The final implosion of the Stemcentrx deal is worth a note, although I said a lot of what I have to say about it back in December. I want to especially emphasize two points I made back then – first, that the failure of this whole acquisition is different only in degree, and not in kind, from many others in this business. AbbVie paid an awful lot of money for Stemcentrx, and in the end they got zilch, zero, zippity-doo-dah in return for nearly six billion dollars in cash (and plenty of extra time and money spent on their own since then). It is easy to make fun of them for this – I’ll do a bit of that in a minute – but remember, this is how much drug development programs turn out. We have a 90% failure rate in the clinic. Smart money, stupid money, best laid plans of mice, men, nematodes, and whatever species it is that writes press releases, the reaper cometh for them all and for some time now the reaper has been taking 90% right off the top. The odds were against Stemcentrx from the start, because the odds are against everybody.
Ah, but return with me to those days when everyone who’d gotten into Stemcentrx early had just been paid off richly. (Mind you, they all still have that money – those folks did great, although no one else did). Here’s an interview with Stuart Peterson of Artis Ventures, one of those early investors, to tell you how they’re so darn talented. Luck, friends, had nothing to do with it:
. . .we were and still are excited to play the long game if the science is strong, particularly if it means going against the crowd.
(Interviewer) Without a deep science background yourself, how did you get comfortable with the technology risk?
(Peterson) First and foremost, we leveraged the expertise in our network — and our network’s network. We, along with our Limited Partner (LP) investor base, have strong life sciences contacts at universities like Stanford and throughout the industry. Many of our LPs have advised and supported multiple life science companies throughout their life cycle.
That being said, we’ve found that sometimes advisors with deep industry experience and early battle scars can actually talk you out of investing in a great company. If you’ve been entrenched in a space for a long time, it’s possible to have some inherent skepticism around new ideas. We really had to get our advisors to engage in the science in order to get their support.
Yes, yes, it is possible to have some inherent skepticism, particularly when you have watched 90% of those great ideas burst into flame over a period of many years. But you’ll note that the folks with deep industry experience at AbbVie ponied up nonetheless, because some of these things really do work. Just not this one. Brian Singerman of Founder’s Fund, another big early investor, also did this interview where the word “luck” does not appear. But we don’t know enough about the underlying science in these areas for luck to be ignored. They folks did did a lot of due diligence and put in a lot of effort, but a lot of people do that. Those things are absolutely necessary, but they’re absolutely not sufficient, either. Artis and Founder’s Fund also got lucky, not least because they were able to exit when they did. AbbVie, not so much.
So those interviews aren’t about making a great scientific discovery – no one knew if one had been made or not. And they’re not about finding a drug, or curing any cancers – none of that had happened yet, either. They’re about getting someone to pay six billion dollars for your idea. And that’s pretty impressive – don’t get me wrong – but people sell companies all the time. As opposed to, say, keeping people from dying of cancer, which doesn’t happen nearly as often as we would like. But I’m even more impressed by it when it does.
And then there’s this now-famous quote from Peter Thiel himself:
“Our theory was that it was a biotech company that looked a little more like a software company,” says Thiel, who started investing in 2012. “The whole company was designed to get the probability of success closer to 1.”
Welcome to biotech, then. We’re a long way from 1, and for a lot of good reasons. If by “success” you mean unloading the company for a very large payout, then Stemcentrx was a very big success indeed. But if you mean “making a successful drug”, then it’s been a total wipeout. Join the club, guys, join the club. Now can you do what those of us in the industry have learned to do, which is to take a deep breath, shrug your shoulders, and try it all again?