Myths

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Myths Realities of Life Sciences
Investing Norman Chen, Entrepreneur-in-Residence
Hong Kong Venture Capital Association April 25,
2002
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Agenda

• Four Myths
• Five Realities
• Real-Life Case Studies
• Take-Home Messages

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Four Myths

• Life Sciences Biotech
• Biotech Boom
• Biotech Bust
• Life Sciences ltlt IT

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Reality 1 We Are in An Exciting Post-Genomic
Era of Drug Discovery . . .
Current number of drug targets today lt500
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. . . And Just in Time for Big Pharma
Multi-billion dollar prescription drugs are
coming off patent
While RD productivity is down despite increased
expenditures
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Reality 2 Drug Development Is Risky and
Long-Term

• Out of 5000 compounds evaluated during
  preclinical studies, 5 enter clinical trials, and
  1 is ultimately approved by the FDA
• Average RD costs per product now averages US
  600 mm per compound
• Entire process takes about 12-15 years

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Reality 3 Despite the Risks, Biotech Is Paying
Off
More and more compounds are getting approved and
faster
Resulting in a dramatic increase in market value
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Reality 4 There Is More to Life Sciences than
Biotech
Diagnostics
Services
Biotech
Devices
Nutriceuticals
AgBio
TCM
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Reality 5 Life Sciences Is A Growing Area of
Investment
VC Investment by Sector (by )
1
6
2
47
2
5
6
14
17
2000
2002
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Real-Life Case Studies

• Cardolan
• Bioinformatics and gene therapy
• Eureka!
• Biotechnology and genomics
• Asia Renal Care
• Specialized medical services

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Case 1 Cardolan Pharmaceuticals

• Founders came from Big Brand Name University
  (begins with H)
• First meeting 1994 We turned them down
• Worked with them over 18 months
• Refine business plan, focus concept, give them
  time to do more proof of principle
• Invested 1996

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The Technology

• Proprietary Epitope Discovery system
• Couples Mass-Spec, bioinformatics
• Proprietary Gene Expression System
• Allows modular expression of multiple cassettes
• Proprietary Drug Delivery system
• Collaboration with scientists at MIT

One-Stop Shop to treat cancer, viral and
autoimmune diseases?!
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What Needed Work?

• Everything!
• Naive, overreaching business plan
• No proof of principle
• Founders had ZERO business experience
• Conflicts between team and University, advisors,
  and others
• Unrealistic view of technology value

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Why Did We Stick with It?

• The People
• Very hard working
• Very determineddid not give up
• Very likeable
• Willing to learn and adapt
• Were betting everything on it
• The Concept Very big (if it works!)

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VCs Role More than Money

• What did we add?
• Identified other investors, collaborators
• Cleaned up business assumptions
• Provided ongoing reality check
• What didnt we add?
• Guarantee of success
• Hands-on management
• Intangibles

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So How Are They Doing?

• Two drugs in Phase II Clinical trials
• Several patents in drug delivery, bioinformatics,
  and proteomics
• Raised 50 million to date from top-tier
  investors
• One corporate licensing deal need one more
• Still a long way from ultimate success!

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Case 2 Eureka! Pharmaceuticals
Mission

• Discover key genes that control higher-level
  brain function
• Develop treatments for learning and memory
  disorders
• Validate drugs that have effects on higher-level
  brain functions

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Eureka! Early History

• 1999 Princeton scientists first findings of
  single-gene control of learning and memory in
  mice
• Mice with extra NR2B genes learn more and
  remember longer than normal mice
• Prof. Tsien founds company in March 2000 with
  seed funding from Walden

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How Do You Test Learning in Mice?
Normal and knockout mice are equally curious
about two novel objects
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Knockout Mice Forget where Theyve Been
Normal mice spend most of their time checking out
the new object Deficient mice spend equal time
exploring both objects.
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Eureka! What Is Right?

• Breakthrough science
• Prof. Tsien is a great spokesman for the science
• Huge potential if it works
• Fits the current emphasis on biology as
  information

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Eureka! What Are the Challenges?

• Biotechnology fell out of fashion during the
  Internet/Telecom boom few groups have dedicated
  life science people
• Learning, memory and other higher functions are
  considered extremely complex
• The story is difficult to explain only a few
  people understand it

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Case 3 Asia Renal Care (ARC), Ltd.

• High-quality provider of kidney dialysis services
  in Asia
• Founded in 1996 President/CEO from large medical
  products MNC
• Raised US 10 mm in Series A from Walden,
  Fidelity, Investor, a HK Life Sciences Fund, and
  Satellite Dialysis Centers (US non-profit
  dialysis company affiliated with Stanford
  University)

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ARC Progress to Date Centers
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ARC Progress to Date Patients
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ARC Progress to Date Financials
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ARC Lessons Learned

• Although some regional economies of scale,
  medical services is a very local business
• Health/reimbursement system
• Doctor relationships
• Legal structure
• Must have clear benefits to offer to patients and
  physicians (both are customers)
• Must have strong local management and committed
  investors

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A Few Take-Home Messages

• Life sciences is here to stay
• Life sciences is more than biotech, especially in
  Asia
• People are more important than technology

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Thank you