium OutMatch tool which is a predictive partner identification and profiling tool for dealmakers. Like many of you, our roots are as a venture-backed company and MotionHall’s luminary fund is Village Global, which is backed by Michael Bloomberg, Bill Gates and Jeff Bezos. Building MotionHall, my team and I work with some of the most reputable names in biotech deal-making. Prior to MotionHall, I acted as interim CEO and executive at numerous biotech, medical device and technology companies.
My educational background spans business neuroscience and software engineering, which for those of you who are already MotionHall members may know is a very good background for the unique tools we build for dealmakers here at MotionHall.
Rachael: Now please let me introduce Chris and his extensive expertise and leadership further.
Chris Garabedian founded Xontogeny in June of 2016 to support multiple promising technologies from early development through clinical proof of concept. In 2017, Chris joined Perceptive Advisors to develop their Venture Fund strategy and launched the Perceptive Xontogeny Venture Fund in 2018 to support early stage companies seeded and incubated at Xontogeny and other ventures.
Chris has a broad base of experience and a track record of success over his decades long experience in the biopharma industry. Chris served as the President and CEO of Sarepta Therapeutics from 2011 to 2015, overseeing the turnaround of a company that is now a commercial stage leader in the genetic technology space after leading the development of the company’s Duchenne Muscular Dystrophy program. Prior to Sarepta, Chris led Corporate Strategy for Celgene from 2007 to 2010. Prior to Celgene, Chris served in a number of global commercial and corporate development leadership roles at Gilead from 1997 to 2005. Chris serves on a number of Boards of life sciences companies and speaks at industry conferences on a wide range of important issues. Chris is also on the Board of Directors of MassBio and serves as a Senior Advisor for the Boston Consulting Group.
Chris, you and I have spoken about the project at Xontogeny several times, and it’s relationship with Perceptive, and I think you’re doing some very unique work there.
To kick us off, would you tell us a bit more about Xontogeny and your work there?
Chris: Absolutely, Rachael. I’m really excited to be part of this discussion.
Xontogeny: I describe it as an accelerator. It's really intended to partner with scientific founders and entrepreneurs, typically first-time CEOs who are looking for experienced industry talent to help them drive their research programs forward. What we do is we make seed investments and help incubate those companies. Sometimes, we're involved in the formation of those companies. We move toward de-risking, so that the company is ready for a healthy Series A investment, ideally at a stepped-up valuation. But I also run a venture fund for Perceptive Advisors. We call it the PXV (Perspectives Xontogony Venture) fund. That can enable those Series A investments anywhere from 8 to 15 to 20 Million where we can support those companies that we incubate at Xontogeny. It's really exciting. We have several portfolio companies at the Xontogeny level, several that have moved on to the Series A investment level and other investments we've done from the venture fund as well.
Rachael: If I understand correctly, part of what's really different about what you're doing at Xontogeny is trying to infuse those companies with a level of network and mentorship to de-risk the company in places that are often overlooked in biotech company building and formation. Is that fair?
Chris: Absolutely. We're willing to go where the less common hubs of biotech are located, willing to work remotely with researchers who might be in various academic institutions around the country. We think most of this work can be done virtually. If you have a lead compound, we think we can move those programs forward with our network and with our expertise, as you described.
Rachael: Thanks Chris.
Rachael: As we move into the mood of the times, and the focus for this call today, I think leaders would value hearing more about how other companies are managing. Could you speak to the most common challenges you’re working on with your portfolio companies and network at this time, particularly as we're dealing with the coronavirus pandemic?
Chris: Absolutely. Well, first I'll say that it's an ongoing process. As we speak, certain cities in the US are really starting to tick up in terms of confirmed cases, hospitalizations and mortality. We will be seeing a disruption in US workflow, probably in the coming weeks, maybe for the coming months. Obviously, there are countries that have been on lockdown: Italy, Spain, etc. Sites that are enrolling patients or in the throes of activities, that activity can be disrupted.
The first thing we did was to look at our portfolio and figure out what is in play currently and how do we assess any potential disruptions or confirmed disruptions, and how do we ensure continuity of workflow.
Second to that - because that's the most urgent - is what's happening right now: if we have companies that have plans for clinical activities, do we think those would be disrupted? Should we delay those activities? A lot of that thinking is ongoing. It's working with manufacturing, supply chain, or it's working with CROs doing preclinical studies, checking in to see if they have any disruption. Most notably, would be clinical studies that require patients to go into institutions where we don't want to overburden those institutions when they're dealing with COVID.
We really have to look at each specific scenario and situation independently. We try to do a risk assessment. We try to have more common touchpoints to make sure. Now we know that there are pharma companies that have a blanket statement, “We are suspending all clinical trial enrollment.” For each company it's very different. We have a pilot study that's going to launch in South America. We've checked with those sites. They don't believe that it would disrupt anything at the moment. We have to keep in touch with those sites.
So far, it's on a case by case basis. In general, we're taking a little bit of a pause because we are in the throes of the uncertainty and disruption right now. Is it worth waiting for a few weeks before initiating new activity to see how this is starting to play out? If those curves are starting to flatten and the like.
Rachael: That brings the next question. How are you seeing investment timelines being affected in the industry? For everyone who was thinking about having investment conversations and talking to VCs this quarter, how do you think that might play out? Are valuations being impacted?
Chris: First, I'll just state my own personal example. We have had three deals that we were working on prior to the real rise in risk in the US of the COVID threat. Through this process, we closed one of those deals that will likely be announced next week. We signed a term sheet on another deal, and we've come to an agreement on a third. Those are all moving forward. We've not stopped or delayed any of our activities. We didn't go back to those companies and try to hardline negotiate because of how the macro market environment might have changed. We've continued the status quo in our work on deal-making. That's investment deal-making, not strategic deal-making. We have a couple that are on the horizon that we continue to move forward. The nice thing is that even working virtually, we have these relationships, they've been ongoing. Everybody is excited to actually continue the work.
Now, where I think we have seen a little bit of impact is we've seen companies that had, “deals on the table” for seed investments and the like, that fell apart or have been delayed. I think that there are certain funds, maybe regional funds, maybe smaller funds, maybe seed funds that are probably taking more of a pause, especially because the macro market environment is really hard to predict now. There's volatility in the stock market, which usually has people sitting on the sidelines. Most people are predicting that the IPO market is definitely not going to look like it has over the last five years. As private investors think about what are their potential exit options, where IPO may have been more feasible previously, they may now be more skittish to jump into those early private deals.
I think it will impact valuations. Private valuations are a laggard to public valuations. Now that we're seeing public valuations come down, I think when people do their calculations of how they can get their return, how much money to invest, what that public IPO value would be so they could still make money, as those public valuations come down, private valuations will follow and will become more reasonable.
A simple way to describe this is that we've been in a seller's market for the most part. By seller's market, I mean a company with a team and a technology that is in high demand that looks very promising. They were gonna have multiple investors or strategic partners that want to go after that. It’s been a little bit of their world to dictate who they want to work with, to get the highest bid, etc. In these environments, it really shifts to a buyers market. Because as the money starts flowing less easily, then the buyers can be more discerning, more particular, more demanding on valuations and terms. Again, I don't think we've seen that in the last month, but I think that these are the shifts we typically see when macro market environments contract. Sub-Topic: Is there particular opportunity for VC firms willing and able to lean-in to the current market environment?
Rachael: Do you think as things shift to increasingly a buyers market or a buyers market for the moment, there's an opportunity for venture investors who are more willing to lean-in and move quickly on opportunities relative to investors who are taking a pause? We've heard a lot of that type of conversation and speculation in our network.
Chris: I'd say absolutely. We're one of those firms that is trying to lean in and take advantage of this. I think if you look historically, some of the best performing funds are the ones that started around times of a downturn. I think Third Rock came into being around that 2008/2009 timeframe as one example. I think that the long-term, private investors look at situations like these as opportunities. As valuations become more reasonable, that usually means if you execute well and you get some successes, those returns will be actually even greater.
Rachael: Makes a lot of sense.
Rachael: Coming back to timelines. How do you think timelines may play out both in terms of venture and licensing activity for the industry? I know one of the questions that we get is “Do we think we'd see things moving again before Q2 is out? Q3?” I know personally I think that we're going to see things really pick up in September and have a mad dash towards J.P. Morgan with people trying to get far more than usual done ahead of the conference. And that's already a mad dash in it’s typical state.
Chris: I think that's a fair assessment. I think when there's uncertainty, and right now we are in the midst of a lot of uncertainty, people are more conservative and a little bit more skittish. Right now in the US and in certain cities in the US, you are seeing this really steep slope of increases and infections. That's the scariest time for everybody. But fast forward a few weeks, hopefully not more than that, you're going to start to see a flattening of the curve. When we start to see a decline of that curve is when people are going to feel that we're going to get back to normal. The pressure to not do elective procedures or not to come to hospitals with non-COVID or more mild to moderate conditions, that pressure is going to go away. Then the hospitals will be able to absorb those patients and get back into a steady workflow. That means that patients who are in clinical trials can go to their visits without fear and concern. Clinicians are going to be more freed up to do these trials and elective procedures, along with these batteries of tests for clinical trials. I think that's what everybody's going to look for to make them feel like, “Okay, wow! It's safe to jump back in the water”, and to start their workflow as we know it now.
That's separate from the macro market environment, unemployment, people's embrace of public equities, where those valuations are. That's a separate assessment that investors and the biotech sector will look at very closely. I will say that, in general, we are a less affected industry. I mean people get sick, people need treatments, there's a lot of money on the sidelines, a lot of dry powder that can continue to support many programs moving forward. The health care system is not going to shut down the way we might see the service industry, restaurants, travel and hospitality and the like. We are also much more conducive to working virtually. I think the industry has benefited from maintaining continuity of workflow for the most part. If CROs are still in business and the manufacturers aren't significantly disrupted. From that, it's a hopeful sign for our sector to move forward with optimism.
Rachael: Let’s talk about that a little bit more. Because I think everybody needs a little bit of optimism, or to search for opportunities and silver linings right now. Where do you think we might see unique opportunities or silver linings for the industry as a result of this disruption?
Chris: In some ways, I think we’re already seeing it. The speed in which the industry has responded with therapies for one: there are dozens and dozens of treatments now that are pursuing moving into the clinic. People are talking about these master protocols and trials to look at multiple therapies, trying to get as much information as possible on these new interventions. You saw Moderna in getting a new vaccine into the clinic in record time, and VIR stepping up with antibodies in the space. The speed of response by the industry and the requisite embrace from the FDA, along with the speed at which the FDA put out guidelines, is showing flexibility in the midst of COVID19 and disruptions of clinical trials. The FDA is showing their willingness to allow these drugs into clinical trials quickly and is being very efficient in their administrative role.
The speed of response by the industry and the requisite embrace from the FDA . . .
in the midst of COVID-19 . . . these are things we can be proud of.
These are all things that we can be proud of and maybe increase the comfort level of these types of the speed at which we can consider things, the speed at which we can assess risk benefit of new modalities. Similar to going back to HIV/AIDS, when there was facilitated accelerated approvals and a flexibility in ways we had not seen.
In more recent years, we’ve seen this with rare diseases. How Congress has really encouraged investment in this area. I think COVID-19 is one of those situations where all the parties are aligned. The consumer and patient communities, the regulators and administrator, Congress and industry all like to see this done in a very prudent, measured way. Weighing the risks and benefits the right way in situations like this. I think there are a lot of positives that could come out of this. Frankly, situations like this spur creativity and thinking about how technology can be applied.
Many of the companies we interact with, even those that are in diligence, are thinking “Hey, we might be able to work in pulmonary fibrosis or compromised lung function, or situations like this”. The idea that COVID-19 might not go away anytime soon, that it could become seasonal, and could be marked by impacted pulmonary function is spurring people to think creatively about how to apply their technology. I think there is a lot of reason for optimism for our industry and how this has catalyzed a lot of people into action.
I think there is a lot of reason for optimism for our industry
and how this has catalyzed a lot of people into action.
Not to mention the respect and acknowledgement of the healthcare provider community. How they have mobilized, how they have tuned up, pitched in, and put their own lives at risk in many cases, to solve this. This really shows that the broader industry, the healthcare industry, is really here for the right reasons, which is to save lives and help patients with illness.
Rachael: One place we might see a silver lining is in public perception of our industry, which can be very challenging at times. There are a lot of misunderstandings about why things are done the way they are. Do you think we will see a perception shift, from the quick response and visibility of these companies rapidly working on a cure, that there will be a shift in public perfection of the industry?
Chris: I hope so. [Laughing.] The reason I say that is, that I’ve never met a patient who has been helped by the biopharmaceutical industry who is not supremely appreciative for what our industry does. And so, in many ways, it is the people who are impacted directly, who understand it. In some diseases, where all the patient knows is that they get a prescription to go to the pharmacy, and they have a high co-pay, they have a different experience. But those that are close to the companies that are developing treatments for serious illnesses, and for those patients that have those illnesses, it’s really a life changing experience for them. I think in a case like COVID19, where people are a little bit closer to the need for treatments, and maybe see loved ones hospitalized or even passing away from this, I think they will be paying a lot more close attention to: “How can we help these biotech companies get their technologies in clinics faster? How can we figure out more streamlined ways to get access to medications that look promising?”
Again, I think that with these experiences, comes greater awareness and education and understanding. I hope that our industry embraces that and uses that as an opportunity and steps up to frame our industry in the right way in the face of this.
Rachael: At MotionHall, all we think about is business development and how we can help companies arrange for more valuable and successful licensing and M&A deals. Because of that, one of the silver linings we think might emerge is the massive adoption of video for facilitating international business. I don’t want to overestimate how much it will impact geographic barriers, but there is a hope that if we adopt video and use it more readily, the geographic friction that we’ve experienced for quite a long time now would be reduced. Do you see that as well?
All of us are seeing our work change.
Chris: I do. All of us are seeing our work change. My schedule has always been back to back, but often half or more than half of those meetings are in person. I still have a back to back schedule now, but it’s on the phone or Zoom. I’ve had 6 conferences I was scheduled to attend be cancelled this and next month. Across the industry, the savings on business travel expenses alone, and the inefficient way that travel adds to being able to get a lot of work done will be noticed. There’s something to be said for having everyone get used to the idea of getting work done remotely. It won’t replace in person meetings. There will always be a reason to meet. Those intangible things, those relationship building things, for one. I do think that this is educating people and getting them more comfortable and familiar with a means of interacting and doing dealmaking, that should benefit the industry overall.
Rachael: That’s great. Have you happened to attend one of the virtual conferences that have spun up for investors?
Chris: I have not. One of my colleagues attended one with researchers who were also entrepreneurs. She said there were fifty people, all on video, and it went really well. I have done board calls with video, meetings with audio and video, and it’s working quite well. I haven’t gone to one of the bigger conferences virtually yet. I think some of them were postponed, so some conferences were not turned into virtual gatherings, but were postponed. I’m expecting that over the next few months, we’ll continue to be working virtually.
Rachael: We’ve talked about a few ways that things may play out. One that we haven’t hit, but I think we need to, because some companies will struggle, is M&A. Do you perceive or expect that we’ll hit a timeline where there are a lot of companies seeking M&A? Do you think pharma will react and try to scoop up some of these struggling biotechs that can’t quite get through, or do you think it will play out differently?
Chris: I think there’s actually two answers to that. I did business development for both Gilead and Celgene on the buy side, and I have been a public company CEO. Understanding the mindset of a business/corporate development group, it is very rare for a company to come in and acquire an asset or company if there’s not a clear definitive clinical POC dataset that says this drug is likely to be approved or a commercial organization. The reason that they typically don’t get acquired if there is a commercial drug or promising data set that makes everyone believe that the drug is going to get approved, is usually on valuation.
For those companies that look for “accretive deals”, where they can see a line of sight on revenue generation and dropping income to the bottom line, (a major motivator for M&A, besides strategic fit), as the macro markets contract, and as valuation becomes more reasonable and more in line, absolutely they may move forward. Historically, you see an inverse correlation where M&A increases when valuations go down with public equities in a given sector. I think that we will have people dusting off their models and saying “hey, maybe company X is actually right now, because we can put a 40% premium on the trailing three month price, and this works for us”. Where a year ago, that deal didn’t work for them or even two months ago it didn’t work for them.
I think from that standpoint, yes we’ll see M&A increase.
I think from that standpoint, yes we’ll see M&A increase.
On the other side, with distressed biotechs, who are cash strapped, and can’t go out and raise a lot of money because their stock price is depressed, maybe they only have a year of cash runway. Honestly, you rarely see those companies scooped up because you still have the same issue. You need to find money to invest and move that program forward. And you’re taking a lot of binary risk on that distressed company. That’s typically where companies don’t want to see that consolidation on the bottom line. Now, will it spur more creative structured deals? Absolutely, that could be a by-product, where companies that have a promising technology, but are cash strapped, would be more willing to do a territory deal or a co-development deal. I think you might see that shift, if the money flows less easily, especially for public companies.
Where companies that have a promising technology, but are cash strapped,
[might] be more willing to do a territory deal or a co-development deal.
Rachael: Chris, let’s wrap things up. Thinking particularly of CEOs, corporate development executives, and BD leaders that we work with here at MotionHall. Do you have any particular advice for them, based on your experiences going forward over the next few quarters?
This is an opportunity to lean in. This is short term.
And we have a long term vision, and this will create
opportunities where we can move quickly.
Chris: You alluded to it earlier. This is an opportunity to lean in. That’s true of business development professionals as well. These times provide opportunities where everyone freezes a little. They pause. They are analysing the situation, trying to figure things out. I think the organizations that are more quick to say “Okay look, this is short term. And we have a long term vision, and this will create opportunities where we can move quickly”. We had a situation recently: one of the deals we finalized terms with, in a competitive process, and we worked very quickly and diligently to get the deal done. I think that companies that can take advantage of this and are comfortable with working virtually, comfortable with brokering those relationships, using those skills of relationship building and negotiating in this current environment, I think they could find themselves to have some good, opportunistic deals along the way. I would encourage that.
One of the things I’ve spoken about before is that when there is so much money flowing, you see these big deals being done. For instance, a pre-clinical stage company getting an $80 million Series A round. That’s great, and you can pursue a lot of different activities with those funds. The tradeoff is that you have to make sure that you have the right team to do quality work across many activities when you have too much money. Sometimes it doesn’t make sense if you haven’t de-risked your platform or your technology. Why are you pursuing five things at once, why don’t you pursue the best application of the technology and prove that, and then you can be smarter going forward. Then use money behind it, maybe raise money at a higher valuation. These are things we’ve lost a little bit with so much money that has been flowing.
The traditional way is that you give a little bit of money and see how well that company prioritizes those activities. Where do they focus their attention to drive the most value, are they singularly focused on doing a quality job on that one main activity. I think we’ve lost a little bit of that with too much money flowing. I think these times may bring us back to “Okay, we’ve got a company now that has only a year of runway, do we want to reprioritize how we’re spending that.” Do we cut a couple programs and focus more on the lead program in order to give us more runway and get to that big value inflection.
I think that, whether you’re a business development executive, portfolio manager, or an investor, I think you’ve got to figure out how you are deploying that capital, and as “Can you prioritize it in a better way in this environment?” where money may be more constrained in the near term.
Rachael: So in summary, painful and potentially healthy for the industry in many ways. As they say “never waste a crisis”.
Rachael: Chris, thank you so much for spending your time with us today, and for your leadership.
Chris: Thanks Rachael. I enjoyed the talk and spending the time. We’re all in this together and trying to figure out the right path forward through this crisis.
. . .
If you are a life science entrepreneur seeking funding and drug/medical technology development guidance, Chris and his team at Xontogeny brings decades of deep operational, strategic and investment experience across treatment modalities and therapeutic areas with a proven track record of success and can be reached directly at the Xontogeny website.
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