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In biotech, bet on people
A field of extremes
Biotech is a field of extremes. A Wall Street Journal article that compared it with tech software found the gap between winners and losers was four times greater: over a reasonable stretch of time, the top five biotech investments were up nearly 300% while the bottom five were down 80%. Companies can hire brilliant people, build great facilities, and raise hundreds of millions or billions of dollars, and still the core technology most often doesn't work.
Learning the science
Regulation, manufacturing, and pricing and reimbursement add more difficulty. The best biotech investors get deep into the technology, but they don't have to be scientists. Jeff Feingold spent his career at Fidelity and ran its Magellan Fund, which at one point was the largest holder of Amicus shares, and he wasn't a scientist. He learned the business to a reasonable level and kept a couple of specialists in the room for the diligence. His Fidelity mentors taught him to dig deep into the team, the leadership, their character, experiences, and resilience, and that for long-term returns that is where investing starts.
Betting on people
Kleiner Perkins invested in Genentech in 1976, when the technology looked cool but that was about as far as diligence could go, so they were betting on people. Every great biotech company today, Vertex and Celgene among them, struggled at points, and Amicus was an overnight success that took 19 years.
Why do biotech returns swing so widely?
A biotech company's value usually rests on a few drugs that either pass or fail in trials, so outcomes cluster at the extremes. The few that succeed can be worth many times what the company spent, while a failure often leaves little behind. A 2021 report from the Biotechnology Innovation Organization, Informa Pharma Intelligence, and QLS Advisors found that only 7.9 percent of drugs entering phase one trials between 2011 and 2020 went on to approval.
How did Genentech turn a bet into a company?
Genentech began in 1976 when venture capitalist Robert Swanson of Kleiner Perkins teamed with Herbert Boyer, a University of California, San Francisco biochemist who had helped develop recombinant DNA techniques. The company made human insulin by splicing the gene into bacteria and licensed it to Eli Lilly, which brought it to market in 1982 as the first approved recombinant DNA drug. Genentech's 1980 stock offering was one of the most celebrated of its time, with shares priced at $35 and trading above $70 on the first day.
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