BayBio's year and the impact of new regulations on the industry




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Video title: BayBio's year and the impact of new regulations on the industry
Released on: October 28, 2009. © PharmaVentures Ltd
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  • Summary
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In this interview, filmed at BioPharm in San Francisco, Dr Fintan Walton speaks with Matthew Gardner, President and Chief Executive Officer at BayBio, a non-profit trade association in Northen California

They discuss:

• BayBio's stability, funding and partnering in the financial crisis
• how investors are hesitating until the dust settles
• new regulations and how they will affect private equity
• effects beyond life science for innovation as a whole
• the new wave of products borne of recent partnering
• why the industry must change as regulations change
• the hope brought by the success of smaller companies
BayBio's stability, funding and partnering in the financial crisis
Fintan Walton :
Hello and welcome to PharmaTelevision news review here in San Francisco at BioPharm America. On this show I haveMatthew Gardner, who is President and CEO of BayBio an organization that's supports the member biotechnology companies in San Francisco Bay Area. Welcome to the show.
Matthew Gardner:
Thanks Fintan Walton , so is a pleasure.
Fintan Walton :
Matthew Gardner, 2009 it's been a landmark year. How is that affected the BayBio area?
Matthew Gardner:
Well it's certainly been a tough year for a lot of Life Sciences companies in Northern California. I think what've seen is that we've got to be really grateful for just holding up that we've held the ground relative to the economic around us and that we've seen that a lot of companies have just shut their doors and put folks back out on the street looking for their next gig [ph] and I think that -- of course that happens in this industry even in a good economy. And so I think the difference that we are seeing right now is that it's taking those folks longer to get back into their next role. And so during a flat period like this, again I think we do have to be grateful that we've held that ground fairly well, we still see good science coming out there, still new companies being started, the venture capital investing data actually looks surprisingly good and then in the second quarter we see a huge jump in partnering activity, so I think there are good signals out there, but you are right it's absolutely been a tough year.
Fintan Walton :
So Genentech, a company that was one of the founding biotechnology companies now wholly owned by a major pharmaceutical company, that's obviously another part of the story as well. So where is that fit in relation to the struggling biotech that's trying to start off now, today in San Francisco?
Matthew Gardner:
Well it certainly represents a changing of the guard, if you could call it that I think " you know we could over simplify how that transformation affects local economy with anything that, we don't spend days on. So I think, if I could crystallize that in medium-term implications it would be " but there is a lot of tremendous experienced commercial management talent that's now going to be out in the market and available to help other companies especially in that mid cap space. So I think that actually goes very well for the local landscape overall. I think at Genentech they've got a great challenge that they've actually talked about here at this event and that's maintaining that culture that's led to such unbelievable productivity that " of course everyone in the world would like to be able to match. So that's a challenge.
How investors are hesitating until the dust settles
Fintan Walton :
Right. The other thing of course is that venture capital as you mentioned already is less available, lets put it that way and we are talking about culture, because one of the things that we " you've mentioned as well with Genentech is not just the Genentech culture, it's the culture of venture capital investing in high risk projects that is the culture of San Francisco in the Bay area, in your view has that changed?
Matthew Gardner:
Well I think in the short-term it has. And I think what we are seeing at the moment is a kind of a discipline from those venture capital investors that has forced a change of thinking. And so I hope that's short-term, but I will give you two examples of what that means on the street. One is it means that a number of existing investors have looked at their portfolios and said we can only sustain three out of five of these bets that we've made, the capital markets are still tightened they are not coming back tomorrow. And so we've got a plan for a longer runway and that has led those investors to go into their portfolios look at those five bets and pick the three that they are gonna carry for a longer period. And so that's been a point of pain for a lot of folks and a lot of good science has been parked on a shelf. So I think there are opportunities there in the longer-term to go back to some of that science, but in the short-term certainly that's been an adjustment. I think the second thing is " that you certainly are seeing the effects of the healthcare reform discussion that venture investors anticipate those changes, they don't wait for them. And so when they are looking at their calculations of return on 5 and 10-years from now. We already have seen a capital flight because of the uncertainty. And I certainly would say if you looked at Washington right now you regardless of how you come down on the discussion you could call this a period of uncertainty and for investors that leads to clouds and so until they get settled I think we'll see some hesitation in that part of the capital market.
New regulations and how they will affect private equity and effects beyond life science for innovation as a whole
Fintan Walton :
So what is the " okay we can see and understand that the concerns that may be arising just simply because of uncertainty. But assuming that certainty does arrive and it is in the form that Obama is pretty happy with, lets say "
Matthew Gardner:
Right.
Fintan Walton :
Is that still gonna leave a permanent change in the way biotech will evolve here in the Bay Area?
Matthew Gardner:
Yes. And I think you know you've talked about a bit of the storm around all of these issues hitting the industry at the same time. I am gonna give you another one. And so even once we arrive at certainty in the healthcare discussion, we still don't exactly know how the administration is going to come down on private equity reform. And so they've been having a discussion about having to respond to of the behavior on, on Wall Street of category of private equity that we would look at as hedge funds as a limited part of the private equity market. And yet they're creating new regulation across private equity and that creates a potentially risk for venture capital as a " as a class of, of the equity sitting in that part of the sort of new regulation. And so, I can already see and we already hear from VCs they are terribly concerned about the potential for over regulating this part of the market and that may lead to -- for example a drying up of some of the LP's that would come back into these funds. So let me actually go back to that just for a second, even if they only create new regulation on hedge funds and slow down the way hedge funds move capital around. At the end of the day there where plenty of hedge funds acting as LPs in round after round of venture funds coming into the Life Sciences, and not just in the Life Sciences in all forms of innovations. When we take a look at what the effect is of this new regulation, whether it's directly applied to venture capital or just on hedge funds or other classes of private equity overall. I think we are going to see some breaks get put on, how much capital comes in to as LPs into venture funds going forward. So I am sure you've heard this before from your other guest, but I would guess that it is going to have an impact on the number of funds that are on the street five-years from now.
The new wave of products borne of recent partnering
Fintan Walton :
You're painting a dark picture Matthew Gardner, for an area which normally has a light of optimism?
Matthew Gardner:
Yeah.
Fintan Walton :
But in the end healthcare reform is going to take place?
Matthew Gardner:
Correct.
Fintan Walton :
As it's " it's more or less like as inevitable, but in the end is there a light at the end of the tunnel?
Matthew Gardner:
Absolutely. I think for one thing the industry as I say has held up fairly well given the overall economy. Of course people are still gonna get sick and so the need for innovation to solve unmet medical needs is as great as it's ever been. And we still have companies going back hard to work every day. There is a wave of new products coming in the very near future and in fact there are some of the objects of the partnering despite that occurred in the last six-months. So you see new products coming out from companies like Transcept here in the Bay Area. You see another couple of products coming from companies like InterMune and Theravance, so they are coming, there is another way to come right in front of us here, and so you can certainly see new solutions, more help on the way and I think that " that goes very well overall in the big picture regardless of what the final healthcare reform picture looks like, you are right, it is inevitable, it needs to happen. And certainly organizations like BayBio have been supportive of the healthcare reform discussion, in fact it's in the platform of most organizations like us the universal access would be a very good thing for the direction the United States needs to go in. And so I think how that gets executed is a critical picture. Let me take this down another path for you in terms of the direction of the industry overall. The way that the United States executes compare to effectiveness could have a tremendous impact on where the investment flows in the industry. So if competitive effectiveness is done well then the Presidents comments about red pill versus blue pill may not mean as much as diagnostics versus surgery. And so for able to get there then personalized medicine as " as an investment target for the industry overall will be much more important.
Why the industry must change as regulations change
Fintan Walton :
Okay. Those " this change going on in the -- out there through regulation as well, but doesn't our industry also have to change?
Matthew Gardner:
Absolutely it does. I think it's got to be more realistic about " about how this is all going to look at the other end. And so I think, we still see certainly in the Bay Area that a lot of science projects are able to get away with acting as companies and so " and I think that certainly last 10-years that's improved a lot, but it still out there. And so I think a being more focused on getting into the clinic and getting the patients has been part of the culture evolving over the last two decades. And " and so I think that's been fairly successful, but I think that the financial condition is going to force us to be even more focused.
The hope brought by the success of smaller companies
Fintan Walton :
So when we look at this " the Bay Area and we look at how it's going to go into the future, we see some darkness "
Matthew Gardner:
Yeah.
Fintan Walton :
We see some elements of light coming through in the industry but what are you going to see or what we're going to see in the next say three years here in the Bay Area?
Matthew Gardner:
Yeah. Well " you know you talked about that darkness I actually think that the Bay Area represents the light to a lot of people in this industry around the world. And here is why I say that. When you talk to some of the largest companies in the world in the industry about their average cost of product development and you see those numbers rising from a billion to 2.5 billion per product on average and then you look at the size of these little boats running around in the Bay Area 100%, 300% companies making these bets on much higher risk, entrepreneurial and innovative opportunities and they are succeeding. Everyone in the world wants to know how that's possible which " with these much smaller enterprises relative to what the large companies are able to pull together. And so, I think what we are still seeing even more so now highlighted in the overall economic situation here and elsewhere is this kind of success is incredibly uncommon especially given the size of these companies. And so it's been something that's been bankable for a larger companies that need a pipeline and need to fall back on innovations occurring here in the Bay Area.
Fintan Walton :
Matthew Gardner, thank you very much indeed for coming on our show.
Matthew Gardner:
Thanks Fintan Walton .
Matthew Gardner
President and Chief Executive Officer
Matthew Gardner is President and CEO of BayBio, the voice of the life science industry in Northern California, headquartered in South San Francisco.He has contributed content to a broad range of publications, from biotechnology articles in Manufacturing Today and Helix International magazines to white papers on enterprise development and innovation policy. Mr. Matthew Gardner previously held the position of Director of the Maryland Bioscience Alliance, in Rockville, Maryland. There, he was responsible for serving the Mid-Atlantic bioscience community. Mr. Matthew Gardner founded new programs for the Alliance's membership, including its Clinical Development Initiative and Venture Capital Task Force. During his tenure, he served as the regional liaison for the BIO 2003 Annual Convention. Prior to working for the BioAlliance, he was the North American Director of Business Development for the government of Queensland, Australia, including responsibility for biotechnology initiatives. While serving Queensland, he founded and chaired of the Queensland-United States Bioscience Business Council. Mr. Matthew Gardneris a current member of the American Association for the Advancement of Science (AAAS) and the American Society of Association Executives. In prior advisory roles,he served the Maryland Technology Development Center, the Career Transition Center of Montgomery County, Maryland, and the Australia America Association of Washington, DC. He earned his Bachelor of Arts in Political Science and his Master of Arts in History, both from the University of San Diego.
BayBio
BayBio is an independent, non-profit 501(c)(6) trade association serving the life science industry in Northern California. The staff and services of BayBio are paid primarily through memberships, sponsorships, and event registration fees. BayBio provides these services through representatives in South San Francisco and through coalition partners in Washington, DC. Through advocacy, membership services, programs and more, BayBio brings the world's greatest life science community to your fingertips. With the support of more than 450 member organizations, BayBio is delivering the next-generation association to you today.