Can you provide an assessment of the overall health of the biotech industry and how it is positioned for future growth?

Biotech is riding a wave of positive sentiment these days due to the incredible success we are seeing with COVID. The industry has quite literally saved the world by providing the vaccines, therapeutics and diagnostics we need to overcome one of the biggest crises the world has seen in the last 100 years. As a result, there has been a lot of investor interest in the sector. Anecdotally, any company with vax in its name has done extraordinarily well - there has been a lot of enthusiasm for companies working on anything COVID related. However, across the field of biotech there has been tremendous support for companies; 2020 brought record financings for public and private biotech companies, and capital inflows have not just come from institutional funds, but retail as well. Especially in the low interest rate environment we are in, biotech is one of the few growth areas that we see in the world economy.

In addition to positive sentiment, the fundamentals that are driving the biotech industry over the long term have not changed. The three fundamentals that drive biotech are aging demographics, incredible innovation and the supportive regulatory environment.

The FDA’s relationship with biotech has also been a very positive force for the industry and they have shown that, if there is a severe unmet medical need, they can work productively and collaboratively to get drugs out to patients as quickly as possible. We saw the FDA perform at “warp speed” for COVID. But the truth is, they have been doing that same day job for years with respect to cancer and other severe unmet medical needs. We have seen cancer drugs get approved in under three months for diseases such as pediatric Acute Lymphocytic Leukemia. The FDA’s thinking is that every day that they do not approve a drug like Blincyto there is a child who may die of leukemia.

How were you able to model your fund in a way that limits the impact of the venture capital J curve?

VC funds typically have a J curve, where early on in the fund they are drawing management fees, but their companies have not yet produced any returns. When you invest in an early-stage VC fund, they are starting new companies, and those companies take a while to grow up. They need to write a business plan, hire the right management team and do all of the logistics of setting up a company. Secondly, companies are not repriced until they have a subsequent round of financing. Therefore, even if they made all the progress in the world, it would not be until that Series B that a company or asset would be written up in the books. From that perspective you go down and then, as those companies mature, you come back up on the J curve with Series B and C rounds that are big step ups. Thereafter, you start to see acquisitions and IPOs as companies reach those points. That is when you start to take off on the J curve.

The good thing about the private-public model of investing is that a public company can achieve a return as soon as you invest in the stock, because those companies are more mature and, for the most part, have already started their clinical trial or are close to the clinical trial process. Instead of a J curve, you can start to deliver returns early on from the public companies, and then later on, once the private portfolio matures, you have both the public and the private companies delivering returns.

How have SPACs changed the dynamics of the IPO market for biotech companies over the past year?

I have not been a big supporter of the growth in SPACs, a development that suggests there is too much money going into the sector. In this environment, all high-quality companies can raise money successfully both in the public and private markets. It is not an issue of company stage, since many companies which are years away from a clinical trial have been able to go through the IPO process. I am not convinced that a SPAC can do better than a highly efficient financing market. SPACs do better when the market is inefficient.