Opinions on Biotechnology

From CEO-itis to FDA-itis, the path of a biotech company is never dull. Whether the oft-repeated saying, “may you live in interesting times,” is a blessing or a curse depends entirely on your perspective. As a life science venture capital investor with close to 25 years of experience, I have encountered many unexpected and interesting turns. Some experiences, like witnessing one of your portfolio companies transform the standard of care for patients, are positive. Others, like navigating a bad clinical data release in a public company, are not so fun. For every stakeholder in a company, living on a daily basis with those fluctuations is a balancing act — like juggling a dozen eggs in the air that could easily crash down around you at any moment. When everything runs smoothly, life is easy. But moments when the s*#! hits the fan are ones that allow you to appreciate what’s working well and what isn’t. They also provide the greatest opportunity to grow, as external forces can be the biggest drivers of evolution. One example of this revolves around a key point of inflammation in a company that occurs when replacing a CEO becomes an urgent matter, something that I refer to as ‘CEO-itis’. I once invested in a company with a great product that addressed a clear, unmet need. There was little risk on the product side as it was already approved in Europe. The company had a very ambitious plan to expand the business globally. We were convinced about the opportunity and decided to become the sole investor but brought along a trusted venture partner who took the role as chairman of the board right after the papers were signed. After the very first board meeting, the chairman came to me with a look of consternation. He told me that after reviewing the accounts, he was uncomfortable with some elements of how cash management was handled right after the funding. We dug into it and discovered that the CEO had basically embezzled money. The day after closing he had taken out cash on the company’s credit card to repay private debts, made lavish payments to his girlfriends, bought new tires for his car, and a top of the line hi-fi system. Nice. S*#! had definitely hit the fan! We called an emergency board meeting and confronted the swindler, asking for his credit card, keys, and computer right there on the spot. And of course, fired him for cause. Without our astute venture partner, I may not have seen where this ship was heading for a long time. He was instrumental in stopping the bleeding and even took over the company for a while. I wish I could say this was it, that we eventually hired a rockstar CEO and made a fantastic success out of this bad start. But that was not the case. The damage was in fact much deeper. At least the guy was consistent: a fraud all the way. We actually took the CEO to court and had him convicted. Unfortunately, he had preemptively organized his own bankruptcy (he was a very professional crook) and we never got the money back. We did hire a very trusted CEO after that, but the company never recovered. We ended up selling it for scraps and lost most of the money. We healthcare VCs think we invest in science, but the truth is we invest in people, and if there is a worm in the fruit the apple is bound to be rotten. This is but one illustration in what could be a series-long examination of how one can mess up in our business. And although I suppose there could be overlap for companies in any sector, what’s particular to biotech startups is that they’re loss-making ventures for a very long time, and their fate often depends on events where the probability of success is well below 50%. It’s a pressure cooker environment and whether the issue lies with a crooked CEO, a problem-laden path to FDA approval, or a myriad of other unexpected pitfalls, explosions can happen very quickly. In the end, however, I remain an eternal optimist. Someone who looks at the glass half full — if not about to overflow. I guess this is how I have managed to live with the level of risks that one takes as an early stage healthcare VC. I also tend to concentrate on the great success stories I’ve had rather than dwell on the failure. But that does not mean you shouldn’t attempt to learn from them. I encourage other CEOs, VCs, board members, etc. to come out with their own near-death experiences and honest recollections on how they solved the issues or crashed into a wall for not solving them in time. Because, if nothing else, I suppose one comfort we can take in living through interesting times is the discovery that we’re all living through them together. Images via E. Resko

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