September 17, 2020

MotionHall Social: Biotech Business Development with Amplitude Ventures Dion Madsen


Topic: Biotech Business Development with Amplitude Ventures’ Dion Madsen

Rachael Craig, CEO at MotionHall: Good morning, everyone! Thank you for joining us today in the latest in MotionHall’s Executive Series of webinars. This is the third in a series of discussions addressing impacts of the coronavirus on our industry. If you're interested in learning more about previous discussions, you can find the transcripts for these on our blog and LinkedIn pages.

Introduction

Rachael Craig, Ceo at MotionHall: Hello! Glad to see everyone with video on today. I want to start today with an icebreaker. We've got people from all over the world and different therapeutic areas on the call. So I'm going to ask you to put into the chat where you are in the world, what the weather's like today, and what therapeutic areas are taking up the majority of your attention right now.

For folks who've just joined, we're doing a little icebreaker. So, in the chat there if you want to share where you are in the world, what the weather's like today and the therapeutic areas are taking up most of your attention. Let's see them in the chat.

Guest Introduction: Dion Madsen, Managing Director at Amplitude Ventures

Rachael: Now that we know a little bit about each other, let me share a bit about Dion, our guest today. I think some of you may know Dion already. For those of you who don't and would like to know him better, Dion is an experienced healthcare investment leader. Dion has founded or led investment activities at BDC Capital's Healthcare Fund, Physic Ventures, and Unilever Technology Ventures, which is Unilever's North American corporate venture fund. Prior to Unilever, Dion led Chiron Corporations investor communications as Director of Investor Relations. He worked in corporate development building a new strategy for the company's $500 million biopharma business. Dion is a CFA® charterholder and has a Bachelor of Commerce in Finance and Marketing from the University of Saskatchewan. Dion's here in part to share a little bit more about Amplitude Ventures which is his new Fund and is supported by Canada's leading institutional investors, including BDC. So this fund is focused on specific verticals for those who are curious, including precision health, cellular and targeted therapies, next-generation imaging, and intelligent medical devices as well as artificial intelligence.

Dion, can I invite you to share just a little bit more about the types of companies you're interested in meeting?

Dion Madsen, Amplitude Ventures: Yes, sure. Our focus is really on Canada, for a couple of reasons. One, we've been building a pretty in-depth knowledge of the innovation space there since 2013 when I ran the BC Healthcare Fund, but also I think Canada houses some tremendous engines of innovation around UBC, the University of Toronto, and McGill University. In addition, the government itself has been very positively focused on building an innovation economy and in targeting their investments in a couple of key areas. We see an opportunity to build world-class clusters around cellular and targeted therapy in a Vancouver-Seattle cluster, based upon a couple of key companies that have already started innovating in the region. In Toronto, around the next-generation imaging and intelligent medical devices, and in Montreal around AI.

Canada has the advantage of being home to two of the top three AI researchers in the world, Yoshua Bengio and Geoff Hinton. The government has recognized that fact and put a lot of investment dollars behind it. We see AI as being a very compelling tool that can be used to enhance not only drug development and drug discovery, but also diagnostics and robotic surgery.

Those are some of the key areas that we're looking at.

Rachael: Dion, you do have some latitude to invest outside the Canadian region. Would you share a little bit about that?

Dion: Our focus is really on Canada because I think it's been underinvested in the last 15 or 20 years. I think there are a lot of opportunities here for us, but one of the first three investments we've made is a company based out of the UK with Canadian founders. We're co-invested with a top-five global pharma’s corporate VC in that deal, and we'll be bringing that company back to North America. We are looking for some opportunities that are very complementary, and in those verticals that I outlined, in the US and globally. It has to be a really high bar for us to make the commitment of traveling to those companies and doing that kind of diligence. We are now increasingly seeing other companies that are being built first in Asia and then moving to North America, or companies in Israel coming to North America to tap into the market. I think we'll be looking at some of those as well.

Rachael: Great. Well, thank you again for being here today. For everyone in the call, we'll move into a general QA and quite a lot of you submitted questions before this morning's conference. Dion and I are going to dig into a few of those. I think we are going to go with the business development lens. But again, if you want to ask questions as we go, have put a queue in front of him and drop them into the chat and we'll try to take them on and call on you.

Topic: Venture Perspective on When and What to License

Rachael: Dion, as a VC and board member, what's the number one thing that you wish biotechs would handle more strategically when it comes to licensing strategy?

Dion: The question that comes off as a critical one, because I think some companies do a good job. We tend to focus our attention on platform companies. The thing that we try to bring in terms of value as an investor and board member is to work to get companies to think more strategically about where they want to be. Then, we take a look at how they're building out their pipeline of technologies and how they would prioritize certain capabilities. It’s your basic SWOT analysis, what strengths do you have, what weaknesses do you have, and you want to do licensing to cover weaknesses that you might have. You want to try to amplify your strengths.

If your strength is in building a pipeline, but you're an early-stage company, you're probably not going to try to build a pipeline and go after high cholesterol, for example, where you're going to have to run a clinical study of 20,000 - 40,000 patients and it's going to take five years. You just can't do that. You're going to look for a partner to cover off that weakness that you've got.

If your strength is developing these drugs, then you say, well, we have a really fast team that can focus, then you're going to spend more time on your engine and moving things through the early part of the preclinical cycle. But at some point in time, you're going to want to develop an expertise. That expertise should be focused in a certain therapeutic area, in our opinion, because you're going to want to build some capabilities around that. So you would out-license things that were not core to that particular area. Let's say it's liver disease or kidney disease or ophthalmology or neurology, but anything else that's an application of your technology or science that's outside of those areas, then you should seek to find a partner to do that. But you should try to retain as many rights as possible.

I think that the strategic part of that is, everyone gets excited when you're an early-stage company and any company comes and shows interest in your technology. We get super excited “Oh, it's a validation of all the work that we've done. We can get all this money that can come in and really enable us to raise financing.”

But sometimes doing those early deals isn't necessarily strategic, because your partner cannot move as fast as you can in terms of moving that forward. It's one of the things that we always want people to consider is when is the right time to do that? What do you want to partner out? What don't you want to partner out? We want them to be thinking about putting their set of assets into two buckets: 1. when you're cleaning out your garage the stuff that you want to give away you put on the street and people drive by and go like “Yeah, I'll take that.” 2. The stuff you want to keep, you keep inside your door. It doesn't mean you're never going to sell stuff in the garage. But if people want to come into the garage and buy that stuff, then the price is going to be a lot higher.

You have to have that mentality right at the beginning, where it's like everything's for sale, but this is the stuff we’re advertising now that you can pick up easily. But the other stuff, you're going to have to make a bid either for the whole company or it's going to have to be financially compelling for us, because that's the thing we're going to use to build real value.


“Sometimes doing those early [validation] deals isn’t necessarily strategic, because your partner cannot move as fast as you can in terms of moving that forward.”


Rachael: That taps into one of the other questions we had from the audience, which is: Do I license now? Or do I take VC and continue to build value? Do you have comments on how someone would evaluate how they think about this decision?

Dion: In my opinion, if you have the flexibility to choose; and by that, I mean, you're not running out of money, you've got all the proper conditions, that I think it would almost always be more beneficial to keep the asset, than to assign rights or partner the rights away. The reason I would say that is, it's the thing that's going to create real value and capability inside your organization. You're going to learn a lot more by taking that asset forward.

I think there's a common thought process that goes on where people look at licensing and any money that comes in from an upfront fee or any milestone payments that are made, as non-dilutive capital versus VC as dilutive capital. I hear a lot of that being talked about. But if the value of the company is really the cash flow that you're going to get from that asset at some point in the future,(the net present value of those set of cash flows), and you partner it where you're giving a huge chunk of the economics of that away, then that is dilutive to the company.

They're really equal, but one enables you to create additional capabilities inside the company, and the other one doesn't because you're giving it away. Now, there's always a third way, which is you're going to get paid these milestones, but you're going to develop it yourself, and you're going to be contributing to that development. That's kind of a third way.

I think people should have that kind of mindset when they're going into this, that if you have sufficient cash, and you can go forward, then you should really be thinking about “Why am I doing this deal? Is it because it's the only way I can raise money?” That is a valid reason. “Is it because it's going to give me additional capital that I don't currently have that lets me invest in other, higher value or more important assets for me? Does it give me the ability to complete further studies that I would never have the capability to do?”

For example, we often see assets get partnered at Phase II, where the Phase III is just too complex or expensive for a company to do. I think you should be thinking about it in those terms. Now, if you don't have money, and you don't have access to Venture Capital, you don't have that choice, the existential choice of what we're going to do, then, you should partner that thing because it will enable the company to survive and continue to work on the technology.

But if you had a choice, I think the preference of most investors is, and I'm saying new investors but also ones that are already invested in the company, you should keep the asset and keep moving it yourself because no one can move that asset faster than you can. I think that if you think about how you create real value, it's really trying to push something onto the market. Going through all of the stages and that's where you can create real value, and frankly, create a ton of opportunities for you to access cheaper capital. And that was a key part of our strategy when we were looking at how we build companies in Canada, well, you have to move fast, you have to build pipeline. Then, we have to get them as fast as possible to the US public markets because that's the cheapest source of capital. In order to do that, you had to create real value and you couldn't just license everything away, because that wasn't going to be valued by the markets.


“If you think about how you create real value, it’s really trying to push something onto the market.”


Topic: Leading Biotech During the Coronavirus Pandemic

Rachael: Let's dig into VC a little more. I know that quite a few of the folks on the call today are currently in the process of raising VC, or they're thinking about doing it, and making some of these strategic considerations. What do you perceive the market to be like for venture investment right now? I think particularly, I'm curious how you see a difference from Q1 versus Q2 when the pandemic changes were new compared to now where we've had a little bit of time to adjust.

Dion: Maybe the entrepreneurs on the call have a different perspective than I do. So, I want to be sensitive to that. But from our standpoint, we haven't slowed down at all. When we formed Amplitude, we were already in different geographies. So, we formed the company to be virtual and everything was in the cloud. When our offices got shut down, we essentially just said, “Okay, well, we're just going to work from home instead of working in our remote offices.” We maybe took a pause for a couple of weeks to kind of figure out, “Okay, well, what the heck's going on? Is this market decline going to happen and is it going to be a big chill?”

I think after a month or two, we felt “Okay, things are back on track and we haven't slowed down at all.” We closed our third investment, in six weeks from the time that it was presented to us to the time that we closed the deal. I do think, though, from the data, that there's been more focus on later-stage and IPO markets than the early-stage companies. I do see a slowing of companies that haven't already been out financing. Those that were out in, say, Q3/Q4 of 2019 and built relationships and were looking to close a deal by mid-year 2020. I think some of those deals continue to move at pace and they had a chance to have their relationships built and they could move forward. Ones that were brand new and kicked off fundraisings in Q2 of this year, I think it's going to be a lot harder. It's just harder to get people to elevate their attention level to new deals without building new relationships and not being able to sit face to face with people. I think we're seeing that across all sides from institutional investors who are investing in VCs to VCs who are investing in companies. I think things are just slowed down a little bit until people get comfortable with the new ways of working.

We're lucky because we've been in a Canadian market for a long time. We know most of the companies and the folks who are there. So, it's been pretty easy for us to get updates, and we already know what the teams are, so it was easier for us. But I would say that there's a hesitancy or reluctance to meet with a new team that you've never met with before, try to understand the business, and really commit to doing financing. But maybe by a show of hands, has that been experienced on the other side?

Rachael: I think maybe from a different lens or to amplify a little, here at MotionHall, we obviously have the privilege of speaking to a tremendous amount of biotech companies, but from a different standpoint. So, I think we've overwhelmingly heard that companies that were looking to raise in Q1 this year paused that process as the pandemic set in, and so had a milestone plan there and did pull around, maybe did an internal round the bridge that over. We see a lot of companies that moved their Q1 fundraise from this year into 2021, and also see a lot of companies rethinking licensing versus venture goes.

Douglas, CEO: I was thinking in terms of Dion's comment about if you have the cash and capabilities to develop internally, however, I think a lot of companies are probably running into difficulties and moving things forward because of COVID. We were fortunate that we're semi-virtual and we had already lined up work with a bunch of CRO's that maintained and were still open and fully functional. But I also know a lot of companies have had delays. So they're in a position where even though they have cash and capabilities, they have to find a partner or other ways to move things forward because they're sort of in a semi holding pattern because of the pandemic.

Dion: I think we've seen a delay, maybe about a three/four-month delay in those that were at pre-clinical stage because you're right, the CROs/CMOs that we're working with at the preclinical phase did mostly stay in operation. There were some hiccups, but then they adopted new guidelines and they were able to get back up. Those who were in clinical trials, that's been a little bit more difficult. It's been more like a six-month delay, just in terms of recruitment because the hospitals got tied up and it just wasn't a focus. So we have seen that. In terms of doing internal development versus trying to get somebody else to do it. I think everybody else is experiencing the same delay. So I think there wasn't necessarily an advantage to trying to partner that program or try to do some outreach. It was just more a matter of how do we muddle through this part and be cognizant of spending while we figure out how we move forward with our programs.

We're fortunate because most of our new investments were preclinical. But I think in the case of a company like Repare, for example, which we took public, made that transition from preclinical to doing its IPO to filing its IND and getting into the clinic, relatively seamlessly. So I think we've seen some good examples of where that really hasn't been that much of a delay to the company.

Topic: On Building Venture Scale Biotech Companies

Rachael: Dion, when you're thinking about a potential investment, and you've got a company that has a smart and very realistic licensing strategy together, and you're impressed with that, versus a company that hasn't put together that sort of business development strategy, how does that impact the way you think about the company and the management team? And particularly how you're thinking about risk-reward considerations for the company?

Dion: It's different. It depends on the stage, right? We do a number of companies where we're either creating it or working with the scientific founders at very early stages. I think what we're looking for is an overall company strategy of “How do you achieve global leadership in your particular area?” There should be some BD strategy that's attached to that. It may not be well defined, but if a company comes to us and says, “We have one asset, and we're going to partner that out at the end of Phase I.” Then you think, “Well, where's the company?” There's no company building strategy. I think that's an extreme case.

But if you have a platform and you say, “Our lead program, we want to partner so that we can focus our attention on building our next three pipeline products.” Then you're like, “Okay, reasonable. When do you want to partner?”

So we have a much more in-depth discussion about that. Whether it's going to be pre-clinical into Phase II, etc. then just try to match up the overall opportunity. Often that first product that comes out of whatever technology you have is a pretty low-risk proposition because you've got a lot of technology risk already built into it. So you're going to go after something is pretty well known and maybe a known target. If it's a known target probably has a lot of other competing products around it. The bar for success is higher and maybe the market opportunity is not as great as would exist if you had something that had a much higher technical risk around it. You often see that first program partnered out because it's not as economically valuable to the company itself, but that’s all part of the discussion around that particular opportunity.

Now we are biased towards trying to build companies to the public markets. We feel that unpartnered programs, often, especially if that's your point of the spear, so to speak, are the best way to do that. Good case in point is when we took both Clementia and Zymeworks public. So Clementia was unpartnered at that time, an orphan drug company. So I think the market valued that quite highly and said, “okay, we believe you can take it all the way. You’ll have the money to do so. Then if you do that, it'll be worth a billion dollars. So yeah, we'll fund your IPO and we'll fund you for that.” It turned out it was worth a lot more than a billion so that was great.

Similarly, at Zymeworks, tons of partnerships around the technology, but their lead point of the spear was their own product that wasn't partnered. I think that was very attractive to the market. Because you could see the value being created. I think the market realizes that these companies can move their own programs forward much more quickly, and with more intent and more transparency, then you could get with a partnered program.


“You often see the first program partnered nor because it’s not as economically valuable to the company itself, but it’s part of the discussion around that particular opportunity.”


Rachael: Great. We've got just a couple minutes left for today. Does anybody want to take the mic for the final question for Dion and then we'll close out?

Doug: I'll throw out a question. So Dion, how do you define platform because a lot of companies call themselves platforms, but they really aren't. So I'm curious, what's your definition?

Dion: That's a really tough question because, what is the real obscenity quote, “I’ll know it when I see it.” I think if you look at it, Zymeworks is a great case. They have a technology, multiple platforms that they're working with. Something that they can license to six big pharmas and still have the capability to develop a deep pipeline of their own. To me, that looks like a platform.

Deep Genomics, which is an investment in our new fund, has 15 pre-clinical programs that are coming out of their target discovery platform. They will partner some of those. We just cannot take forward 15 programs. We're working hard to prioritize those and will take those forward. So to me, that's a platform when you can prove that it works through multiple different products or even across different indications. It has to be able to build a pipeline. It can't just be one drug that targets many different diseases. That's not a platform, in my opinion, that that's a product that has a broad target. But a platform is the ability to really build a pipeline off of it.

Rachael: All right, let's close out from here. Thank you, everybody, for joining us this morning. It's really nice to see those of you who are old friends, as well as new ones. Thanks, Dion. We appreciate it a lot.



Find Dion and Amplitude Ventures Online: www.amplitudevc.com.

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