Howard Cash: Founder and President, Gene Codes and Gene Codes Forensics
Keith Elliston: President and CEO, Genstruct
Richard Gill: President and CEO, AnVil
Kevin Krenitsky: Senior Vice President and Medical Director, Genomics Collaborative
Cornelis Wortel: Founder, President, and CEO, ClinQuest
On March 26, BioInform sat down with a roomful of informatics executives to chat about a persistent challenge in the industry: the “not invented here” syndrome in large pharmaceutical companies that makes them reluctant to partner with informatics firms. A few informatics companies are hoping to overcome this barrier through clinical genomics — analyzing clinical and healthcare data and then selling it to pharmaceutical companies. During a two-hour roundtable discussion, the heads of six firms debated the merits of this approach, and tackled a number of other subjects along the way. The text of the conversation, edited for length, follows.
BioInform: Some of you around this table are working in the area of clinical genomics. How will positioning yourselves between clinical data providers and pharmaceutical companies help your businesses?
Gill: What we’ve found over the last 18 months is that if you can step into a position where you’re integrating the data that you see across the drug development paradigm — looking at the outcomes in the hospital, looking at clinical data and genomics data — you get into a position where you’re starting to ask the same questions, but of very different types of data. And then you can integrate not the data, but the information that you’re extracting, so you can come up with hypotheses that may be answering discovery questions. We were in with a pharma client yesterday morning, and the CEO said, ‘Well, I don’t really want a priest between me and God.’ And my reaction was, ‘Well, I’m not a religious man, but I have it on good authority that the priests believe that they have the ear of God.’ And I think a lot of us in this space are trying to be that ear of God.
Cash: Don’t people resent that?
Gill: Some of them do. But part of the not-invented-here syndrome is this belief by folks that it’s easy to get the answers from the kind of data that we’re all looking at, and we all know it’s not.
Wortel: We’re at the brink of being able to use that data effectively for drug development. But there are two things that one needs to be extremely cognizant about. One is that the amount of data in there needs to be sufficient to actually be able to see things. Secondly, once you look at that kind of data, you need to also apply science. Just because there are statistical hits, you will find also noise that actually looks like a signal, but there will be no scientific rationale behind that.
Krenitsky: I think the ultimate manifestation of clinical genomics is the application of genomics and genomic technologies to diagnostics and therapeutics that are actually being used in the clinic. Right now there is a paucity of that. I think that in no uncertain way we’re all suffering from that. I think the capital markets reflect that. I think the Human Genome Project clearly made people believe that the genomic revolution was going to turn out diagnostics and therapeutics tomorrow, and that’s simply not the case. But, having said that, I think the opportunity to overcome the not-invented-here syndrome truly exists because we really have the opportunity to drive clinical genomics forward by giving the pharmaceutical companies parts of the puzzle that they simply do not have.
Cash: Some of this not-invented-here in informatics comes from the fact that most of the consumers of the kinds of tools that are built have their own bioinformatics groups. It’s not so much that they have a vested interest in keeping their jobs by doing the work in house, but it has to fit into their environment in a way that won’t make some of the work that they see as personally important or personally fulfilling obsolete. Putting aside the question of whether the vendors can really do what they say, you’re asking the local bioinformatics team to take on an enormous amount of work in order to make it fit and, potentially, a crushing amount if things don’t work out.
We build tools. We build test tubes for all intents and purposes. And the key for us in building scientific consumer-level tools is to study the individual scientists and how they work, and the informatics group — how to integrate with them without causing a lot of pain. It’s very rarely the CEO or even the CFO who’s going to be all that invested in the idea of ‘Let’s build it ourselves.’ It’s the internal team — usually not out of jealousy, but out of a justified fear of how much difficulty we’re going to cause.
Elliston: What clinical genomics is currently about, and pharmacogenomics, and all those key elements, is, ‘We don’t know how it works, so we’re going to try and find something that correlates.’ And nothing is really going to change until we know how it works.
BioInform: What does that mean to all of you in terms of adjusting your business strategies to prepare for the future?
Gill: We’re not trying to sell tools; we’re not trying to sell software. We’re taking information and knowledge to [pharmaceutical companies] about outcomes, and saying, ‘We know that you have a drug in development in Phase III. Here’s the information that we’ve extracted that says that you may be able to go after a new indication.’
Cash: A couple of years ago, we started talking internally about some of the technology we had produced that was originally developed for the molecular biologist in the lab [and asking] what would it take to make that accessible to a physician in a clinical setting? I assume that they’ll have to use it at some point. That’s a big market that’s just opening up. If we had the tools five years ago, no one would have bought them.
Krenitsky: I think right now Genomics Collaborative is living in a world where we need and are actively pursuing a single, large proof of principle. There is no proof of principle study in genomics at this point with 500 patients, 500 controls, etcetera, that has produced a viable drug. And the moment that happens, it’s going to be a different world. Drug companies are just beginning to take a leap of faith into that world.
Wortel: I recall from the combinatorial chemistry arena — it was very, very hot around six years ago — that there were companies that survived; but the reason they survived was that they in-licensed something. Yes, they were a combinatorial chemistry company, but they had a drug. Do we have funding enough to come to that point in this industry?
Elliston: The reason those companies survived is that they attracted additional funding. The real way to survive is to generate a profit. If you look at the biotech industry, the successful biotech companies are the ones that produced the end product: Amgen, Genentech, Genzyme, Biogen. If you want to build picks and shovels, you can build a nice business, but you better be profitable, because it’s not something that’s going to attract big investment.
Gill: The luxury that I don’t think any of the companies have in this room is that none of us have a drug of our own. We actually are all trying to do exactly as you described, which is make our companies profitable off the back of making other companies profitable —that’s exactly what we’re doing. Now long term — and this is where we maybe all have a blue-sky vision — would be that we will find those drug rescue candidates. It’s not part of our business plan, but if I see an opportunity — if I know there’s a kinase out there that only works in women, and that a company does not choose to pursue it — I’d love to get my hands on it to develop a female-only angiogenesis product. I could do $300-400 million and be very successful.
Cash: Why isn’t that in your business plan?
Gill: I don’t have the financing.
Krenitsky: If you looked at GCI three years ago, we weren’t talking about making money. That’s the last thing in the world we wanted to do. You make money this quarter, you’ve got to make more money the next quarter. Why do that when there’s so much money around? The bottom line is that only 18 months ago did we realize that we had to put a service model into action, and we’re tremendously lucky that it’s been successful. But I think the times have absolutely required many companies who have survived to effectively change their business models and execute on that.
Gill: All of us are trying to build revenue. But ironically, when you’re trying to raise investment, building revenues is perhaps not such a good thing, and the reason is, once you have revenues you can be measured. Pre-revenue, all you have is the vision. And if you look at the marketplace right now, the few financings you’re seeing are for companies with vision and no revenues. There are some very long-term bets being placed.
Cash: The reason the markets came into being was to give companies the opportunity to raise money to do things they couldn’t do without that money. And it’s changed in the last decade to a way to cash out — a way to raise personal money to leave the business as opposed to put into the business.
At the Genome Tri-Conference a couple of years ago, a venture capitalist was describing bioinformatics companies, so I said, ‘We’re a bioinformatics company,’ and he said, ‘Well, GeneCodes is a commodity company. They’re not a bioinformatics company. Bioinformatics companies, by definition, are putting money into R&D, and you can’t be making money and be a bioinformatics company. You’re making profits and not a product.’ So I said, ‘Okay, I guess we’re not a bioinformatics company because we fail to lose money.’ So the notion that it’s a disadvantage to have revenues because it gives you something to measure against is absolutely true. It’s a truth that actually hurts the market.
Just so you know, we do make money, and there is not a week that goes by that we don’t get a call from someone who wants to invest. Some of that is because we’re in a funny space now and it’s kind of a patriotic investment.
Elliston: I think the beauty of being a post-bubble company is that Genstruct hasn’t acquired the kind of burn rates that a lot of companies did. We generate a lot of value with a small amount of investment. Our model is one of raising one round of venture capital, get profitable, and use the momentum of the industry to build a big business. That’s something that’s very hard to do in retrospect, but if you do it from the beginning, you figure out the way to do that.
Krenitsky: Nobody would argue that that’s not a sound concept. But in doing that, can you really be visionary? Can you really set your sights on the big picture, on the blockbuster of trying to break into drug discovery? I’m not so sure.
Elliston: What capital should be able to do for me is to capture market opportunity faster and more competitively than if I didn’t have the capital. It shouldn’t enable me to do something that I can’t do.
Gill: I agree with you completely. For me, it gives you negotiating power, because the opposite is even more true. If you don’t have cash, you don’t have negotiating power. And that’s really why most of our businesses need cash. It’s not so much that we have burn — and we all have burn — it’s so that when you’re negotiating with the big guys you have some power.
BioInform: How do you balance that vision that you have to provide for the VCs with being able to deliver a return on investment for your customers? Does getting the deal outweigh getting the funding?
Gill: Deals bring funding, no question. But it’s a catch-22. The deal is often around the vision for our stage of company. Our job as CEOs is to step in and paint a picture for the client of what we can achieve for them, and then get them to pay for the vision. If they’re paying for the technology, we’re going to go out of business.
Krenitsky: From GCI’s perspective, the game has changed from the moment that we went to a revenue model. Now we have a number every quarter and we have to meet that number, and we are meeting those numbers. And we are doing more significant deals that are in line with our initial vision than we’ve ever done, but I think the first thing that people look at is that revenue number. In my mind, the deals are more important. We raised a tremendous amount of money without making a dime and now that we’ve made several million, we haven’t had to raise as much money. But, comparatively speaking, the amount of money that we’ve raised is insignificant compared to what we raised when we weren’t making a dime.
Elliston: We as CEOs have two divergent things to do. One is to convince [VCs] to put money into our companies, and the other is to build a really valuable business. And sometimes those things are diametrically opposed. Each business has its opportunities, has its vision. And yes, you’ve got to find the right pitch for the right guy for the right day in the right meeting, and it may be a pitch to a venture capitalist or a bank for debt funding or to a customer, but the CEO is the keeper of the vision.
Gill: The ‘but’ for me is, you realize your vision if you have profit, because then you have freedom. As a CEO, if you have profit, you can build your vision much more quickly.
Elliston: I think there are a lot of guys with $50 million or $100 million in the bank and no profits who feel like they’re building their vision, too.
Gill: But they have to turn that into profit in a very short time. Otherwise they become Celeras or Incytes. They may have a bank, but right now I wouldn’t want to be inside one of those companies.
Cash: We’re not trying to cash out. The goals of this company were building a product that people wanted more than the money that it took to get it, a company that was worth more than it would take for someone to buy it if we wanted to sell it, and a company that people were glad they worked for or wished they could. The example I used, which had a short shelf life but I didn't realize that at the time — this was in 1988 — was like Apple Computer. Our drivers internally, in terms of the day-to-day operations, are, ‘How do you balance the need to keep pushing the product forward and still have a place that people are proud to be at?’ And that’s kind of tough.
Krenitsky: You know what’s interesting, is that nobody around the table today has talked about IPOs or taking their company public, and I think if we were here three years ago, that’s all that we’d be talking about.
Elliston: That’s part of the cycle. If you go back a few years, the public markets acted like venture capitalists and you raised money to accelerate into a market, and venture capitalists acted more like angel investors. All you needed was a great idea and vision. That’s gone back the other way, where now VCs are acting like banks and angel investors are acting like VCs. It’ll come back to a center, but I think IPOs are an extension of venture capital. So I think we are talking about IPOs, we’re just calling it venture capital funding.
BioInform: Is the IPO window closed completely?
Gill: I have visions of it, but it won’t happen tomorrow.