How to Spot a Biotech Winner: Investment Lessons from Sofinnova

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Making one biotech a success is hard enough, but correctly predicting multiple winners is the bread and butter of Antoine Papiernik, Managing Partner of Sofinnova Partners, one of the biggest and most prosperous life science venture capital investors in Europe.

Papiernik began his career in corporate finance. In 1995, he was working in investment in Prague for the French financial organization CDC (Caisse des Dépôts et Consignations). He was asked to come back to France to work on a life sciences and information technology fund CDC Innovation, which began his career as a life science investor. 

Two years later, the opportunity arose to join the French VC firm Sofinnova Partners and he has been there ever since, seeing the company and the biotech industry in Europe develop and grow during that time. 

What do you look for when hiring a new investor for the firm?

It’s tough to start in this industry nowadays. We want it all – someone who has deep scientific training, which doesn’t mean they know everything about everything, but they have a very good way of looking into data and going deep into the science, whatever the science is. If they are a physician, they also bring something else – understanding human biology and diseases. We like to have both. 

The other skills are much more complicated. Those are the ones that you have to acquire along the way. VC investing is a trade, like any artisan’s trade, that you need to be taught by someone else and then experience by yourself on the job.

What makes a good investment in your experience?

In a good investment, you need to start with good science, for sure. Actually, that’s a good start, let’s say, but it’s clearly not the only thing. If I had to choose between fantastic science with a very inexperienced and not necessarily good management team and the opposite, I would go for the good management for sure. 

My personal experience has shown that good management will fall on their feet and find solutions to the problems, because there are always problems, bumps in the road. 

What are the gaps in that management? It could be a fantastic CSO coming from a perfect organization, but you always need to build around that. CEOs… sometimes they can go from the beginning to the end. Sometimes, they need to be changed, not just because they didn’t perform, but because they don’t have the experience for a certain stage of the company. 

It’s also about waves in our industry. Look at immuno-oncology right now. Everyone is saying, “Oh my God, nobody wants to be in immuno-oncology!” Five years ago, everybody wanted to be in immuno-oncology. 

Do you always invest in companies, or do you sometimes invest before a company has been created?

Sometimes, we start with good management without any science. Particularly with someone we’ve backed before. If one of our entrepreneurs tells us, “I have an idea. I’m not exactly sure. Would you like to put some money in us?” We’ve done that many times and it’s been very successful. 

We made money with a team in Italy. That was an investment that was made 20 years ago. The team was actually a Roche spinout in oncology called Novuspharma. The company went public on the Italian market and we made a lot of money with this deal. 

Then, in 2007 or 2008, the same management, after having sold the company, came back and said, “Look, we have an idea we want to develop, but we’re not yet there. Would you fund us while we are searching for our project?” 

That’s what we did and that became a company called Ethical Oncology Science. We were the sole investors at the start and remained the majority investors until the end. Then, we sold that company to Clovis… We doubled our money. It was an amazing investment. 

How do you advise companies about when is a good time to go public, or not, as the case may be?

If you’re looking to be bought, you’re going to get a pathetic return. If someone calls you up and says, “Please, please, buy me, buy me,” it might actually fit with what you’re doing, but for sure, you’re not going to pay a good price for it. 

You have to organize yourself with this in mind, meaning that you need to have sufficient funding, whether it’s public or private. In our experience, 50% of returns come from the sale of the company on the public market and 50% from just straight acquisition from a partner. You never know if it’s going to come from public or private. Therefore, you need to be ready for both. 

The question you’re asking is quite different today than it was five-ten years ago because the European public market has not been good for biotech at all in the last five years. At the moment, I would not recommend anybody to go public on a public market in Europe. 

Today, you need to be Nasdaq-ready in order to go public. Your product needs to be in the right position, your management needs to be of a certain caliber, your board needs to be of a certain caliber. 

Why do you think the markets in Europe are so bad at the moment?

First of all, just look at the data. Let’s just take the Paris Euronext — that’s the number one place where people went public – particularly French companies. All the companies, 90% of them, are underwater. 

We, as an industry, brought them to the public market too early, maybe because we didn’t have the choice. At the time, we didn’t have a crossover fund. 

Today, I will not bring a company to a public market in Europe if I don’t think it’s relevant. I think it’s going to take years before we are able to do that, so in the meantime, prepare those companies to go public where it actually matters. Right now, it’s on the Nasdaq. 

I don’t know where the future lies. I do have the memory of just ten years ago when the Nasdaq was shut. There was not a single IPO on the Nasdaq for almost a year. When we took Movetis public on the Brussels Euronext – we raised €100 million. I remember receiving calls from the US saying, “How the heck did you do that?” because this was unheard of… We ended up selling the company to Shire and it was a great investment. 

What’s changed in VC investing over the last 10-20 years?

When I joined Sofinnova, we were all French, all male, all white. We are roughly 40 people today, 60% women. From the managing partners downwards, we are balanced and no other firm has that in the industry. It also tells you how much the others have to grow. We also have 14 nationalities. 

We didn’t know what we were doing 25 years ago. We had huge success, but I guess we got lucky. We’ve learnt a great deal. This is true for Sofinnova, but also for many of our colleagues. 

We are much, much more clear today on what it is that we’re looking for – this combination of fantastic science, mixing it with a great management team. That was less obvious before. And the absolute necessity to make sure you know, whatever it is you’re investing in, what the competition is in that field. You can’t know everything about everything, but you need to be an expert in your area.

Geographically it’s not just the US anymore. It’s also figuring out what happens in Korea or China because this is a totally global industry where things are being invented. It’s a huge global industry. You need to understand what’s going on. 

What hot trends in biotech do you think we’ll be seeing in 2020 and beyond?

In a matter of six months, six companies have been created on RNA editing. There will be an IP battle, I suspect, not unlike CRISPR has seen. 

There’s this permanent pendulum. As you know, CNS was completely off. Nobody would touch it. Then, it came back through neurodegeneration. At a time when the whole of pharma is ditching neuropsychiatry, because it’s difficult and there are failures…you see at the same time huge success like Karuna Therapeutics had with an old compound they ditched years ago. They presented the schizophrenia data and the stock price went up five times. 

Another field that pharma has ditched is cardiovascular disease. People ditched that because we’re all talking about cardiovascular outcome trials with 10,000–20,000 patients. Not even pharma can afford it, so of course biotech can’t, but things are changing. 

In acute heart failure, there hasn’t been a new drug for 20 years. The FDA just said, “Okay, guys, I understand there’s no new drug for acute heart failure. People are dying. This is a huge issue, even a business issue in the US. Maybe we should be slightly open to not having mortality as an endpoint and therefore, no big cardiovascular outcome trials.” 

This is the beginning. I think the pendulum has hit one side and it’s coming back. The speed at which it is coming back is what you need to figure out. Do we want to invest in heart failure? 

What’s the biggest management lesson you’ve learnt over the last 25 years?

If you have a doubt when you make the investment, if there’s something in your gut that tells you you shouldn’t do it, just abstain, because in general, those never turn out well. 

Treat people the way you want to be treated. It’s sort of a life skill, but VCs don’t necessarily have the right attitude to the management teams. VCs are often depicted as the guys who come to a board meeting and pick at what management is doing. 

My view is, “Do your homework, try and contribute to the picture, not just be here to pick at other people’s work. Then, actually, those entrepreneurs will treat you well, whether you’re successful with them or not.” 

If, for some reason, you’re not successful, but you’ve been a very good resource on the board, not just asking for stuff, but also providing stuff, then when it comes to their next venture, they will come and see you rather than the people who have been very disruptive on the board.

What advice would you give yourself if you could go back in time to when you started in the industry?

There are a few companies I would not have invested in. The other one is, “Pull the plug early. Don’t fall in love with your companies. Be objective.” If you wait, including changing management sometimes, you’re going to regret it. Act upon the data, whether it is changing management, or stopping investing in the company. When your partners start saying, “Are you sure you should really invest in that company?” maybe you should really look twice.

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