Christoph H. Westphal
Courtesy of David Shopper Photography
Most people say this is an industry driven by how much money a drug, such as Lipitor, can bring in. I would argue that Lipitor is a great molecule, but it's the people who made the molecule the number-one selling drug on the planet. It took a talented team of chemists, clinicians, marketing executives, and regulatory experts to drive it to $4 billion in sales. The original discovery of a target is a small part of the value chain; you need to have world-class people all along to make your company a success.
In addition to a great team, you need intellectual property that takes a unique approach and is something investors will want to buy into. I believe new drugs are out there with the potential for Lipitor-like success, and biotechnology companies will most likely be the ones to find them....
SURVIVING DIFFICULT TIMES
In the late 1990s and early 2000s, funding was available for companies with just a platform or proprietary information, but the failure of genomics to rapidly produce marketed products has caused investors to swing all the way to the other extreme. Most people are now interested in licensing compounds rather than companies with just a good idea; we are one of the few venture funds that still fund early-stage companies. This year has seen one of the worst windows in recent memory for initial public offerings, one of the most common ways that companies raise funds for early-stage research. I predict that the next few years will continue to be difficult for early-stage companies, but I believe the pendulum will swing back again.
If we are really smart, we will continue to focus on the discovery of new drugs despite the hard times in biotech, because it's what we do really well. A new company focused on RNAi is more likely to discover new drugs than Big Pharma, which is not going to put intense focus on RNAi. While a company focused on a novel enzyme class is risky, if you can get to the late-stage preclinical trial, it has the potential to produce an innovative and exciting new drug.
If you ask most people, they would say biotechnology is a maturing industry that should focus less on risky, early-stage research and more on getting compounds into the later stages of development. I would argue that this mindset is 20 to 30 years premature. There may be a time to take the conservative route, but that day has not arrived.
For example, the semiconductor industry was invented in the 1940s but did not become highly profitable until the 1960s, and it wasn't until the next two to three decades that the industry matured and underwent incredible improvements that changed the world. By analogy, the biotechnology industry was invented in the mid-1970s and has yet to truly hit its stride.
The human genome has just been sequenced, and we have identified hundreds of new targets; structure-based design is just getting started; and RNAi presents a whole new mechanism for achieving gene regulation. We are at the beginning of an extraordinary phase of discovery in the biotech industry; taking an overly cautious approach is a tactical error that could leave pharma pipelines seriously depleted in the next few years.
ACHIEVING THE WINNING MIX
So how do you take a good idea to the next level? When launching a biotech company, I look for a team of scientists who are not only well known or likely to become well known, but also who are committed to creating a great company. We're not looking for scientists who will just lend their names to an endeavor, but those who will roll up their sleeves and take part in the hiring, meeting with pharma, setting strategy, and attending board meetings. The company has to be very important to them.
We believe that you can generate good returns on early-stage science if you are able to capture the imagination and dollars of the public market and pharmaceutical companies. Venture capitalists can't fund these companies all the way through launch of a drug, which is typically an $800 million endeavor. At some point, you need to have other people join you strategically.
It helps to formulate a clean, crisp story that people can understand in an "elevator pitch." At Sirtris it's class-three HDACs [histone deacetylases], an interesting set of enzymes that are important in metabolism. At Acceleron it was protein therapeutics and quicker timelines for getting in the clinic. With Alnylam it was clearly RNAi, a hot new area. With Momenta Pharmaceuticals it was glycobiology and improving currently marketed drugs.
At the beginning, a company's founder is a bit like a marriage counselor, or better yet, a Hollywood producer. You've started a company with all these famous people, your stars, and you have to make sure the stars can work with each other. You need to marshal everyone to be excited about the idea and to work together for the greater good of the commercial success of your company, which could be five to 10 years away.
Any company I've started, such as Alnylam, Momenta, and now Sirtris, seems to follow a similar trajectory. At the beginning, everyone says it will never get off the ground. Then you talk to 500 people before finding three, four, or five people who are going to be core founders. You get them all signed up, make sure there is agreement on how you are going to divide the founding stake of the company, and then raise the first few million dollars on just an idea.
This seed money helps you sign up your scientific advisory board, get the initial patents and licenses, perform the initial assessment of pharmaceutical companies to find out what the market is really interested in, and then refine the vision of the strategy so you can raise the next $10–20 million dollars. At that point, you hire director-level biologists and chemists in the hope that within six months you might get a head of R&D, which is an incredibly important position.
A postdoc or an assistant professor in academia is not necessarily a good choice for the head of R&D at a biotech. Someone who has taken 10 drugs through the clinic, has managed several hundred people, and understands how drug development works is often best in this role. You want someone who thinks: How can I take a discovery that has been made and turn it into a drug? At that point, you want to get a world-class CEO to take it to the next level and go public.
One of my most important roles is to understand that I am not the best to do the next stage, and that I need to look for the best possible replacement for myself. The goal of every person in the company should be to find the best person to do every job, even if it means that your position and role in the company will change. At the beginning, you may be the most senior person, but if, over time, you can attract world-class people, you will be happier with your financial return than if you choose to be the CEO for the rest of the early years.
I come from the world of science, and before I went into business, I thought business people were all the same. Well, extremely talented people occupy any field or endeavor, and its incredibly important to take that seriously when you are starting a company. I think having a great CEO is much more important to the success of the company than the original technology. A successful biotechnology company is about more than just the science.
Christoph H. Westphal is a general partner in Polaris Venture Partners in Waltham, Mass., one of the largest early-stage venture firms, which has $2 billion under general management. Westphal earned an MD/PhD from Harvard Medical School, is the lead author of several papers in
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