172. Growth Investing in Biotech, Genomics and Pharma (Jim Tananbaum)

Jim Tananbaum Foresight Capital

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Jim Tananbaum of Foresite Capital joins Nick to discuss Growth Investing in Biotech, Genomics and Pharma. In this episode, we cover:

  • His 25 years in the industry working as both an entrepreneur and investor.. often at the same time
  • Jim’s investment focus at Foresite
  • The major changes in biotech over the past two decades
  • The key elements he looks for in a business
  • The main drivers causing more opportunity in the sector
  • The key challenges to investing in biotech, pharma and genomics
  • The role of data science in their process
  • How the experience of building and IPO’ing companies has helped Jim as an investor
  • How they target specific areas to invest in
  • Jim’s take on predatory pharmaceutical pricing
  • and finally how some of these solutions might become more affordable for more people that need them

Guest Links:

Key Takeaways:

  1. Jim first began making products that didn’t have enormous cost or uncertainty associated with them.
  2. Working with George Whiteside, a Harvard alumnus, he created a series of drugs designed to remove specific items in the body and naturally excrete them like fiber.
  3. Geltex launched a Phosphate Finder and cholesterol finder that they launched to market very quickly. Both products were conceived in 1991, filed in 1994, and on the market in 1995.
  4. When he sold the company In 1999 they were doing $250M/year.
  5. The product reached $1B of revenue in 2007 and maintains that revenue level today.
  6. Jim worked for Merck as he started his first startup.  He was Product Manager for Prilosec.
  7. Jim predicts there will be larger changes made across the entire healthcare GDP this decade than there have been in the last 20 years, as the usage of data and frameworks of measurement become more prevalent and integrated into healthcare products.
  8. His company Foresite was started in 2011 with a focus on data in healthcare.
  9. Jim’s goal w/ Foresite was to deliver more than cash investment to entrepreneurs– including resources, information, frameworks, and networks that were uniquely additive to healthcare infrastructure.
  10. The key elements he looks for in Series A franchise companies include a) focus on solving impactful problems b) the right management team that understands how to scale c) demonstrated best-in-class products representing a major advancement w/ few alternatives and d) their potential positive impact on the economy.
  11. There are no bounds to how genomic information and single cell sequencing will going to be used to influence healthcare over the next decade.
  12. The two top factors that are driving change in healthcare are, 1) having large data sets that present patterns and 2) a testing framework to continually evaluate progress.
  13. Capitalization in healthcare is a success factor.
  14. Jim has veered away from technical risk when investing.
  15. As an investor, Jim strives to support products that will have the best economic result instead of focusing on the big IPO and publicity.
  16. He looks for entrepreneurs that have high energy and drive in areas that are strategically primed for change.
  17. Jim emphasizes the global need for better healthcare products and defines them as products with statistically superior clinical results while reducing costs to the healthcare system.
  18. Jim recognizes the expensive costs associated with the majority of quality healthcare and states that over time with a more systematic understanding along with efficient engineering, costs will become more affordable.
  19. The surprisingly small pharma market in China is 5% of the healthcare GDP although they have an aggressive entrepreneurial spirit and high-quality products.

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet

0:23
Welcome back to TFR. Today we take a bit of a different approach and interview a growth stage Life Sciences investor. Jim Tenenbaum joins us to discuss biotech genomics and pharma investing. Jim of course is among the top VCs in the country as a mainstay on the Midas list, even rising this past year. In this episode, we discuss Jim’s 25 years in the industry working as both an entrepreneur and investor often at the same time. Jim’s investment focus at foresight, the major changes in biotech over the last two decades. The key elements he looks for in a business, the main drivers causing more opportunity in the sector. The key challenges to investing in biotech, pharma and genomics, the role that data science plays in their process, how the experience of building an IPO in companies has helped Jim as an investor, how they target specific areas to invest in Jim’s take on predatory pharmaceutical pricing. And finally, how some of these solutions might become more affordable for more people that need them. Here’s the interview with Jim Tenenbaum of foresight capital.

1:44
Jim Tenenbaum joins us today from San Francisco. Jim is CEO and Managing Director at Forsyth capital, a $2 billion AUM growth equity venture fund focused on healthcare and life sciences. Jim was a co founder at gel Tech’s which was acquired for 1.6 billion and Theravance Inc, which has a current market cap over 2.6 billion. He is a mainstay on the Midas list and even rose this past year. Jim has many unicorn biotech and biopharma investments in his portfolio, and some very promising early stage startups. He’s here to talk about them and foresights focus. Jim, thanks for joining us. Thank you, Nick. So Jim, you have a really interesting background. You worked for Merck, you started your own successful companies. And then of course, he had transitioned to the sea. Can you start out with your pre VC story? I’d like to hear where things began before you moved to the investment side. Yeah, I started off in school thinking about how to form a company was around the time that the biotech industry was just coming together. And a lot of things I was trying to make sense of at the time, right after Genentech, there were many, many companies that were being formed by the venture community that was pretty small at the time, each one of those companies would get a few million dollars, and then they clawed their way to another five to $10 million. And some of them would go public, and raised another 20 $30 million. And I was trying to understand exactly how these companies were going to bring products to market where Genentech had taken about a billion dollars to bring his first product to market and, and as I went through that journey of trying to understand that I learned that the world wasn’t making a whole lot of sense. And I just concluded, because I’ve always surrounded myself with or been fortunate enough to be the last person accepted in most of the schools that I’ve gotten into that. Maybe I was just not smart enough to figure out what was going on. So I started to, I started to think about, well, maybe we could go the opposite way and just focus on making products that didn’t have the enormous costs associated with them and uncertainty associated with them. And chair started to explore that way of thinking with a Harvard faculty member, George Whitesides. And that took us to thinking about making drugs that never get into your body, because most of the time when you ingest a drug, or when you take an injection, it’s what happens after it enters your body, which is most of the cost of the clinical trials and most of the surprises. And you say yourself, well, you know, what does that mean? You know what drugs don’t get into your body. And we decided to make a series of drugs that were around absorbing things that the body couldn’t absorb enough and make these drugs in a way that they never could get into your body. They just grabbed whatever it was, they were designed to grab, and they would be excreted, like fiber. And we had a series of places where if you had heart failure, you really wanted to get rid of sodium. If you had kidney failure, your kidneys had problems with phosphate, and we had a series of ideas and ultimately explored all those ideas and test tubes were the performance of

5:00
of what was going on at a test tube could be set up to mimic pretty closely what would end up happening in your stomach without, you know anything ever being absorbed or metabolized. And from that process, we had about a dozen product ideas. We went at it down to two phosphate binder for renal failure and a cholesterol binder for people that have high cholesterol. And both those products came to market very rapidly because they did skirt all the issues. And also they have pretty easy clinical measurement endpoints. So the phosphate binder was conceived, both products were conceived of in 91. And both were filed I think 94 and, and we’re on market and 95. And then in 99, or 2000, we sold, the company was doing about a quarter of a billion dollars in revenue at the time. And that, as you mentioned, was a nice exit. But the fact is that, and this is definitely a hallmark of a number of health care companies that the franchise has just last a lot longer than you think, because they established a comfort. So the gel tech products continued to grow after they were acquired. And the lead product, the phosphate binder crushed a billion dollars in revenue, I believe 2007 And still maintains that level of revenue to this day. So we left a lot of money on the table by selling the company 10 years out. And I played a role. I should mention that when I assembled that company, I was finishing up school and I had a job offer from Merck. Merck let me do that company is a startup I did it out of my garage. And we raised money for the first million dollars from individuals and we hired some chemists and would interact with them at nights and on weekends. But I also had a job offer for Merck as a product manager. So I did both together, Merck let me do this. Wow. So as a great, really great experience, and I got at Merck, primary responsibility for a drug called Prilosec. That became a big selling drug. One of the nice things about working at a place like Merck, that was at the time, a premier pharmaceutical company still is, but the at that point of time was really the best out by far in the world. It just gave you a lot of reach. And it’s given me tremendous networks that I’ve used to this day. While I was a biocide, product manager, most of what I did focused on the use of electronic data, we were very early in using data for targeting physicians. And we work closely with IMS on developing a bunch of the products that they’ve ended up now scaling over time. And then separately, we were both contracting with a managed care organization. So gave me a lot of exposure to the healthcare, the evolving healthcare delivery system in the US. And so when I left Merck, in 94, I had a pretty good sense of the US healthcare infrastructure and how things were being built up and how a large organization was seeing how you know and sense where the puck was going. And that perspective is, has been one that’s been a wonderful perspective to have, as I keep on trying to replicate sort of similar reach and understanding of things as the US healthcare economy has gone through a series of changes. Jim, can you talk about how you made that transition from operator to Vc.

8:12
I started in 91. at Merck and I started gel techs at 91. And then 92, we got up to a point where we had some drugs and I had to make a choice, I decided to become more of a venture capitalist as it so to speak with gel techs and I recruited in a management team in a way that a venture capitalist would do. And and as a result of that experience, the venture community started recruiting me in after Prosek got up to a certain level in 94, I got promoted to the general manager of a international subsidiary and my wife didn’t want to move overseas and venture community seemed like a natural place for me to move. So I started as an investor at Sierra ventures in 1994. And because I had to skepticism about the biotech community, even though I had one biotech company that seemed like it was doing well. And primarily, I think Ciara thought that I was going to be doing pharmaceutical investing i from my work experience really had a deep belief in the growth of managed care in the US and the changes that were going on in general in the delivery environment. And so focused entirely at Sierra on health care service investing, I was fortunate enough to be involved with a number of successful companies back then. The one I’m most proud of was Amerigroup. When we were a co lead on the second round, that company produces managed care products for the poor and indigent, has done a lot of good for this country. It’s actually changed vaccination rates if you can believe that in certain parts of America. It ended up growing very rapidly. It was just a much better product than fee for service products were in those environments. We did our financing in 96, I believe I think the company probably did its first billion in revenue and 99. We sold our position in 2002 with that

10:00
been public for a couple of years at that point, was bought by WellPoint in 2005. was doing five or 6 billion in revenue and WellPoint was bought by Anthem. My understanding is it’s doing about 22 billion in revenue today. And NSF, you know, another demonstration of how really good health care products have a way of, of getting broadly adopted and being very sticky than in the last part of that decade. In 97, when the internet was in full bloom, I had another biotech idea, the same person that I’d formed gel Tech’s with. And then at that point, I maintained my relationships with the senior layer of Merck. So I was able to talk to a couple of them who had just retired into coming on board at their events, and we formed their events, their events, actually is now split into two companies, their events, biopharma, which is their pipeline, and Innovia, which is a respiratory franchise of GSK, that the original theory of ants has a joint venture with is primarily a royalty instrument now.

11:01
Got it? And how did that lead to the formation of foresight. So basically, when I started foresight, in 2011, I had a vision of building up foresight as a company, and also had a sense that there was going to be a lot of change over the next 10 years that was driven by data. And that in healthcare, investing, and and building healthcare businesses, there was an opportunity to put together a lot of different pieces of data to gain advantages. And that had been something that I’ve seen in various aspects of different parts of my career. But I really believe that was finally all coming together. So we built the organization with a focus on data, a cohesion, so that we acted like a single entity, as a company, rather than as a set of individuals, like a lot of investment practices do. And then I think one big difference between being an entrepreneur and being an investor as your primary customer, as an investor is the entrepreneur. So what I wanted to do was to create an environment that was not only delivering cash investments to entrepreneurs, but also delivering resources, information frameworks, and networks that were unique and additive to the rest of the healthcare infrastructure. Got it? So can you talk about the investment focus areas that foresight? Yeah. So historically, as I mentioned, I’ve been involved both in healthcare delivery and in drugs. And also I’ve mentioned that we’re really interested in opportunities that can make a difference and where there’s a big need, and then ultimately, because of that, and because of the fact that there will manage become a franchise. So when I look back at the first 20 years, it’s really the six or seven franchise companies that I was fortunate enough to be involved with. And that made a difference either as an investor or as an entrepreneur. And in setting up foresight, the hope was to improve the yield, get more companies like that, and maybe even stay with them longer than a traditional private equity or venture capital investor, which they with them. And because I’d function on both sides, all sides, actually the healthcare economy, we’ve been open to investments in all sides of the healthcare economy. And I happen to believe that this decade, there’s going to be more change across the entire healthcare GDP than there has been in the last 20 years. I think if you were to look at the 90s probably say that managed care was where a lot of the change was that the biotech side of it was a bit of a bust. Most of the major drugs came from pharmaceutical companies in the 90s, I think, in the last decade is more of the reverse of consolidation went on in the managed care arena. That was not a lot of startup companies, per se. But yet small drug companies finally got their act together and understood what it took to produce product. And the best majority, I think 19 out of 20, top selling drugs came from the biotech community. So last decade, there was more disruption in his in the research drug arena than any other segment of the healthcare economy. And the decade before was more the managed care side. And this decade, I think it’s going to be across the boards, I think what’s going to end up happening is that we’re going to catch up to the changes that are going on and have gone on in the rest of the economy, where data and the use of data and a framework for measuring things become much more prevalent and integrated into the healthcare products. So we’re interested in drugs we’re interested in and managed care products. We’re interested in healthcare infrastructure, like sequencing. But we believe ultimately over the next decade that the major changes are going to be towards the marriage of data science methods and healthcare in biology and producing products that are as transformative as we’ve seen in other segments of the economy. So we’re staying very open and flexible with regards to our investment mandate and recognize, I think that this decade is going to be one where there’s a lot of opportunities. Based on your comments here and some of what I’ve read, it seems like you guys are investing across different stages. Can you talk about some of the stage focus as well as your expected time horizons on some of these in

15:00
vestments.

15:01
Yes, so we’re really looking for the franchise, the franchise can come in our door after a half billion dollars of capital is produced a product like ares glaucoma product, they have a great management team, and they have a product that is demonstrated to be best in class. And that represents one type of company that is of interest to us. And we’re well set up to sort through all the data that was produced with that enormous investment to understand how displaceable The product is and how important the product is for its users, and so on. And I think we do a very good job at that. And we’re set up to do that. And it’s been something we’ve done from the beginning of foresight. And then another end of the spectrum would be the series A companies. And there again, we’re looking for something that really has the franchise elements from the beginning, in a series, a company, often an entrepreneur has reduced a practice has demonstrated that they can solve a problem. That’s important. And then also, they have a critical mass of the right team. So a good example of that within our system, it would be 10x, which is a single cell sequencing company, it’s really pioneered that type of sequencing, it’s growing very rapidly. Now, when we funded it, it was just a couple of people. It’s now grown, it launched his product, we funded it in 2013. And brought product to market in the current set of products, primarily 1516. So you know, we’ve been with it now for five years. And, and frankly, I think it’s a company that we could hold for many, many years. And if you look at Illumina right now, which pioneered the first generation of sequencing, that’s a $60 billion company 20 years later. And I think there’s no end in sight for how genomic information is going to be used to influence care over the next decade or so in single cell sequencing is very much a part of the next discussion that’s going to go on. So our feeling is trying to find these franchises, and then hold them as long as we possibly can. And we’re set up in a vehicle that allows us to hold things for very long periods of time if they ended up getting to that place. Yeah, so within the context of healthcare and pharma and biotech, what do you mean by franchise? And what are some of the key elements you’re looking for in these potential franchises?

17:19
Yeah, I think that produce an important a product that solves an important need. In the case of a drug, it makes somebody better, statistically better than any other option they have. Generally, for something to be a franchise, it needs to be something, it’s a major advance, it’s very hard to displace, there’s not a lot of alternatives. And then also, it really needs a management team that understands how to scale a company. There are a number of things, number of investments that we get involved with that do achieve a great product, but the management team can’t take the company to the level of scale that we’re talking about. And a lot of those companies will just get acquired naturally. And then they’re also really sometimes great management teams where the technology balls in ways that weren’t anticipated to the negative and in the end of producing a product that makes somebody better saves the system money is really hard to do. But every year, year in and year out, there’s been a few that have really stood out. And all we’re trying to do really is get our fair share of those. And then I think going forward over the next decade, my bet is that there’s going to be a significant number of changes that go on so probably be a much greater number of new names on healthcare rise, and that become household names. 1015 years from now.

18:41
Yeah, you mentioned sort of these changes that are coming up, what do you think are the drivers of the most change, and who’s going to catalyze the most change in these sectors? I forget who was going to phrase data eating, you know, things, but I think that is going to heat healthcare.

18:57
And I think Bill Gates gets credited with this, but somebody else actually had the quote that people tend to overestimate the change that’s going to go on in two years and underestimate the change that’s going to go into 10 years and right. I think that kind of fits here, too. When you step back from other segments of our economy that have gone through a transformation based upon the internet cloud, computing power data, I think there are a couple elements that are critical for that transformation to start one element is having large enough data sets, that the patterns are present in healthcare, the patterns of disease development are in biology, the patterns of biology in nature, she replicates her patterns. And in fact, it may take 5 million people worth of patterns to look at but the fact is that human disease does represent manifests itself in similar ways across the 9 billion people on this planet, if that’s the right number, but a smaller set is it single digit millions that will represent 95% of those disease patterns?

20:00
So part of this is getting a data set that’s representative of the basic patterns you’re trying to measure and then predict. And then the other part of this is getting a testing framework set up so that you can continually evaluate where you are in the same way that Amazon is continually evaluating your product choices and readjusting its view on what you’re likely to water. So

20:24
whether it’s sequencing or healthcare delivery, we’re in a place now where there are very sizable data sets that have been assembled a lot of history of how not to work with those data sets, in some cases, how to work with those data sets. And also, both in science, science research infrastructure that we have, as well as healthcare delivery infrastructure, we do have the capability to test things in the same way that other segments of the economy have been moving towards their digital platforms. And so I think it’s inevitable that these things are going to come together and fundamentally change the way that we do things. Talking really abstractly right now. But, you know, what does that mean? Well, that means that bi had the ability to tell you what disease you’re likely to have based upon your genetics and,

21:17
and your previous disease patterns. And,

21:21
and that turned out to be a better and more reliable

21:27
answer for you,

21:30
you, over time, might end up adopting that, and who delivers that information to you may not be a doctor. I mean, at the end of the day, if you trust where the information is, is coming from, and you’ve developed a

21:48
trust and comfort in the answers that you’ve gotten historically, all of a sudden, that, just like in the banking world, that banking relationship that seemed like it was so personal, and like, How could you think about not interacting with a banker, when you go to the bank? Or, or that that shopping experience was so personal? How could you think of not interacting with, you know, physically looking in a store is something that you’re going to buy some clothes or whatever, you know, I think we think about care in a very physical way. Of course, you know, there’s a very physical aspect of a lot of the care that we have, but there’s also

22:29
a lot about a trust in a doctor and who you’re getting the information from, and then all of a sudden, something comes along, that’s just fundamentally better, or where there’s much less variation in terms of how accurate it is, you know, and that usually wins into something that’s as important as our health. I do believe over time. You know, as these products come out, if they’re superior, they’ll end up displacing some of the infrastructure that we have right now, the things that we depend upon, it seems sacred,

23:00
you know, and I look up and down to healthcare chain, from basic research all the way to delivery and to drugs, clinical trials, infrastructure for sequencing and information sharing. Just everywhere, there’s there’s opportunity to significantly improve upon it in ways that would fundamentally make the products better, more reliable, and provide more personal solutions. I think inevitably, those will make their way into products. And there’ll be entrepreneurs that figure out how to do that at scale. And, you know, that’s what the next decade is going to look like, I can’t tell you whether or not it’s going to where I wish I could wish we would have some roadmap there, but But it’s happening in bits and pieces. And, you know, within our portfolio, I’d mentioned airy before i That’s it, I would say primarily a traditional drug company in ophthalmology world, I mentioned 10x, I would say that’s more a company that marries, you know, sequencing methods. You know, there’s a lot of data that gets generated from the type of work that they do. And they’re very thoughtful with regards to how they present that data in a way that people can understand it. And there’s, I think, a lot of room for them to continue to evolve that model. So that it’s a married product of both the physical sequencing as well as the data that comes from the sequencing and the way that data is interpreted by people. And so it’s the combination product that will make a number of things that I think are going to characterize the next 10 years. Jim, what’s the origin of many of the companies that you’re investing in? You know, I think about these very capital intensive ambitious, long cycle r&d centric companies, you know, how do these companies get founded? Where do they come from, and how do they get enough progress to even get to the, you know, the series a stage?

24:48
Well, you know, that’s a good question. I, I think in general entrepreneurship, at its best in America is about changing the world. You know, in science and in healthcare, that view

25:00
To of changing the world and what it takes to change the world, you know, may have different sets of parents, you know, that start off with the basic research side and carry it up to a level. And then somebody else recognizes what it means and builds a business around it. That’s a paradigm that has occurred a lot. And therefore, United States government and the tremendous US research infrastructure that we have and the preeminence that we have educationally, you know, all those things contribute to breakthroughs, fundamental breakthroughs, that provide the frameworks for somebody else to come along and say, Gee, see now that, you know, like, that we have this insight wouldn’t be cool if we did this with it. So I think in healthcare, it’s a little different in that a lot of the innovation comes from some form of science, or some technical innovation, often it can be somebody on the more basic scientists making the innovation, but then somebody on the more engineering side, you know, that becomes the entrepreneur. But fundamentally, just like, I think the rest of America, there are people that are dreaming entrepreneurs that are dreaming about, wouldn’t it be cool if we solve this problem? And why do people have to die of cancer? Why, you know, keep why can’t we live to where 100 years old? You know, why do I have to fill all these forms out? Why can I have an experience of thinking about my my healthcare in a way that I do everything else. And so I think it comes from somebody fundamentally trying to solve a problem that’s not met and delivering a solution that,

26:34
you know, is there early enough, and in a lot of cases has, because it’s there early gains the capital, to create the distance between itself and then the next innovation, or the next person to come along. And then once something becomes an accepted product is, is really hard to slice unless something comes along, that’s really substantially superior. You know, it’s I think it’s getting in front of the innovation, and then using that Headstart to raise the capital that’s necessary to be successful. And those are the elements. And I do think that in healthcare, another big success factor is the capital is somewhat self serving. But I really do believe that history has shown itself again and again, that capitalization and healthcare success factor and things always take longer and cost more money. Often in tech as well, I know that, you know, my last big product development was an analytical device, it was not a medical device, but it was an analytical device. And we had a team of chemists working on it in for a wild, we couldn’t get the science to work, we were essentially trying to miniaturize spectrophotometry, there was a significant challenge, it took us almost three years to get the science to work. And I know that many drugs, and many, you know, biotech initiatives are research intensive, and sometimes the science just doesn’t work. So, you know, how do you think about risk? And, you know, not investing good money after bad in projects where you know, the sciences is just a really big challenge?

28:08
Oh, yeah, that’s a great question. So, and this, this may not be a satisfying answer. But we try very hard not to take technical risks. And a lot of our infrastructures is set up to really understand as deeply as anybody can, you know, what is the technical risk of investments that we get involved with, and there’s so much good stuff going on right now out there, and that we’ve been able to hold ourselves to that standard. And, you know, when you look at our investment portfolio must certainly have been plenty of companies that we’ve exited for one reason or another, but very few that we’ve, we’ve actually lost money on. You know, and I think that has something to do with a number of different factors. Partially, I think that these aren’t black and white conversations, they’re really about Shades of Grey. If we hold ourselves to a high technical standard, then if we’re dealing with the shades of gray conversation, and we’re likely to be, you know, not surprised by something that’s out of left field, or that is binary, because we’re purposely avoiding those, but rather, something start to accumulate that may not be as favorable, our execution tends to slip a little bit. And the quality of the management and our really fundamental belief that we want to be deeply business together with an investment also plays very significantly into how we prioritize things. So basically, we’re really are looking for the technical discovery to be there from the start the innovation to be there from the start, and we are looking for the team. You know, we’re super psyched to be in business with these guys. Yeah, yeah. And I think then in that context, we do our best to make sure that the companies we get involved with also have plenty of capital. And that covers a lot of execution sins, a lot of little surprises that occur. But by and large, I can’t even remember anything we’ve gotten involved with

30:00
Just something that it either worked or it didn’t work and, and that’s by design, yet I don’t invest in these areas, I have no expertise here. But I’m more of a tech investor. But I just came across my first opportunity where it’s a healthy business, strong growth, you know, great revenue traction. But the team sort of self disclosed to me that they need to be top graded. And we’re very early stage investors. And I’ve never had a situation where I’ve, you know, made an investment in a business where I thought the team needed to be replaced. So this is one of the tougher ones, you know, I’ve had to evaluate because the business is so strong, but I don’t know if I can I invest in, in a team that I think needs to be replaced? Yeah, you know, it’s kind of interesting, you raised another point. And I don’t think investors have talked about this a lot. But I think it’s a really important investment parameter, which is that of time. The fact is that I really want to be spending my time on things, they can make a huge difference. And I don’t want to be spending my time fixing things. So we, purposely trying to devise what we’re doing, where, where we can really accelerate what’s going on, when we view ourselves as an accelerator, not as a fixer, and maybe as a builder in a small sense of the word, but really working with builders to help them build faster and more efficiently. And so I think that whole time equation, you know, is something that over the last 20 years, I’ve really learned to focus on, I think it’s a really big consideration and the choices that we made, and it is, you know, help keep us focused on, you know, the things that we think are really working, I’m sure, stay away from those kinds of companies that may have

31:40
management change, which, you know, as you know, can be really, really significant in terms of the amount of time it takes and then the uncertainty around it. And, you know, what happens? If it’s not right? So on? Seriously, it becomes a lot less fun when you’re working, when you’re not working with people, or when you’re working with people that you don’t want to be working with. Right? Yeah, exactly. Yeah. Especially when you have, you know, the opportunities that we’re lucky enough to have in front of us. So speaking of that, you touched on this in the intro, but, you know, how is your experience building and selling an IP owing businesses in these broad categories? How has that helped you as an investor?

32:20
Well, you know, I think, in general,

32:24
I view all those as tactical, everything that we do really takes the view, we’re trying to produce a transformative product that makes a difference that is good for the system. And that over the long haul, that will end up producing the best economic result by far. And whether a company goes public, in the meantime, or, you know, ends up doing an enormous private round. In the meantime, it’s, it’s really a means or, you know, sort of the fuel for the ultimate end of of a product or service. That’s, you know, better than what was there before it. And so I’ve learned not to get too focused on it. And I do think it becomes an enormous distraction for funds as especially funds, they’re trying to put points up in the board, for whatever reason, and so I know why you’re asking the question. But personally, I found that keeping an eye on the long ball has really served us well. And then as a result of that, you’re not making unnatural decisions, you’re, you’re really letting the business drive the decisions you’re making. And, and I think that’s just been the healthiest way to run things. And then the flip side of that has been, you know, I have watched people over time drive towards the wrong things, and, you know, whatever it is that there is motivating them when I say by the wrong things, I mean, you know, maybe get a little bit too focused on the big IPO or the, you know, the external publicity or whatever it is. And, and, again, I I kind of think that

33:47
it’s not been good for the long term results. Interesting. You know, you mentioned that with the recent fundraise the $660 million fund that was closed, that you’re going to have a focus on particular needs in genomic drug development, healthcare delivery. How do you guys at the firm, guys and gals go about identifying new opportunities? Is it very strategic, and you, you figure out the areas that you want to participate in and the potential opportunities within those areas? Are you opportunistic as well, you know, letting some of the founders and the entrepreneurs develop new ideas and different categories and entertain those as well.

34:30
I think it’s all of the above a, yeah. Through the years. I think if you look in Silicon Valley, on the tech side, the really great investment firms have consistently found their way to the great entrepreneurs and the investment infrastructure has been all about, you know, finding and supporting those great entrepreneurs, healthcare, there are for sure, great entrepreneurs, and there’s emerging, more serial families of entrepreneurs and then also on

35:00
top of that, there’s this enormous research infrastructure that’s addressing unmet need, that has technical breakthrough, that ultimately leads to product. And all those companies need money. And you know, we’re a well established source of capital, both privately and publicly. So we have a lot of people marching in our door. And then we systematically try to look for things that fit our criteria in various areas. So we take a top down approach, that way we have every day, few people knocking on our door. And then we do our best and network into really high quality entrepreneurs with people that seem like they’re going to be high quality entrepreneurs who just met with, you know, two people that came from the UK that are Rhodes scholars that are doing interesting things just before I had this meeting, and you know, that that there are a lot of interesting young people these days that are really motivated and, and in a world where it’s more data centric, and there’s less art and history that’s needed to building successful healthcare businesses, I think you are gonna see people building big businesses at very early ages in healthcare, like you have in the tech world, but haven’t really yet seen in the healthcare world, because a lot of it, a lot of those businesses are required tremendous amount of background and art in order to, to do something better. And so we’re investing in meeting younger people that have the entrepreneurial energy and drive in areas that we think are, you know, prime for change, as well as experienced entrepreneurs, as well as areas in general, from a strategic point of view, we feel are likely to be important, or at the basis of, of continued growth and systematically keep an eye up on those areas and who the key players are, who seemed to be the drivers. And so it’s if, you know, non non ending, I would say a process of, of trying to see, you know, everything that’s out there, and we have a system, as I said, it’s really set up as a company that provides real economies of scale. So we can see a lot of things and focus on a few things, our organization set up to process things really efficiently. And then once we focus on things, we really drill down on them. And then ultimately, if we invest in them, we, you know, spend, organizationally a great deal of time helping them to be successful. And the efficiency of doing it as a group allows us to, to kind of order our time that way. So we spent a little bit of time on a lot of things and have a lot of ways of seeing a lot of things and then try our best to funnel it down and focus in as efficiently as possible. Sounds familiar? Yeah, exactly. Exactly. So Jim, there’s been a lot of debate and discussion about drug prices, and some predatory pharma pricing. What’s your take on this? And how do you see it sort of playing out over the next few years?

37:49
Okay, so I am a deep believer that the world needs better drugs, and better drugs are defined in two things that have to go together. One is superior care, statistically, Superior Clinical result. And the second is reduces cost of the system. Everything we do within foresight from the beginning, have had an eye on those two criteria together. Right. And by the way, in that world, if you were to have a single payer, a single and that was rationally, choosing its therapies, those products would be instantly adopted.

38:29
So funny enough,

38:32
we’d kind of love a single payer. I mean, like I honestly, I think it would be really good for a lot of the companies that were involved with, and that’s the bar we’re trying to move to, because I think over time,

38:43
the world has to get there. It’s the right thing. There are other healthcare economies that have already gotten there. And United States is a really inefficient screwed up healthcare economy, you know, why is it that somebody can sit out there and take on a generic drug that there isn’t a lot of supply of Jack the price up? I mean, there’s not a lot of systems globally that support that in any economy. And, you know, so it is too bad that we actually even have to have this conversation. But I think it highlights just, you know, how inefficient the system is right now. I’m hoping that will help fix that, with various companies that were involved with. And you know, whether that’s producing the product, that is the drug that helps somebody live longer, and reduces their utilization of expensive, you know, hospital time or whatever, or it’s actually the system that chooses, which products people get because they’re making more rational decisions that lead to better outcome at a lower cost. And I think all that’s coming over the next 10 years and, and the free market will, you know, will ultimately bring that if the government doesn’t, yeah, so it’s been a fundamental philosophy of ours from the beginning. And so it is really frustrating to just see it take so long to get there. Right. You know, this is kind of related to the next question.

40:00
Jim, but I wanted to ask you how you know, these capital intensive, expensive solutions can become more affordable over time? How can some of these solutions potentially become mass market for consumers in developed countries and potentially even some developing countries?

40:17
That’s a very broad question that you’re asking. So by and large, if you’re dealing with a completely new technical modality, like cell therapy for cancer, which is really only been in the market for one year, with his first products,

40:33
yeah, generally, it takes a few years, you know, first technology to come down the main event factoring production curve, especially in something that, you know, entirely new modality like cell therapies, if you go back in time to the biotech industry, it took a decade for protein production and antibody production to work through a lot of the inevitable efficiencies that they found. And there were orders and orders of magnitude changes in costs as they went through that. So in some regard, there are places like that, that right now are expensive to produce the therapy and, you know, I just believe that they’ll behave as other major product classes have behaved and, you know, people will do the engineering that, you know, ultimately continues to chip away at the inherent cost, there’s no, there’s nothing inherent about the product that makes it costly. It’s not using gold, you know, as its, as its feedstock, it just cumbersome and labor intensive, and idiosyncratic and an art form, and with a lot of variables that, you know, ultimately will come under system more systematic understanding and control. But then, you know, I think there’s a vast majority of things that, you know, ultimately are being produced. And certainly things that we find that are very inexpensive, you know, better care, less expensive, as that’s our mantra. And so then those things will, you know, lend themselves to third world conversations, we just took a trip over to China, vast majority of our portfolio, they have their China rights free and clear, but they’re not developing their products in China. China has a very small pharmaceutical market. Surprisingly, small healthcare is about 5% of the GDP in China, and the government really doesn’t want to grow it. So there’s a lot of government pressure to, to not adopt product. But nonetheless, the government also wants the best health care available for its population. And now in China, I don’t know how many PD ones, you know, are going through their system. But there are a number, we take a look at that. And in the United States, there’s

42:38
two PD ones on the market now and one Pdl, one that’s on the market, their number on the horizon. You know, we had thought actually, a few years ago, but we couldn’t convince any other co investors to do this, that we could take one of those PD ones through and create a generic product, effectively for the US market for PD one that wasn’t all that compelling to other investors, they thought we were moving in the wrong direction. But, you know, I do think that the US needs biosimilar innovative products like PD one. And I think it’s going to be very hard to distinguish a number of these PD one products, although everybody will say their PD one is better at the end of the day, statistically, for by and large, from many of the indications is going to be hard to tell the difference. So in China, now, you have that playing out there going to be half dozen that come to market very rapidly, I think you’re going to see pricing in China be very different than it is in the rest of the world. You know, they’re a combination of factors that have led to it. But you know, it’s been, I think it’s always an over exuberant and aggressive entrepreneurial spirit there that has led to multiple products that are, you know, effectively in some ways collapsing the market. But the flip side of it is that there will be some real winners in that, that pick up the volume, because they’re, they’re producing a product that is as good as anything else. It’s best in class, it’s not better, but it is as good as anything else. And, you know, they’re willing to do what it takes in order to get the volume price wise. American needs more of that. So I think that when you look globally, it certainly can work in both directions. I mean, here we have American products being shipped to China and and there’s some Chinese versions of American products that are homegrown, and all of them coming together, they produce a different pricing dynamic. And there’s no reason why it shouldn’t happen in the US the cost of PD one is very inexpensive. The cost to to bring PD one to market was very expensive and drug companies that pioneered that certainly save lives and a lot of cases reduce costs to the system. And there’s a pharmacoeconomic pricing that you can look at that I think supports, in some cases, some of the prices that were charged but now over time would be fair and reasonable for the market to to bring that pricing down and show I think that the global economy

45:00
You know, there’s probably going to play more of a pricing pressure downward pricing pressure than the other way. That expensive, innovative stuff doesn’t move overseas, I think you’re gonna see expensive innovative stuff in the US moving overseas and becoming very inexpensive. And then becoming a very inexpensive in the US as well. Interesting.

45:18
Jim, what investor has influenced you most? And why? Another good one? I guess I’ll go back to the people that that influenced me when I was starting my career. So that was in the 90s. I think you look at Don Valentine, who built Sequoia, you know, what an amazing job he did, pulling together a firm that generation after generation produced the some of the greatest companies in history. You know, how he did it, I think was really focusing on the entrepreneurial ecosystem of Silicon Valley, a lot more so than others. And coming back to that example, is what I think ultimately got me more focused on the great entrepreneur. And, you know, I was talking about before, and I guess, John Doerr would be another example of that. I think John’s probably, you know, very entrepreneurial himself in the way that he went about doing things. And then, you know, over the last decade or so, right before foresight was built, I got to watch Marc Andreessen, build his firm from afar, we shares a number of the same infrastructures resources, like Bob Gunderson, and

46:23
he built an organization that has accelerant properties for the companies that they’re investing in. And we certainly thought a lot about trying to replicate some of those aspects when we designed our firm. And they also were a full lifecycle investor and really agnostic as to where they entered the great companies that they were entering, but really with a passion for finding the great companies that were going to make a difference and entering into them earlier. Later. We’ve also recognized that that was buildable. And then there’s also been people that have just done things that have been out of the box. I think Mark Levin and Kevin star building Third Rock has done a really extraordinary job setting up infrastructure factory like infrastructure for doing incubation work. And, you know, I think they’ve had a remarkable number of successful companies come out of that infrastructure because they built it right. Prior to they’re setting that up. I think a lot of people did think you could effectively set up an incubator and in a biotech community, because of the enormous amount of resources that are required in America has produced us some amazing, innovative investors. And yeah, those are a few of them. That’s great. And then finally, Jim, what’s the best way for listeners to connect with you? Oh, just hit me on LinkedIn. Okay. Well, Jim, thanks so much for the time today. I know that many folks from the team were excited about this interview, and they’re all looking forward to to hearing it and I was looking forward very much to doing it. So thanks so much for your time. Really enjoyed it. Thank you, Nick. Really appreciate the opportunity to be on here.

48:05
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest competently. Thanks for joining us