MPM Capital: Good data trumps everything




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Video title: MPM Capital: Good data trumps everything
Released on: May 25, 2012. © PharmaTelevision Ltd
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In this episode of PharmaTelevision News Review, filmed in Amsterdam at BioEurope Spring 2012, Fintan Walton talks to Vaughn Kailian, Managing Director of MPM Capital
MPM Capital's types of funding
Fintan Walton:
Hello and welcome to PharmaTelevision News Review. On this show I have Vaughn Kailian, who is a Managing Director of MPM , welcome.
Vaughn Kailian:
Thank you very much Fintan.
Fintan Walton:
MPM of course is a very famous venture capital outfit based in the US. Vaughn, you are pretty famous yourself in the industry well you've been around.
Vaughn Kailian:
Yes, that's good.
Fintan Walton:
That's one way of describing it and you've seen you know the world change, our industry change over the years and you've seen it operationally at different levels, but in particular in recent times in the recent times I suppose at a director level, board level and so first of all just lets talk briefly about MPM itself just to remind our audience what MPM , what type of funding you are doing currently?
Vaughn Kailian:
Yes, we are obviously as you said a US based venture capital firm with offices in Boston and San Francisco. We have over $2 billion under management we are investing currently out of funds for about $300 million. We have relationships with two of the top five pharmaceutical companies where we have a pretty extensive relationship in terms of them being able to see the first pass of most of what we see inside the firm, we have 15 Managing Directors in the firm that a bit unusual to most venture firms about half of our Managing Directors are financiers they're traditional venture capitalist and the other half are ex-operating people like myself and spanning everything from research, to clinical development, to intellectual property, to commercial and general management skills. So we have, but we and we apply those resources against any opportunity that we see and then subsequently in any opportunity in which we invest, so we are I wouldn't call us activist, but I would call as active investors.
Fintan Walton:
Right, and the companies that you collaborate with the large pharma companies obviously one is Novartis?
Vaughn Kailian:
The one is Novartis and the other one we don't really talk about very much but it's J&J, they are gonna talk about it tomorrow so we will talk about it today.
Vaughn Kailian's perspective: Current and future funding environment in biotech industry
Fintan Walton:
Okay, fine and so the environment that we've talked about the current environment in biotech being tough and so forth?
Vaughn Kailian:
And going to get tougher.
Fintan Walton:
And it's gonna get tougher?
Vaughn Kailian:
And it's gonna get tougher.
Fintan Walton:
And so it's not over yet?
Vaughn Kailian:
No, because what you are gonna see is a downstream consequence of what's happening now. What's being invested now typically is the money from the funds that were raised three or four-years ago. New money into venture capital has shrunk pretty substantially 30, 40% that money is just now starting to find it's way into the channels and won't be hitting it's full stride of investment for two or three-years, so what you're going to see is a further constraint of capital two or three-years down the road which people don't seem they think that everything is going great, but we still have to play out of the cards that we've got in dealt to us.
Fintan Walton:
Okay and after that is there still optimism for us, I mean presumably when you get through these next two or three-years and the next round of financing starts to make it's way through the companies it's going to take off again?
Vaughn Kailian:
It depends on the results as with anything else, if you tell me you are gonna well everybody tells me they're gonna get a positive result.
Fintan Walton:
Yes of course.
Vaughn Kailian:
You wouldn't wake up in the morning and go to walk if you thought hey today I am gonna run a failed clinical trial one does today.
Fintan Walton:
Yes exactly.
Vaughn Kailian:
But I think there is optimism that a lot of the technologies that are gonna be applied will be successful in the future.
Fintan Walton:
So with the challenges coming, I mean the biotech industry is if it's going through tough times, going through tough times for several reasons I would argue, one obviously was the general economic financial crisis that we're all very familiar with that sort of post Lehman brothers with that and then the other is the pharmaceutical industry's own pains and efforts and particularly the hurdles of getting a drug into the marketplace and that difficulty, do you agree with that?
Vaughn Kailian:
Yes, there was two out of probably 10 shoes on this decapede of things that are going or have gone wrong or will continue to go wrong, because that the last piece is yet to be turned over and that's the effect of healthcare reform, payer reform what I said in the meeting earlier today whether it moves from west to the east and healthcare policy moves from the east to the west and what you are going to see applied in the United States over the next three to five to 10-years are gonna be a lot of the tools that have been perfected here in Europe of either they constrain the amount of money that they will pay you, they constrain your price, they constrain your profits and in some cases in Southern European countries they don't pay you at all, some variation of those things are going to be hitting in the United States and that would be the next shoe when the United States adopts not quite the same character as the European market, but it will be somewhere between where it was before as a free priced market and the European market rather.
Fintan Walton:
Right, and for that it paints a difficult picture for the future?
Vaughn Kailian:
Everything is difficult except when you've got a dramatic clinical break through and when you do good data trumps everything upset, good data trumps everything upset and so you should have a good data in an area where there is a significant unmet medical need, the resources and the subsequent revenues will be there for you.
Fintan Walton:
And in the end aren't we just looking at the changing environment, understanding that environment, adapting to that environment you can still have a very successful business in pharmaceuticals if you gonna adapt to that market?
Vaughn Kailian:
Absolutely, I mean I started in my career I started with one of the oldest pharmaceutical companies in the United States, but it had an old product line and then went to a small biotech company which eventually became a much larger biotech company, but and so we were very successful and now I am in the business of starting up companies. So I am basically gone from being a young kid in an old company to an old guy in young companies, so I am just sort of just transitioning and so I am very optimistic about the future, I just don't think the model of one professor, one idea deserves to have one company is going to keep going.
Types of characteristics MPM Capital looks for in making investment decisions
Fintan Walton:
Because that's what I want to get to because in the end as a Managing Director of MPM making these investment decisions how do you spot a winner these days, I mean what characteristics are you looking for, are you looking for you know incredibly sexy science or you looking for a great still good old fashioned great business ideas in taking and creating a great businesses a successful profitable business in the end?
Vaughn Kailian:
We'd like to get both of those in the same outfit, so incredibly sexy science so we will just this organism in which we live everyday has evolved over millions of years, where is the arrogance that says one man sitting at a bench can discover one thing that is gonna dramatically change that. There are multiple opportunities and redundant pathways built into what we are, there is nobody who has yet beat the ultimate Kaplan meier curve that says somewhere between 70 and 90 it's gonna end for you if you are lucky if you get good genes like me my mother is 96 I have all for gone longer, but fact to the matter is what we are looking to do is improve the quality of the life we have here and have the most high quality years as you possibly can get and I think that, that what you try and find in a company is not a sexy technology is what you are trying to find is something that really makes a difference in somebody's life if in a quantitative difference, visible difference if you can find that and you find a passionate scientist who is articulate behind it and a good business model for it that has worked it's you know figured out the financial where with all to get it through to a significant valuation inflection point we will invest we are seldom there at the end, we are seldom there at the end, we are generally there for it's a stewardship in this business everybody is a steward of the idea for a period of time, right and we have about a three to five-year stewardship that we have with most of our companies and our job is to make sure they make it to the next step and then we pass along.
Role of venture capitalists and relationship with pharmaceutical companies
Fintan Walton:
Yes, but just going back to this the environment looking there from an investor point of view you've mentioned the collaboration that you've had with J&J and Novartis and I think one of the changes obviously that's happened over the last 10-years is that VC's have got much closer to the pharma companies, there is less of lets face the issues when we get to our first round of negotiations it's now much more a collaborative lot more de-risking going on, so that journey that stewardship that you are providing is that a better a healthy environment now for that we have actually, have we arrived at a point which actually still that actually works and does that leave, where does that leave the world or the venture capitalist in the end?
Vaughn Kailian:
Well we are getting there, we are not there and I don't think there is ever an idea overall because there always will be adjustments, but I think that the role of the venture capitalist is to take an idea that is received some shaping earlier on either through academic environment or angel environment, received some shaping and then take it to the next stage, but the reason we are getting closer to the pharmaceutical companies is twofold, number one the pharmaceutical companies have totally de-emp significantly de-emphasized their internal research certainly their internal true innovation research because they can't, they tend to invest for much longer periods of time and we tend to be much more high RPM, high turn rate group, so that's one dynamic they are buying earlier. The other dynamic is the capital markets have basically disappeared for all but a select few companies and because of that there is no other alternative so if you've already got one buyer you better pay attention to that buyer and I think venture is very.
Fintan Walton:
Get to know your buyer very well.
Vaughn Kailian:
Very good at adapting to that and providing the product that the buyer wants and not providing a product for the public markets if their true end point is gonna be a pharmaceutical component.
Fintan Walton:
So in the end the views of the pharmaceutical companies really largely dictate how you going to invest?
Vaughn Kailian:
I think you have to think about what they are going to want five-years from now, you can't what they say to you today half of the times that management won't be around in five-years.
Fintan Walton:
Yes.
Vaughn Kailian:
So once again good data trumps everything, meeting a significant unmet medical need trumps everything and if you have it they will come, if you discover it they will come, if you try and carve something that's a unique creation for a company today you'll probably miss.
Fintan Walton:
Does that mean that we are less likely to be identifying real true innovations because?
Vaughn Kailian:
More likely.
Fintan Walton:
More likely, you are gonna be more likely to find great innovations?
Vaughn Kailian:
More likely.
Fintan Walton:
And why is that?
Vaughn Kailian:
Because that's where that's the significant unmet medical need challenge you are gonna find, you are gonna have to find true innovations little incremental changes as I have heard several times already today, little incremental changes that were the livestock of the industry you know 10, 20-years ago can't make it any more you have to have a significant step change in the outcomes.
Fintan Walton:
And so in the end new business models have to evolve as a result of that, I mean for an example you know take something like stem cell research which is right which is different it is not a drug it's a completely different approach, does that mean we are going to end up with new companies still we can still create new companies you know that old Genentech idea?
Vaughn Kailian:
Well we've just invested in one you know in the past year and so yes absolutely.
Fintan Walton:
What was that, which?
Vaughn Kailian:
Verastem and it's now a public company and so therefore I don't talk very much about it, because that's the job of the management of the company to talk about it. So we are very supportive of the company, but it is a stem cell company we believe in that as one of the modalities in the future that is really gonna make a difference.
Fintan Walton:
Right, and so with the world changing and from a venture capitalists point of view where does the emerging markets fit in this equation are you still, I mean you talk and often you know naturally everybody talks about Europe and USA and may be Canada and few, but how does this science fit in relation to the emerging markets like China, India and Brazil?
Vaughn Kailian:
Okay, so yes the typically the BRIC markets are you know there is a Germany inside of China alright, there is a significant amount of wealth inside of China, inside of India, inside of Russia, I mean they each are there is an idiosyncratic group they are not the same, their demographics are not the same, the demographics of China are much more elderly skewed demographic set than India, so China is gonna be facing healthcare issues of their own as an internal issue relative to India where there is gonna have a much younger population and Brazil and Russia couldn't be more different as economies, as social economies. So there will be opportunities to go into those countries and if I think that the latest technologies will get in there much the same way they've got into Europe and into the United States for them to spread beyond that into the general populous I don't think is an economic prize that those societies will be willing to pay.
Vaughn Kailian's perspective: Regulatory issues, opportunities and future landscape of pharma industry
Fintan Walton:
Right, and so when we look to our industry and look at translating that activity to the ultimate goal of patient benefit, are we likely from your perspective to be as successful as we have been so far, I mean looking over the last 50-years of pharmaceuticals where you know significant number of diseases are special modulated and in some cases cured are we likely to if our next generation for the next 20, 30-years to see the same level of change are we going to still going to get the level of breakthroughs that you know most people expect more or less, because I ask that question because when I look at how you know the issues like the regulatory market, the regulatory issues, the FDA, the EMA here in Europe and you look at pricing reimbursement issues it's the hurdles are getting higher and higher and higher you know in the end it could end up with a just there is no longer economic to take a drug through to development you know you may actually end up with just something like the airline industry in the terms of manufacturing even though couple of big manufacturers Airbus and Boeing these days, are we just gonna end up with one or two major pharmaceutical companies struggling to try and get drugs out there in the marketplace?
Vaughn Kailian:
Well there are one or two probably two airline companies, but there are a multitude of suppliers of parts to those companies.
Fintan Walton:
Correct.
Vaughn Kailian:
That aeroplane that you are flying in is probably held together by glue made by one company and the plastic and their seats made by another.
Fintan Walton:
And they're all innovative companies?
Vaughn Kailian:
All innovative companies the technology that brings you satellite communications on board you are watching television on an aeroplane today, you are listening, you are on the internet today on the aeroplane you doing email on your plane we never did that before, so every part in the aeroplane itself is being filled in with glass panels and so it's all computerized now well in the past it was all vacuum gauges and everything, hand flying with white scarf in those days.
Fintan Walton:
Right, yes those good old days.
Vaughn Kailian:
My days.
Fintan Walton:
Yes.
Vaughn Kailian:
But and if you look at our business if you look at pharmaceutical industry I think that the same thing will be the case that the big diseases where the industry has already dropped cardiovascular related mortality by 25 points, I mean the big chunks have been taken off of the big diseases, but as a patient as a person you know I have a daughter who is a Type I diabetic and has MS well she wouldn't but for our industry she would not be alive today, right and there is somebody else perhaps yourself or somebody else is gonna have a son or daughter that has a disease that is currently called an orphan disease or a and there will be a difference made in that person's life and from my perspective I don't care about the population, I care about my daughter and it's the difference that's made in your life for your son, your daughter, your spouse.
Fintan Walton:
It's personal?
Vaughn Kailian:
It's personal in this business and that's how you get up in the morning against really terrifying odds that if you really sat and thought about it you'd never get up you'd stay in bed probably covers over your head, but that's what gives people the enthusiasm to go forward.
Fintan Walton:
And that's part of the reason why I ask that question earlier because in the end if it is going to be that bleak, if it was going to be that bleak then the patients need to wake up or the future patients need to wake up and realize that this things are changing and it might be more difficult to get those drugs in the future?
Vaughn Kailian:
Well I just think our industry if they see a patient in need there is always a scientist, there is always a scientist out there who views that as a personal challenge and that's all it takes.
Fintan Walton:
Right.
Vaughn Kailian:
And then the money seems to come in and be there for that opportunity if it's a dramatic breakthrough.
Fintan Walton:
Sure. Vaughn, great to talk to you.
Vaughn Kailian:
Always good, thank you Fintan.
Fintan Walton
Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Vaughn Kailian
Managing Director
At the time of recording this PTV interview Vaughn Kailian serves as Managing Director of MPM Capital. Vaughn Kailian joined MPM's Boston office in 2005 and brought to MPM Capital unparalleled success in the stewardship of commercial biotech and pharmaceutical companies. From 2002 - 2004, he served as vice chair of the Board of Directors of Millennium Pharmaceuticals, Inc; and was head of the Millennium commercial organization. From 1990 - 2002, Mr. Kailian served as CEO, president and director of COR Therapeutics Inc. He became the CEO of COR shortly after the company was founded, took the company public in 1991, raised almost $1 billion in public market capital, and led the $2 billion merger with Millennium in 2002. Earlier in his career, Mr. Kailian held various international and U.S. general management, and commercial positions at Marion Merrell Dow Inc and its predecessor companies including president and general manager, Merrell Dow USA; and corporate vice president of Global Commercial Development, Marion Merrell Dow, Inc. He earned his B.A. degree at Tufts University. Mr. Kailian is also a member of the board of BIO Ventures for Global Health.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
MPM Capital
MPM Capital is one of the world's largest life science-dedicated venture investors. With committed capital under management in excess of $2 billion, MPM Capital is uniquely structured to invest globally in healthcare innovation.