We invited Steven Zimmer, CEO of MitoDys Therapeutics, a drug-discovery company with a new approach to the treatment of Parkinson’s Disease, to tell us his top tips for investing in biotech companies. Here’s what he had to say.
De-risking biotech investments: A novel strategy
I have spent a lifetime thinking about ways to reduce biotech investment risk. Potential investors in biotech, particularly in the UK, are attracted by life-changing returns. But more often than not they are confronted with failure: less than 10% of drugs that enter into development actually make it to market industrywide. Will this always be the case? Absolutely not! New disruptive technologies and business models are making it possible to significantly enhance the chances of success, and investors will start to take note of this over the next few years. Concretely, what should a biotech investment strategy look like?
1) Focus on companies using a virtual model. No need for extensive amounts to be spent on buildings, labs and lots of in-house people. There is plenty of capacity available through academic institutions, and other opportunities to outsource in a cost-efficient way
2) Look for evidence that a company is leveraging finance with grants from foundations and governments. This is the smart option as everyone is keen to resolve unmet medical needs to alter the dynamics of healthcare expenditures, particularly as we are faced with an ageing population and an exponential growth in disease incidence and prevalence
3) Biology and pharmacology are inordinately more complex than originally thought. Simplistic, reductionist, single-target approaches to underlying disease biology mostly fail. Look for companies that acknowledge this
4) Apply the same portfolio diversification in biotech as you do in your normal investment portfolio. Mix investments in quoted and unquoted companies. Spread the risk and don’t try and get the killer return from just one venture
5) Look for companies that are trying to recycle old or failed/abandoned drugs to a new indication. This is the best way to de-risk for safety. Drugs never work for one disease only and can even turn out to work better for something they were not originally intended for (e.g. Viagra!)
6) Avoid management teams stuffed with too many Big Pharma people. Such individuals are rarely as innovative or entrepreneurial as their biotech counterparts, and are prone to bureaucratic behaviour. Look for the entrepreneurial type and for knowledgeable people from diverse backgrounds
This sort of strategy should help the non-specialist investor to navigate the treacherous waters of investing in biotech. I have tried to apply most of these principles in constructing my own company, MitoDys Therapeutics, so you could accuse me of talking up my own book! But really, ask around, these principles can be applied objectively and represent sound issues to focus on. Biotech investments present significant opportunities to seek very large returns and at the same time help alleviate the suffering of those afflicted by disease.
Without risk investment into disruptive biotech companies, we will never make a difference to unmet medical needs.