Announcing : “The Long Tail”

Before you get too concerned, I am still on “gardening leave”.

But I’m also getting bored. Most of the house DIY tasks are done, the roof garden looks great. I fixed just about everything that needed fixing and then I fixed some things that didn’t need fixing (which, now also need to be fixed). Too many idle hours makes me antsy and I finally had to do something about it.

After the flack I got from my last couple of posts, I decided that I would take Australian life sciences commentary out of this blog. Anyhow, most of you reading this are not Australian and don’t care anyhow about what a bunch of goofy antipodeans are doing in their labs. Instead I have launched a new blog – “The Long Tail.” Don’t worry, this blog isn’t going away, you can still read about me, mostly talking about myself (ha ha).

I’ve been thinking about doing this site for a long time, so I hope you enjoy it. It’s not very pretty yet but it will get better with time.

Like a fine Barossa shiraz … style and substance…

My Amusement : CYP

I’ve been watching, with a combination of amusement and sadness, the reaction on Hotcopper to my previous post. The old adage of “no good deed goes unpunished” is truly alive and well. It’s amazing how day traders will try to find a nefarious intent, where there is none.

My position regarding CYP is very simple. I think the Cynata team are intelligent and capable entrepreneurs. I also am a personal believer in the concept of expounding a vision and letting the rest follow. But when you are a publicly traded company, you owe your shareholders a different degree of transparency and I don’t like to see hype where it isn’t warranted. For the record, I’d like to dispel a few myths:

1) I have no grudge with Cynata whatsoever. I have publicly stated that the members of the management team have my respect for their accomplishments in convincing public investors that their non-clinical technology warrants an $80m market cap. Anyone that manages to RTO a defunct environmental technology company into a stem cell masterpiece deserves all of our respect.

2) My comments are all based on public domain information that is able to be independently diligenced. If anyone wants further references, they can email me at my personal address.

3) I have never intended to make a specific example out of Cynata. From now on I will be publishing – within the limits of appropriate and defensible professional conduct and legal public discourse – my viewpoint on many Australian biotech securities that, for too long, have been sheltered by ad-hoc, lacking or insufficiently independent analysis.

Let me be clear. My belief is that Australia could have a thriving biotechnology economy. We have the brainpower. We have the translational research capability. What is missing is quality in our ASX-listed companies, with a few notable exceptions (CSL, Resmed, Cochlear, Sirtex … and a handful of others). I used to think that a microcap exchange for biotech was a stupid idea, but I have come to realize that Australian life sciences companies have essentially adapted a limited public market to replace later-stage venture capital. I think this actually has the potential to be cool – but only if we call out bullshit when we see it.

Besides, if we are all honest with each other, nothing I have said is new. So just call me un-original. I’m ok with that.

The “poster child” for why ASX biopharma stinks

The opinions expressed in this article are the author’s own and do not reflect the view of any affiliated companies or organizations.

Australia could be a great place to commercialize biopharmaceutical research. We have top institutions, we punch above our weight in publication citations in leading journals and number of pretty decent drugs have been born from the minds of Australian researchers. Sure venture capital is a bit light-on and the enthusiasm level of government policy around life sciences waxes and wanes… but hey, we have the ASX, right? And over a 100 small-cap healthcare/life sciences companies that are listed and capable of accessing public cash.

If you really believe in biotech, you might even take the position that all biotech companies (and for that matter, cleantech, energy, etc. – anything that is capital intensive) should go public as soon as possible. Providing you have an efficient market, good analyst coverage and decent disclosure regulations, the wheat from the chaff should get separated pretty quickly.

Right?

Wrong. Probably.

I have watched with great amusement over the past few days as Cynata’s (ASX: CYP) share price has truly rocketed along (200+ %). Admittedly, if you are an illiquid, “penny” stock to begin with, then any share movement can be dramatic. Even existing investors / directors purchasing (or dumping) stock can move the needle pretty spectacularly. But this is a truly remarkable company and should be a poster child for extreme caution, especially for retail investors thinking about investing in microcap ASX biotech. I’m not saying “don’t”, I am saying “think carefully.”

For those of you reading this post who are not scientifically trained, let me tell you three important pieces of information about the development of new healthcare technologies, particularly therapeutics. These are general statements that apply to all biotech companies.

1) There is nothing remarkable about studying a new technology in animal models. It is not a milestone. It is not an accomplishment. It is simply a part of developing a new product. Any company that issues a press release that it is conducting animal studies, should be strenuously avoided. Not because it isn’t important – it is – but because it tells you nothing whatsoever about the quality of the technology. In fact, it may imply that the technology has been insufficiently validated before going into commercial development.

2) Engaging a Contract Research Organization (CRO) is not a milestone. A CRO is a service provider. It is the biotech equivalent of signing a cable television service. It is humdrum. It is uninteresting. It is a purely vanilla process. It does not imply any commercial or technology competency whatsoever, except the ability to receive an email and place a signature on a piece of paper. It is an entirely forward looking statement.

3) Scientific validation is not a statement of “fact” to be reported in a press release – it is a peer reviewed process involving real data under controlled conditions. It means that the science was able to be reproduced independent of the originator/inventor, and that it has been published in a fashion that withstands expert scrutiny.

(Remarkably the research that “validated” the Cynata Cymerus technology was essentially conducted at the institution from which the technology was licensed. I’m sorry, but that is not scientific validation by any metric, and it is not newsworthy. It also cannot be considered “validated” when the inventor and key members of the “validation team” hold stock in the company commercializing the technology.)

In short, investors should be incredibly wary of throwing their money at a company that makes these kinds of public claims and disclosures as the basis of “progress”. Indeed, it is my opinion that generally speaking, ASX continuous disclosure rules may even require some reconsideration for biotech because an awful lot of irrelevant information gets channeled as “major news” and the non-expert investor can easily get sucked in.

Does any of this actually matter? (Source: ASX)

Does any of this actually matter? (Source: ASX)

My specific analysis of Cynata?

Firstly, I am extremely disappointed by the nature of the analyst coverage that has been dedicated to this security. In a typical example, there is absolutely no detailed or meaningful scientific claims that are relevant to the security under coverage or any identifiable product pipeline. There are tenuous analogies (for example, antibody drugs) and ridiculously generalized statements (that “Nobel prizes are being awarded”) that simply tell you nothing whatsoever about the investment thesis of the company. Such coverage may or may not elucidate an impression about the state of the market, but as for the company – it is a wholly irrelevant analysis. Retail customers see this type of coverage involving respectable firm names (and high-caliber scientific publications in the footnote) and assume that it is robust.

It is not. Recent analyst recommendations are even more breezily formulated. Incidentally, I can also assure you that no Nobel prizes have been awarded for Cynata’s technology.

The second amazing thing about Cynta are the assertions around intellectual property (IP). The jewel in the crown of the Cynata IP “portfolio” is allegedly the US patent 7,615,374 in-licensed from the Wisconsin Alumni Research Foundation (WARF), a patent that was magically discovered by the founders of Cynata. I can’t authoritatively tell you too much about this patent, but let me tell you about WARF (all public domain).

WARF holds one of the most prestigious, thought-leading and impressive intellectual property portfolios in the field of stem cells, mainly because much groundbreaking work in regenerative medicine was accomplished at UW, Madison. The WARF patents are also among the most highly visible, litigated and “picked over” patent portfolios in the world of regenerative medicine and stem cell research. It is worth noting that some of the key litigation around WARF patents recently came to a remarkable conclusion, illustrating not only the complexity of this field but the money at stake for the winner and the purse that is required to maintain a footing.

Now, forget for a moment that you may or may not know about biotech. Forget the science. Forget the clinical development. Just ask yourself this simple question – if millions of dollars have been spent by the finest global biopharmaceutical companies trawling, litigating and fighting over fundamental stem cell technology in US Supreme Courts, might it not be too good to be true that a couple of Aussie entrepreneurs “stumbled” over an undiscovered (but yet published) biotech treasure trove? Might this not raise an eyebrow or at least induce the sensible investor to ask a few more questions? Moreover, if it really is a game-changer, then why was it licensed to a company with a negligible balance sheet and limited means to develop it?

If you were the prestigious WARF (who can and does partner with anyone they wish), wouldn’t you want to reap the benefits of a global biopharmaceutical company taking the technology forward with a full head of steam (and writing big royalty/milestone checks along the way)? Or at the very least, spinning out the next $Bn company directly?

Third – let’s talk about practical realities. Ignoring any patent continuations or international prosecution that may be happening in the background for the 7,615,374 patent, the priority date for the patent is late 2007. This means that the life-span of the patent in largest global healthcare market is almost half over and by the time anyone gets a commercial drug out to the marketplace that might benefit from this manufacturing technology, it’s basically going to be an irrelevant patent (note: developing a drug that might infringe a manufacturing patent is protected by “safe harbor” research laws in most commercially-important jurisdictions). This is probably one of the main reasons why this technology could be snapped up without any real commercial burden to a licensee.

Essentially … it is quite possibly a worthless patent, especially considering the patent “stack” that would be required to take a cell therapy to market these days (if you want to see how messy and money-consuming this space is, just look at what is happening with CAR-T cell therapies).

Moreover, the 7,615,374 patent is effectively a “process” patent. That is, it is a patent that describes a “recipe” for culturing (growing) a certain class of cells (that may or may not, incidentally, have any clinical value). Put into layman’s terms, it is not a patent for THE chocolate cake, it is a patent for the process of making A particular type of chocolate cake. Anyone who has ever baked a cake knows that you can swap butter for margarine or oil, you can substitute self-raising flour for plain flower with baking soda / baking powder. Hell, you don’t even need flour!

That is the problem with the 7,615,374 patent, it is able to be almost trivially “invented around” in order to achieve the same outcome. Read it, including the public-domain patent analytics, it’s not an intellectual stretch even for the uninitiated.

Finally, any investor in biotechnology should be sensitive about companies that make aggressive marketing claims in early, even pre-clinical, product development. I was very concerned, verging on disgusted, by the slick marketing claims “implied” by Regeneus‘ (ASX: RGS) through their technology promotion with the National Rugby League. Finally, people had the gumption to protest what was a blatantly unethical strategy for building consumer traction for a completely unvalidated (and possibly even ineffectual) clinical procedure. Building investor awareness demands a similar level of sensitivity, especially for a public company, and Cynata’s marketing position warrants pause. Any company that makes therapeutic claims that are not actionable for patients, or accessible via formal clinical trials, any time in the near future (especially on a corporate website) should be approached with extreme caution as an investment prospect.

To conclude – on the one hand, I have a grudging admiration for the entrepreneurial spirit that has been demonstrated by the Cynata team, and they have some very bright and accomplished people. I try to ignore the fact that the scientific advisory board (SAB) is chaired by an electrical engineer, rather than an immunologist or an expert in regenerative medicine, but then I was originally trained as an electrical engineer myself, so that would just make me a hypocrite (though I would never have the gumption to chair an SAB). I also try to ignore the fact that the leadership team has very limited experience in the manufacturing of cell therapies – hey, good analysts always look at the overall team, right?

On the other hand, I want to see Australian clinical science produce public companies that show peer-reviewed data, a strong ethos of scientific accountability and become part of the desirable investment bedrock of the ASX. I have previously reported my opinion that we have too many zombie (i.e. crap) life sciences companies on the ASX. The more “hollow chocolate bunnies” we allow to attract investor capital, the harder it will be for the really good ideas to move forward and flourish.

Making a quick buck in the short term isn’t the solution to long-term success for the industry.

Caveat Emptor.

Hollow Chocolate Bunny

Cynata : A hollow chocolate bunny? You decide.

Notes:

1) Hollow-chocolate bunny image sourced from here)

2) The beautiful feature image of a neuron derived from a human embryonic stem cell was sampled from the work by Sharona Even-Ram, Ph.D., of Hadassah University Hospital’s Goldyne Savad Institute of Gene Therapy in Jerusalem

 

In-Laws, Fish and Founder CEOs

This week marked a major event in my life. I parted company with ImaginAb.

For many people, it will be a very big surprise, knowing how passionate and committed I am to the company. I co-founded the company in October 2007 with Anna Wu and Rob Reiter, while I was an entrepreneur-in-residence at UCLA Medical School. From the minute I met Anna, I knew she was special and I consider the day that the three of us co-founded ImaginAb, to be one of the great days of my life.

As always in these circumstances, there will be rumor and speculation. Actually, it was a mutual decision and my parting is truly amicable and – as you may have gathered from the implication of the title of this post – entirely necessary for the future development and success of the company. I chose this title because of the pun that after two (or three) days, both in-laws (especially mother-in-laws) and fish start to “stink”. I think this is an apt analogy to a fact of life that many first-time entrepreneurs don’t really think about.

The truth is, like fish, the majority of Founder CEOs have a limited shelf-life. Not all, but most. In my experience, that shelf-life is somewhere between 3 and 5 years. Therefore I think at roughly 7.5 years of service, I did ok. For all you budding start-up CEOs out there that aspire to see your company go all the way from an infant idea to a magnificent $Bn business, not only be prepared to “think again”, but embrace a necessary reality of corporate development. No CEO really goes from the beginning to the “end” – not even “Zuck” (who we all know doesn’t really run Facebook anyhow). There will be skeptics amongst you, naysayers that simply presume that this blog entry is nothing more than a poorly contrived defensive mechanism to publicly smooth over a career speed-bump (and you may be right). You might choose to argue that real talent persists and goes the distance, but I beg to differ.

Why?

Because over many years I have come to understand that at each stage in the development of an organization, a specific set of skills and experience is required, and a distinct mind-set towards organizational leadership. At this point in my career, I have tremendous experience and capability of launching exciting new companies. ImaginAb is a great company, one of several that I have started in my career. But personally speaking, I find that as a “start-up” company moves to a “grown up” company and toward more sophisticated commercial inflection points, it inevitably needs to transition from a conceptual and relationship-driven leadership framework to a more process-oriented struture. The intrinsic flexibility of a startup must be replaced with better planning, corporate governance and risk management. At this stage of development, my performance and leadership efficacy tends to decrease.

So does my enjoyment.

In the case of ImaginAb, over the last 12 months not only did I somewhat reach my “Peter Principle” as the organization become more complex and our product development started to hit later-stage clinical milestones, but my own lack of enjoyment of my job began to impact my efficacy as CEO. It also hugely impacted my home life, my marriage and my friendships.

In my opinion, it is a sensitive and sophisticated Board and Investor team that can consider the holistic complexity of a portfolio company CEO and evaluate the multiple facets of life that are requisite for both company success and personal happiness. I am thus extremely grateful to have been blessed with such a team, and I cannot express my appreciation enough to Novartis Venture Fund, Merieux Developpment, Cycad and Nextech Invest, who have been terrific partners over the years. I’d also like to thank my co-founders and the entire ImaginAb team for the support, respect and sensitivity that has been afforded to me during this transition.

To be clear, I don’t mean to diminish my accomplishments at ImaginAb with this somewhat candid assessment of my own performance. I am not that humble. Under my leadership, we raised close to $50m in venture capital and non-dilutive funding, took several antibody immunoconjugates to the clinic and over 30 “big pharma” collaborations over the years. Our lead product for prostate cancer – a game changer in my view – is in advanced clinical development and showing beautiful data. ImaginAb’s strategy for immune-oncology has the potential to be transformative to medicine, and is certainly starting to capture the attention of major players in the space. We launched many important academic collaborations and established footprints in Singapore and Japan. The next leader of the company will have some great building blocks – and a phenomenally talented team – to work with, to take the company to the next level.

A team, incidentally, that I will miss every single day.

As for me, I have no idea what is next. The coming weeks will be a busy handover time and I am still trying to comprehend how to even begin to change my identity. For those of you that understand that an entrepreneur eats, sleeps and breathes the “venture”, you know that I am going to feel a sense of loss, disorientation, even pain. I mean, when I have to introduce myself at a cocktail party, what will I say? Who am I now? What is my purpose?

I’ve been here before and, if I am honest with you, it sucks.

At a time like this, I am grateful that I am now also a husband and a father. Last time I was in this situation, I did not have this “other” hugely meaningful identity. Perhaps the solution is to focus on being better at those things for a while. They have certainly been neglected.

House husband? Hmmmm…

If this ugly sucker is a Mother-in-Law Fish, I wonder what a Founder-CEO-Fish looks like?

If this ugly sucker is a Mother-in-Law Fish, I wonder what a Founder-CEO-Fish looks like?

Academics should not be too smug about Udacity’s failure

I’ve been following the recent commentary around Sebastian Thrun’s revalations that maybe Udacity didn’t deliver the goods. I for one grudgingly admire Silicon Valley’s vaguely arrogant but persistant belief that “they” (the tech Good and Great) can transform and re-imagine every part of our lives, including education. It also makes me happy that this is getting a fair amount of attention because it least it means that education is perhaps important enough to think about in the context of innovation. Overall, it is an under-innovated area.

But there is altogether too much smugness around Thurn’s self-assessment and we possibly shouldn’t make it out to be anything more than a good entrepreneur’s periodic critical review of his product. Moreover, there is a pretty highly positive spin on all of this from a stakeholder engagement vantage – sometimes saying you’re “wrong” is powerful. Especially to Academics. Thurn knows this and has capitalized on it well.

The plain reality is that many universities and colleges are close to having – or are already having – extinction events. The fact is that many of our higher education institutions are struggling, are insufficiently differentiated and poor quality. In parallel, governments are not taking a forward view on growing the investment in education – indeed funding is, in general, being cut. Let’s face it, there is a lot of budgetary competition from healthcare, from immigration & defense and measures to keep our economies propped up. Education – unfortunately – seldom fares well in times such as these. This is a pity because it’s probably one of the most important things to really ensure our prosperity in the longer-term.

My prediction is that in the future, we’ll abandon the “classic” idea of an undergraduate degree. We have already lost vocational training and “associates” type programs that once upon a time enabled people to get trained for specific employement roles and make a decent living. Fact is, the most important employee attributes are critical reasoning, problem solving, team skills and communication. A 3 or 4 year undergraduate degree isn’t required to teach these things – arguably most undergraduate degrees don’t tech these things. We need to know how to communicate, research and understand concepts – we don’t need to store facts or manually crunch complex numbers anymore.

Therefore open universities, MOOCs and various online platforms are almost certainly the future of education. The whole proposition and opportunity cost of tertiary education doesn’t fit with our societal needs anymore. Youth, in particular, need to be able to earn a living while obtaining those vital skills but the same also applies to those who need to be re-skilled mid-career. The cost of education needs to be recoverable, commensurate with the benefits that it imparts to employment – and self-sustainable. Yes, there will always people (myself included) who love to learn for the sake of learning, and will pay a premium to do so. But this should not be the mission of education, it should be the aspiration of educators – that the quality of their offerings are such that we are compelled to come back, breathless, for more.

Alas, this is not typically the case. Despite over a decade of university and several degrees, I can count on one hand the number of lecturers that were worth really listening to. Education is already more of a commodity than we probably realize.

Actually, Udacity is spot on as a concept. The initial product construction may not be right, but academics should certainly not get cocky. In fact, universities would do well to start asking the question – how do we transition to the product, operating and cultural model of life-long learning? How do we transition to a world where instead of simply monetizing a student for 3 or 4 years, that we become a partner to those students – and their families – for life? When this question is critically considered, universities will finally reinvent themselves in an exciting way and likely repair – or even augment – their balance sheets in the process.

In this light, Udacity doesn’t seem to be all that … well… Udacious, does it?

De-risking a New Venture : The Buddy System

When you go scuba-diving, it would be unthinkable to take the plunge by yourself. Why? Because if something goes wrong, it helps to have a second set of resources available to try and get out of a sticky situation. Probably the most important “redundant” resource is brainpower – in the heat of the moment, it’s vital to have someone else looking at the situation more rationally (and with more oxygen) than you are.

It can save lives.

Start-ups are basically no different and we have lots of ways of achieving some of the same goals. We seek out experienced people who have done it before. We try to attract excellent board members and thought leaders to help improve our decision-making processes and challenge our assumptions. Contract manufacturing and outsourcing defers major CapEx until a product or service trajectory is more robust. We have platforms like incubators and accelerators (however efficacious) – even universities are changing to become a more fundamental part of the technology/tech transfer de-risk process.

The fact is, the early days – and early dollars spent on a new venture – are the riskiest but also the greatest “value inflection” (as the VCs like to call it). The problem is capability v risk – and how much to invest of your modest financial resources to achieve that milestone. That new nanotech start-up shouldn’t spend $5m on a clean room and a lab, they should just want to buy user time on sophisticated capability, not own it. You’d be amazed how many academics launch companies and spend a small fortune of high-cost venture capital replicating the capabilities of the lab. Total waste of money.

Human resources are a challenge too. A new cleantech or materials science company probably wants the world’s greatest chemist – on 40% time – and then ramp that person up to 100% when the next round of funding comes in. Especially if you are outsourcing or using resources on a fee-for-service basis, certain key piece of brainpower may simply not be running at 100% utilization. It’s not easy to obtain fractional ownership of the best people (slicing someone down the middle??!), despite a lot of innovation in the staffing and human resources space.

Like diving, it’s my opinion that one of the smartest things a start-up can do is find a “buddy.” Another company that has some of the same needs, infrastructure requirements, staff skills, etc. and take the dive together. Of course it’s vital that your activities don’t compete and that the leadership of the two organizations have a clear agreement on what the rules of engagement are. It has to be a symbiotic relationship, not a parasitic relationship and there is no doubt that if one “sibling” grows faster than the other, there can be problems.

However, in the last few years I had personal experience of this scenario and I think it can work very well. I led a nanomaterials company called Fibron Technologies (really fantastic conducting polymer technology) and ImaginAb (a biotech company) using exactly this system. They both needed some basic lab space. They both needed some simple analytical equipment. They both needed a few chemists and engineers. They both needed some basic IT, phones, roof… a decent coffee machine.

The two companies lived together for almost 3 years. Today, ImaginAb seems to have a bright future. Fibron, unfortunately, didn’t make it and I wound the company down in 2011.

But I can tell you, it was close and both companies would be assuredly kaput today if it were not for each other. Their financial fortunes fluctuated and changed wildly. Sometimes Fibron could pay the rent, sometimes ImaginAb could. When Fibron had a delay on an industry research contract, ImaginAb picked up the payroll and kept a joint headcount going for a couple of months – ensuring that Fibron’s corporate memory was retained and providing a measure of security for the employee. Initially, Fibron built out the lab. Later, when Fibron was strapped for cash and ImaginAb was starting to make money, it purchased the lab from Fibron, while still allowing Fibron to remain a user on a fee-for-service basis.

A kind of balance sheet and asset register “waggle dance” …

But perhaps most importantly, in good times and in bad times, the two companies shared a roof, pizza and beers after work. When one group was struggling, the other was there to lend a hand and provide some encouragement. Instead of having a few constantly distressed (or elated!) employees, there was always a stronger emotional balance that normalized the atmosphere. It was truly the equivalent of two divers, sharing a regulator and slowly ascending to the sun-dazzled surface from the murky depths below.

Though, as I said, in the end Fibron didn’t make it. It was a pretty dark time for the Fibron team, including me. But I think it was hard on the ImaginAb team as well, they lost a diving buddy. I guess that’s the sad part of it, though it also made people realize that start-ups do often fail – it was a reality check.

It was always my goal – and intent – that both companies succeed, like having two kids that are different but that you love equally. I was not successful with this goal and there were many hard lessons learned, that I will save for another post. However all the way to the end, the symbiosis, the superb relationship between the founders of the two companies, enabled a fairly orderly wind-down of Fibron. Even some of the employees who had been “shared” headcount were able to continue with the surviving firm. But I can also say that without Fibron, there would be no ImaginAb today – and were it not for ImaginAb, Fibron would never have had a shot at a VC term sheet (which it got, but failed to syndicate at the 11th hour).

One company ran out of oxygen but it was the combined momentum that enabled at least one of the companies to surface.

The “buddy system” – worth thinking about it.