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Pharma's Paradox of Plenty in Biotech | Atlas Venture Partner Jason Rhodes
1 Plays3 seconds ago
Today's guest is Jason Rhodes, a partner at Atlas Venture and serial biotech entrepreneur who took Dyne Therapeutics ($2B+) and Epizyme ($5B+) through their IPOs, co-founded Disarm Therapeutics (acquired by Eli Lilly), and spent years on the leadership team at Alnylam Pharmaceuticals helping pioneer RNAi therapeutics.
In this episode, Jason breaks down over three decades of biotech evolution. We trace how pharma went from fully vertically integrated to increasingly dependent on biotech for its pipeline, and why that inversion reshaped the entire industry. Jason introduces what he calls the paradox of plenty, as the barriers to building biotech companies come down and innovation pours in from China, AI, and maturing capital markets, the flood of competition makes it harder than ever to be first or best in class. We get into how Atlas navigates that by building companies from scratch, spending $2 million to test whether the science even replicates before pouring in real capital. It's a wide-ranging conversation on where biotech has been, where it's going, and why the biology is always immutable.
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Transcript
Introduction to Healthcare Theory Podcast
00:00:00
Speaker
Welcome to the Healthcare Theory Podcast. I'm your host, Nikhil Reddy, and every week we interview the entrepreneurs and thought leaders behind the future of healthcare care to see what's gone wrong with our system and how we can fix it.
Introducing Guest Jason Rode
00:00:14
Speaker
On today's episode, I'm speaking with Jason Rode, a serial entrepreneur, operator and investor in biotechnology and a partner at Atlas Venture. And Jason's career gives a really unique perspective, which I'm excited for.
00:00:27
Speaker
You'll see that through his entrepreneurship. First, he was a director at Alnylam, which is a large $40 billion dollars biotech. He worked on Epizyme after that, helped lead it from clinical development to its IPO.
Jason Rode's Biotech Career Highlights
00:00:39
Speaker
He was then the founding CEO of Dying Therapeutics, which is now valued at over $2 billion on the NASDAQ, Rectify Pharmaceuticals, and many more.
00:00:47
Speaker
And all of this is founded by the idea at Atlas Venture, where he works today, that you can take early scientific ideas like they do and build them into real companies. And he's done this many times as a partner there.
00:00:59
Speaker
And in this, we talk about his playbook in biotech, how he does finds conviction in these assets, where innovation might go next, and how the industry has changed and where we can work around that in biotechnology.
Jason's Career Transition Journey
00:01:10
Speaker
Hi, Jason. Thank you so much for coming on to Healthcare Theory. Welcome to the podcast. Hey, Nikhil. It's great to be here with you. It's really great to have you on because I think your career is a little bit rare or uncommon in some sense. I mean, history at Yale, a award an MBA, then you worked in biosciences at Fidelity, then started many companies. And now you have this like serial entrepreneurship, which in biotech, which maybe is a little common or sometimes common, but a background in history and and business is also a little bit unique in that sense.
What Drew Jason to Biotech Industry
00:01:38
Speaker
Before we get into the industry side of this, I'd love to hear like what initially pulled you into this work?
00:01:43
Speaker
And now, I mean, biotech has changed fundamentally in the past 20 years. So what's kept you here over the past 20 years? we've seen so many different changes. What's brought you here and what's kept you here in like a rapidly changing industry?
Evolution of Biotech Industry
00:01:54
Speaker
Sure. Well, you know, I think fundamentally the science is so, so interesting here, right? And, you know, when I first entered the industry actually in 1991, so a little while ago, you know, the Human Genome Project started hadn't even begun, much less been completed. and so it's it's a little bit incredible in 2026 think about that.
00:02:18
Speaker
And there were very few therapeutic modalities. you know We actually didn't have you know antibodies approved yet. um And it was really a small molecule world and not all, but most of those small molecules were really enzyme inhibitors or competitive antagonists of sort of targets that at least at the time were were well understood.
Biotech vs Pharma: Historical Divide
00:02:40
Speaker
And so the evolution of the science and as a result of that, the therapeutics is just extraordinary. And of course it continues. And so I think, you know, in comparison to the high tech space, I think we're still really in the very early innings of, uh, you know, the biotech and the biopharma industry.
00:02:59
Speaker
Yeah, it's, I think, very interesting. I've heard of this from a lot of my guests around like the 2000s, 2010s. You saw biology change with the Human Genome Project, and does seem really interesting. Now you had science really kicking off really quick. So i want I want to zoom out a little bit in terms of the macro.
00:03:13
Speaker
I mean, the modern industry seems to trace back to Genentech in the mid-70s, where you had really the first biologic. Because before
Biotech's Growth and New Therapeutic Modalities
00:03:20
Speaker
that, it seems to be pharma just making small molecules and biotechs would take risks on nicer biologic modalities. So, mean, when you started off in Fidelity Biosciences, kind of as the Human Genial Project was kicking off or starting, so what did that structure look like in terms of how things were oriented?
00:03:35
Speaker
Like, what was the deal or unspoken deal between pharma and biotech back then? Because I know now it's it's changed quite a bit in terms of how the industry structure looks. Right. Well, I think you you put it well. I mean, the pharmaceutical industry and its origins was really about synthetic small molecules.
00:03:50
Speaker
and And many of those initially were really um synthetic approaches to making natural products. You know, we can think about antibiotics and and things like that. And then the biotech industry and its origins was really about recombinant DNA and the ability to make you know proteins. um And so rather than purifying insulin you know from pigs, we were actually able to to synthesize it externally.
Biotech Maturation and Industry Shifts
00:04:17
Speaker
And that divide between molecule pharma and biologics and really secreted proteins mainly in the biotech world really remained the case you know through the 90s and in a lot of ways certainly prior to the human genome project being completed but but as well i think through it and into the early 2000s the biotech industry in some ways wasn't sure where to go you know all of the low-hanging fruit around these secreted proteins had been picked so to speak.
00:04:48
Speaker
And while we had all these new genes and functional genomics, and so we could think about all sorts of new targets and think much more deeply about, um you know, pathways of pathophysiology and how we might intervene in them therapeutically, we we didn't really have the toolkit to do it.
Biotech's Role in Drug Innovation
00:05:04
Speaker
And so of course, what happened in the early 2000s is we we began to really have the emergence of the first generation of antibodies, which seem fairly simple by today's standards that are much more complex in terms of the protein engineering.
00:05:17
Speaker
And if we then fast forward into the the teens, you know we we we began to have the emergence of a whole new set of modalities. And I think it's these two vectors of innovation that have moved in parallel, new new new targets, new biology, and then a toolkit of new therapeutic modalities that we can apply to. it And so a lot of the growth that we saw 20 teens and that public biotech market super cycle that began in 2013 and arguably went through 2021 or so was really about bringing these new therapeutic modalities into real application. And Al Nylon, where I was on the leadership team and ran business development for a number of years, of course, you know, was the really the the main developer and remains the leader in
Pharma and Biotech: Evolving Relationships
00:06:03
Speaker
RNAI. And so that that's a good example of that, that new therapeutic modality development.
00:06:08
Speaker
Yeah, RNAi is interesting. We also saw, I mean, so much more like CAR T, CRISPR, protein degraders. You could almost see go on and on in terms of the type of technology we saw. And I guess I do see those two vectors. I also see that, I mean, a lot of it's like capital kind of catching up to the human genome project that promises there. a lot more capital seems to be flooding in the space. So it seems like there's so much stuff going on. There's kind of like a cycle happening.
00:06:31
Speaker
there So biotech, let's say they found their spot. I mean, they're rapidly innovating. What seems to be more interesting there is that by around, like I think, 2015, 2021, kind of later in that biotech cycle, most of the FDA drugs were originally like kind of the large pharma sponsoring them.
00:06:46
Speaker
And i mean that's a pretty dramatic inversion from around 20 years ago. So, i mean, why do you think that changed? We had biotechs... developing more modalities, finding more targets, more capital flooding into the space. But for some reason, we had pharma stepping in more and more, um maybe more as a commercialization engine or something else. But where do you see or why do you see that? Why did you see that
Where Does Innovation Occur Best in Biotech?
00:07:06
Speaker
changing? And what was kind of the fundamental shift going on back then? Yeah, you know, so so big pharma was and and remains, although in a different way, a very vertically and integrated business that goes all the way from the earliest research through preclinical development and development and commercialization. And of course, has the capacity to run very, very large clinical trials, which in many indications, you know, for later stage development are still needed and and to put the tremendous amount of capital.
00:07:32
Speaker
into manufacturing, particularly for non-small molecules, for these sort of new modalities that's necessary. And so I think the foundation for biotech innovation and biopharma innovation is what we were talking about before with these two vectors of biology and then these new therapeutic modalities um emerging. And now we've got this huge toolkit of modalities that we can apply against
Biotech's Evolution to Commercialization
00:07:56
Speaker
any target when we have new ideas. So then the question in some ways becomes kind of one around organizational capabilities yeah and design, which is where where does innovation best occur?
00:08:05
Speaker
And it occurs best in small enterprises with small you know killer teams that are extremely focused and that are very agile and then that are funded adequately. And so the biotech capital markets, and yet you touched on this in your question, were really much smaller and much less developed if we turn the clock back you know a couple of decades and and arguably even even less than that.
00:08:30
Speaker
And I think the first generation of biologics companies, the Genentex and Amgens and Biogens and Genzymes, et cetera, you know, were very successful. And then we got stuck for a while. And then we had a next generation of companies like the Vertex's and the Gilead's. And what became more and more apparent over time is that these innovative biotech companies could go all the way from idea through development and in a set of cases to commercialization and build very large and successful
Impact of Financial Crises on Biotech
00:08:59
Speaker
companies. And so in parallel with the biology and the therapeutic modalities really maturing and coming to fruition, we had real maturation around the industry, um part of which was capital markets.
00:09:14
Speaker
And you know the financial crisis in 2008 through, we'll say, 2010 or so obscured a lot of these developments because the macro was so tough.
00:09:24
Speaker
And you know we were so we still, in some ways, hadn't recovered from the bubble and the crash in 2001. um But what was happening is that in rates, you know, like all the the iceberg, the huge majority portion of the iceberg that's under water is that all of these fundamental forces, the biology, the modalities, the capital markets, and increasingly a set of executives who had real experience, not just in big pharma, which is a great place to get training and experience, but also in
Pharma's Strategic Shifts and Biotech Reliance
00:09:53
Speaker
biotech. So, you know, a lot of the emerging biotech companies
00:09:57
Speaker
in the boston area where i am you know were founded by biogen alums and a lot of those biogen alums went to millennium and then they became millennium alums and started the next thing so you had all these forces that were sort of moving together and you couldn't quite see them because they hadn't quite broken through the surface of the water um but then they finally emerged and at the time that they emerged and we'll just call it like 2010 through 2013 or something like that it was the same time that a lot of the large pharma very, very large drugs were going off patent and facing the kind of crisis in a lot of ways that it was of having these patent explorations around very large drugs like Lipitor or Torvastatin, right, which is the most successful of the statins for cholesterol, going off patent forced the large pharma companies, I think, to
00:10:46
Speaker
become very strategic in their self-examination of their vertical integration. And in part, what they did is they really reduced, I think, their research footprint. So they
Symbiosis Between Biotech and Pharma
00:10:56
Speaker
remain very active, very significant, and very important in earlier stage research.
00:11:00
Speaker
but they started to look beyond their their own four walls for innovation. And so if you look at the statistics now, really significant majority of new programs are really coming from biotech companies. In some cases, we can talk more about it with Alnylam or others, those companies have gone all the way.
00:11:16
Speaker
But in many cases, either through partnerships or M&A, those products end up in the large pharmaceutical companies that then do the more expensive and often the more time consuming and more complex and regulatory point of view, later stage development and commercialization. So I think you make a long answer shorter. You have very so you you have a much more sophisticated and a very symbiotic industrial structure.
00:11:39
Speaker
and And the organizational designs between biotech and big pharma, you know, now reflect that.
Strategic Decisions in Biotech Commercialization
00:11:47
Speaker
Yeah, and I do definitely want to get into that trade-off between commercializing or I'm going through an exit. I know that was something that probably came up with you with Dine and also with Disarm. It seems like a little bit of ah a different approach there, but I'm curious. I mean, it's it's very interesting to me how we had an industry that was commercializing or rapidly expanding in science. And of course, you have the pharma come in to commercialize. And i think that level of symbiotic relationship isn't really seen in and other industries as much.
00:12:13
Speaker
But I've read that some economists kind of argue that this structure where pharma outsources R&D risk to biotechs while dominating commercialization has made it a little bit asymmetric um in terms of like pharma has delivered great financial returns while biotech takes on a lot of the scientific risk.
00:12:29
Speaker
So it's a little bit more binary for the biotechs and for biopharma, it's a little bit more stable in some ways. um Do you think that characterization from economists is fair? And how do you think about like where value actually accrues?
00:12:42
Speaker
and the modern like symbiosis between biotech and biopharma.
Risk Profiles in Biotech Innovation
00:12:46
Speaker
Sure. Yeah, there there are a few there are a few good questions. all' I'll gather in that one. yeah So I think innovation in most industries, probably in all industries, really tends to occur in smaller, more entrepreneurial companies. It doesn't mean that there aren't very real and impressive research capabilities in larger organizations, but small teams that are very focused and that don't have the benefit of diversification that you were also alluding to tend to be very, very effective at innovation.
00:13:16
Speaker
you know And any one of these you know innovative new companies may be very risky, but in some across the industry, um they are very successful in discovering and developing new products. And in some across the space, the returns are very good. And so the returns are good.
00:13:36
Speaker
in biotech,
Investment Returns in Biotech
00:13:37
Speaker
but you know biotech, like all venture, but it's particularly subject to you know a sort of power law and a distribution that has a few winners and lots of things that don't work out. And that's true for both the private companies and the public companies historically. If you look at you know, most of the IPO classes over the past, you know, handful of years, you you can pick them, you'll see that overall they've returned well. If you bought all the IPOs, they've done well.
00:14:04
Speaker
But of course, many of them didn't do well at all. And there's a few that did extremely well. But as a sector, the returns on investment are are very attractive. And the return on investment in big pharma is different, but they have the benefit of diversification. So again, I think it's very symbiotic. I think I think each just has a different role in innovation and their their respective cost of capitals reflect the risk you know inherent in each of them and and and the and the ability to diversify in big pharma and the lack of diversification in any one earlier stage company.
00:14:37
Speaker
Yeah, I could definitely
Industry Comparisons: Biotech and Cybersecurity
00:14:39
Speaker
see that. I mean, of course, expecting the same level level or i I guess consistency in returns is not really fair for either. With pharma, you're going to expect less returns will be more consistent, but you're getting a cheaper cost of capital, um lower discount rate. But then biotech, you can imagine maybe a little bit more cyclical or volatile, but that's because you have more higher upside. i mean, you do see other similar symbiotic relationships in other industries like cybersecurity is something where you see a lot of smaller AI companies develop technologies that then sell to your Palo Alto networks and CrowdStrikes. So I wouldn't say it's, it's yeah, I think it's it's very interesting. And I think one of your companies, NLM, is like one of the probably a really good case study of what it felt like from the inside. I mean, from there, um you're working in business development. And of course, at that time, you worked with Roche, Takeda, GSK, a lot of these bigger companies are bringing a lot of money and capital in. So i mean, you're selling to these pharma companies, but not selling the company. You're really
00:15:33
Speaker
um selling like a partnership in some way as the technology has been developing. So mean, can you speak more to that? I mean, one of your first experiences working at a company, with your understanding of this industry, how did you position that well to um take advantage of this commercialization engine and scale the startup you're working at then?
00:15:49
Speaker
Sure. Yeah, I think, know, one distinction that's important to to
Alnylam's Strategic Partnerships
00:15:53
Speaker
note and talk about is the distinction between platform companies and product companies. Definitely. And, you know, it's not a perfect binary separation. There's probably a spectrum, but platform companies have some underlying technology, typically a product engine, RNAi in the case of Alnylam, and they have to make, you know, tremendous investments in the face of an awful lot of uncertainty over a very long period of time. It's also uncertain because you don't know what the finish line looks like because no one has ever gotten there before to build the horizontal capability. And then once you've built that horizontal engine, you can then pursue different kind of product verticals, to put it that way. And so it's very capital intensive. It's very uncertain.
00:16:34
Speaker
um But once you've established it, the the kind of marginal cost and the likelihood of success for each incremental new product that you're creating is is much lower. And in some ways, it's it's unlimited. um You know, we can talk about practically what that means.
00:16:51
Speaker
So those kinds of companies, given their capital intensity, really um need to go public. Very hard to see how you can really build a platform company beyond a certain stage as a private company. um But given the high cost of capital for emerging biotechs, it makes an awful lot of sense to partner around specific programs or yeah work capabilities.
Platform vs Product Companies in Biotech
00:17:12
Speaker
And because you have this horizontal capability, you can enter into many partnerships and you should be able to build a pipeline that's much larger than one that you could ever pursue internally. so If you partner your lead programs, the strategic opportunity cost is extremely high and you have to be careful that you don't take very expensive equity dollars, convert them into programs and convert those into partnerships that someone else benefits from.
00:17:37
Speaker
But if you have other target programs that are in fact attractive and worth pursuing, but outside of whatever your focus area is, then the strategic opportunity cost of partnering them is very, very low and in fact can be a very effective way to bring in additional non-dilutive capital. And
Epizyme's Strategic Partnerships and Funding
00:17:54
Speaker
so we did you know a tremendous amount of that at Onyland over the years for product companies.
00:18:01
Speaker
It's a very different story because you might know a particular area of biology and you might well be making more than one product program, although certainly there are single asset companies.
00:18:11
Speaker
But it's by definition a narrow a smaller space, an opportunity set that you're working in, and you will also have a smaller pipeline. The total amount of capital, though, to advance you know one or two programs to some value creation point in clinical development is obviously much lower. So you can still partner there, but you have to be much more careful in the sense that or much more selective because again, if you're very careful not to partner your lead programs.
00:18:39
Speaker
Yeah, it definitely seems like, i mean, interesting tradeoff. I mean, I can imagine most people would want to build a platform company, but there's another whole set of risks going on there to some extent. um I mean, I would be curious then with Epizom, and it seems like a little bit um a little a little bit similar in the way that you had a lot of non-dilutive funding, but I mean, RNIA...
Challenges for Platform Biotech Companies
00:19:00
Speaker
R-N-A-I, seems like it was an incredibly difficult space, right? That was like the first time you had this kind of almost an open field experiment. And maybe the risk on that platform was pretty incredible at the time. But of course, they succeeded massively.
00:19:13
Speaker
um With Epizome, would you say it was a similar scenario? i mean, of course, you joined Preclinical, helped lead the IPO, and you structured... um And you worked with Celgene and some other pharma companies in terms of bringing that deal together and that company together. But what did that look like in comparison to your initial work at Anilam? How did that like kind of you're learning some Anilam crossover into epizome?
00:19:33
Speaker
Right. Yes. So at Anilam, we were building a platform around RNAi, which, you know, is an inherent biological mechanism, but one that had been not been drugged. before.
00:19:44
Speaker
um And it also had the challenge of delivery, which is you're trying to push an exogenous nucleic acid into a cell. and the only reason, you know, really that multicellular organisms like you and you and you and me exist is because we develop cell membranes along the way that were designed to keep our nucleic acids in and exogenous ones out. So you're really, you know, it's, it's, it's, you're rolling a big boulder uphill to do that. And it hadn't been done successfully before.
Epizyme's Drug Discovery and Business Strategy
00:20:14
Speaker
So while conceptually it was possible, and in fact, it's now been achieved and there's a whole variety of delivery approaches around different tissues, you know, that was that was a very novel set of discovery challenges, to put it that way.
00:20:28
Speaker
With a company like Epizyme that was focused on an epigenetic class of proteins that are that are enzymes, these histone modifiers,
00:20:38
Speaker
There, it was a sort of more traditional kind of drug discovery problem where you needed to figure out what the chemical space was that allowed you to make potent and selective molecules so that you could drug the, in this case, histomethyltransferases, HMTs of of interest. And so there were clearly some horizontal capabilities and investments in both the assays to do that and in the chemical space, but um you were much closer to to real molecular discovery when you started. i mean, it was quite novel at the time and it had real challenges and it and it wasn't it wasn't easy. And
Epizyme's Evolving Partnerships
00:21:15
Speaker
so there, the main kind of early strategic design questions, to put it that way, we're thinking about which targets did you want to pursue?
00:21:25
Speaker
You know, very large enzyme family, with a couple of sub families. And so the question is which of those targets did you want to pursue for what reasons? And that was really a classic kind of targeted oncology problem.
00:21:37
Speaker
Which of these enzymes really were oncogenic drivers in the face of mutations or translocations or sort of other causal events and how did they map to specific cancers?
00:21:50
Speaker
And even if they, even if and a translocation, for example, was an oncogenic event, then there's the question of whether it really remains as an oncogenic driver or dependency as you get you know downstream in in these diseases where you acquire new mutations and there have been different selection pressures. So very, very different kind of drug discovery strategy and also very, very different business strategy for that same reason. And so there, you know the early target, the early partnerships rather that we put in place
00:22:22
Speaker
were around targets with the view that our partner, and it was GSK, could pick ultimately several targets, I think it was three, from this much larger family that we would advance to a certain point.
00:22:36
Speaker
And they they paid us something upfront for those rights and then funded our research. And then eventually as we got downstream past molecular discovery, they would advance the program and they would pay us milestones and royalties. And then we had a second,
00:22:51
Speaker
partnership with ACI around another enzyme called EZH2. And there we were able to per retain some US territory rights. So you tend as the science becomes more established, you can start to ask for more in these deals and they're sort of a logical accretion of deal
Epizyme's IPO and Investment Trends
00:23:06
Speaker
terms. And then our final,
00:23:07
Speaker
much larger deal with Celgene. was much larger, much more significant for the company, and we were able to retain much more significant rights. So as we reduced the scientific risk and demonstrated that we could really develop these these new molecules, we could kind of ask for more. And we only raised $54 million in equity before we got public against something like 153, I think it was, in ah payments from partnerships. And so that's a very unusual ratio of kind of one to three, but it speaks to the, um you know, I guess the power of deal making when you have those kinds of large novel target classes that you can go after.
00:23:49
Speaker
And then we were able to you know we were we were arguably the first of the really high science IPOs in 2013 that helped to kick off that kind of public market super cycle that we were
Non-dilutive Funding Strategies in Biotech
00:24:01
Speaker
describing. And it's not that we caused that to happen at all. yeah But it's that we were we were part of the same sort of scientific trends and waves of these sort of new high science kinds of companies. And so we were able to to put the pieces together as were other companies that that went public at that time.
00:24:18
Speaker
yeah It's very interesting because I think when people outside of the industry, even within it sometimes, then think of non-dilutive funding. They think of debt as the only other alternative. But to me, it's it's very interesting that if you understand the platform you're building, you understand the science and the leverage you have, you can basically...
00:24:34
Speaker
I mean, bring non-diluted funding, get your drug to ah later stages without having to, of course, give up any equity. I think that's something that's been well understood now, but I can imagine back then was a little bit more novel in terms of building those relationships. And I would be curious, I mean, within Atlas, of course, where you now work on, where you now work today, i mean you joined after Epizyme and...
00:24:55
Speaker
You had some experience back at Fidelity and Biosciences, but then you also had this long entrepreneurial track and it seems like Atlas kind of merges the two a little bit. So I would love to hear you've had two successful i mean entrepreneurial stints at this point.
00:25:08
Speaker
um What really pulled you in here versus other VC opportunities or entrepreneurial opportunities at the time? And how do you think about like the shift from going like because as an operational CEO to someone who's now basically doing two jobs at
Jason's Transition to Atlas Venture
00:25:20
Speaker
once? It seems like, is it was it a continuation of what you're doing or kind of a change in how you had look at this biotech industry?
00:25:26
Speaker
Yeah, you know, so like a lot of people, i did strategy consulting out of college and did mainly biopharma work, although not entirely, and then made the move into venture capital in 1998, I guess, um where I could really...
00:25:43
Speaker
The observation I made in my interest in moving into venture then was that you could see this wave of science coming. It was still quite early, right? And it was still again, human genome project hadn't been completed among other things, but you could see it coming. And so, you know, i moved in into venture and, um, and then as part of that joined, uh, fidelity. And at the time, uh, the group was called fidelity biosciences now called F prime, which is fidelity's in-house biotech venture group. And that was, that was a great experience.
Atlas Venture's Investment Approach
00:26:10
Speaker
And the observation I had there was that, um,
00:26:14
Speaker
was that the the really effective investors, not all of them, but many of them had had had operating experience. And so, and I was interested in doing sort of early stage you know deals. And so then you're doing biotech venture creation and that's necessarily a pretty hands-on thing. And so I had the opportunity after six or seven years at Fidelity to to join Al Mylam and had that operating experience, which was tremendously educational about building platform companies also. And then had the chance to go to App Design build a very different kind of company. and so
00:26:48
Speaker
Yeah, for Emprazom, was looking at some CEO roles and some venture roles and, you know, Atlas is focused on seed-led venture creation and we build both platform and product companies.
Atlas's Seed Funding and Science-First Strategy
00:27:00
Speaker
So what we do is quite broad, but all within the therapeutic space and all oriented towards venture creation. And that said, while we're almost always there at the very beginning. The very beginning could be molecular discovery where there's a target and ah biology, but there's no molecule, but it could also be an asset that's already been developed and we unlicensed things at the development candidate stage or even in the clinic from large pharmaceutical companies.
00:27:25
Speaker
We can talk about why why those are available and also from China now. So, you know, Atlas i had a tremendous amount of appeal in terms of their investment strategy and business model. I'd also known the other partners there for many years, just from my time in biotech in the Boston world. So it was actually a very natural thing to join them and to be able to, you know, do both venture capital, but also um have hands on involvement in venture creation.
Proof of Concept in Biotech Investments
00:27:52
Speaker
Yeah, and it really ties back to the fact that you said you love the science. And I guess no better place to be in the science than seed level venture creation where you're constantly working with these companies. um But I mean, rather than investing in companies that already exist, you're now like i mean identifying these scientific insights and trying to de-risk these experiments. But I read that you said that spending $2 million to test whether published science replicates is is radically different than putting $20 or $50 million to like on a team that's already developing an asset.
00:28:19
Speaker
And I would love to hear a little bit more about like this process at Atlas. I mean, how does how do you actually build what gives you conviction of the underlying science? And how is this different in terms of what you're looking for versus if you're an operator at the later stage? I mean, is it more you're looking for like the underlying science? Is it the team, the unmet need?
00:28:37
Speaker
a product path that's established for you. I can imagine you don't have the clarity and you're not expecting the clarity that you would in the later stage, but you're also looking for a a larger upside in that same way. So what does that look like in terms of the mindset and the glasses that you put on to be a great investor and builder at Atlas? Right. You know, so so we found and seed most of the companies that we invest in but not all of them. And again, while we're we're usually there at the beginning, so that means seed if we're doing it or series A.
00:29:04
Speaker
um And so in many cases, that's really novel discovery. you know Again, there might be some some chemistry or some some therapeutic molecule, but in in many cases there's not. But there are also quite a few things that we come into where there is an existing you know a molecule. There may not be a team, we might be in licensing something.
00:29:22
Speaker
So we're not coming into later stage deals where there's already a team and a molecule in place um and in in most cases. um And so while most of the time we're there at the very beginning, sometimes the very beginning is a program going into phase two because the molecule you know already exists. But it's you know it's it's a science first approach.
00:29:43
Speaker
um We look at the biology and the therapeutic modality and we say, there are a reason to believe and an an analytical reason to believe, not a ah not a religious reason to believe you know in this sense? that this that this is really relevant to human disease, that you can successfully develop ah a therapeutic molecule, you know, that would have all the characteristics that you need to do that.
00:30:07
Speaker
And that's also developable, you know, so the sciences is absolutely necessary, because you can't fake the
Atlas's Risk Management in Biotech
00:30:14
Speaker
science. And yeah, you know, as we always say, the biology is immutable.
00:30:18
Speaker
It is, we may not know it, it may not all have been revealed to us yet. But the biology is immutable. But you know, once you have the biology and you understand that and you have the molecule, you then have to be able to develop it.
00:30:32
Speaker
And so there's a question of in a reasonable period of time from a biotech point of view and for a reasonable amount of money, can you really demonstrate that this, you know, can work in a therapeutic context?
00:30:45
Speaker
And so we we refer to that point in time as as proof of concept. It means a different thing in each case, of course. And then there's the question of, okay, even if it works and you can get POC, can you actually register? What are the endpoints from a regulatory point of view? And so you go from sort of biological and molecular science into kind of clinical science and then into a regulatory setting. And so you need to, when you're first getting involved in one of these companies and beginning to build it and making the investments. And and then all the way through, you're just adding more sort of specificity and clarity to it.
00:31:18
Speaker
You've got to be able to link all these pieces together. And you know you really don't want to wander in the desert for 40 years. So you have to see a path all the way through.
00:31:29
Speaker
You recognize that this is an entrepreneurial activity and that things are very likely to change along the way. But if you can't see the path from the very beginning, then you know it might not be something that you want
Building Biotech Companies at Atlas
00:31:41
Speaker
to do. And so I think that at Atlas, we're very good at identifying these opportunities.
00:31:46
Speaker
We're very good at thinking through and determining you know what's the right path and business model. this Is a platform company? Is a product company? In each case, you then build them in very different ways.
00:31:58
Speaker
And i think we're very effective at pulling teams together. And we do that by actually hiring people into these companies, but we also have a large group of entrepreneurs in residence and venture partners who work with us. So there only six partners in Atlas. So it's a pretty small group and we probably create yeah eight companies a year on average.
00:32:17
Speaker
And so the only way you can do that, right, it takes it takes a village is really by having these EIRs and venture partners. And so they help us at every stage from identifying, but more so really evaluating the opportunity. And so if you've got very experienced medicinal chemists around the small molecule opportunity,
00:32:35
Speaker
Turns out their opinion really matters. And if they say, this is super interesting, and here's why we think it's tractable in terms of industrial product development, which is very different than academic science. Academic science and industrial drug development look similar.
Atlas's Two-Fund Investment Structure
00:32:51
Speaker
but they are very very different things in practice um but if you get the buy-in from eirs who are who who you're helping who are helping you to build it that's a very good signal and of course the converse is true if the irs say gosh that's interesting i could see why you want to do it but it's not really for me you probably want to pay attention to that to that signal too and then so we're very hands-on at the beginning and we provide the seed money. But then we also are often the largest or the lead investor in the in the Series A's for these companies. And at Atlas, we have a two fund structure, which is very relevant to your question.
00:33:28
Speaker
So I'll describe it briefly, which is we have our primary funds and our current primary fund is fund 14. And those funds are investing the seed and series A dollars. And then they have some reserves, but you want to put as much money to work early because the price is never lower.
00:33:44
Speaker
The risk is never higher also, but the price is never lower. And then we also have opportunity funds and we're currently investing from our third opportunity fund and the opportunity funds are growth equity funds, but they only invest in existing Atlas companies. And so in some ways, as a practical matter, they make the post series A investments while they're private and then also while they're public. So we'll continue to buy into these companies once
Atlas's Holistic Biotech Investment Strategy
00:34:12
Speaker
they're public as well. And we often are staying on the board, you know, all the way through and continue with these companies once once they're public as well. And so the idea is that
00:34:22
Speaker
with the seed approach, you can knock out not all, but some of the exogenous risk and really ask and answer some of the tough questions. And and among other things, you can simply repeat and confirm the let's say academic work that was done, which often just doesn't repeat, not because it's not real, but because it's not being done in industrial setting. And then the idea is for those things that make it during the seed phase, you're building out the team, you're figuring out what this company is going to be when it grows up. And then we're able to pour you know a tremendous amount of capital in.
00:34:54
Speaker
um over time. So we're there at venture creation and they it you know looks like sort of very specific kind of aliquots of funding at that stage. But the reality is we're planning to fund these in a very significant way over time as well.
00:35:09
Speaker
Yeah, I think there's a lot to unpack there. And I think what immediately sticks out to me is, I mean, Atlas, you have a very small team and it almost sticks out in the way that same with biotech, as you argued, a small team that can move quickly and it tends to be the most innovative and
Impact of China and AI on Biotech
00:35:23
Speaker
disruptive. So I can imagine that same mindset exists at Atlas.
00:35:27
Speaker
i mean, of course, there's a lot of things you've done there and we fortunately came into all of them. But Dine, of course, was very interesting. I mean, building a um I mean, that was one of the few companies commercialized. And of course, just the SARM building um SARM one and accidental degeneration, really interesting science, both of which were wildly successful, but took different paths.
00:35:45
Speaker
And but I really want to get into this what's going on today in some sense. You said that you guys are looking at eight or so different assets or maybe even more per year. You're also investing out of existing ones. And it seems like biotech has had a couple big shifts. And to me, a couple of them are like the patent clip. Yes, longer term, but truly China and AI is the most interesting to me. I know yesterday Endpoints released an article saying all you need in biotech is a a couple assets that license from China, large checks and a small team.
00:36:13
Speaker
um And I guess we've kind of heard that more and more. And then also um I know Kylie Arthur Arterpedics by Bain Capital kind of had that mindset. And now we're also seeing that people are saying AI will... revolutionized the science. And it seems to some extent it has with, I think there's a TYK2 inhibitor that kind of had that philosophy, but also we're seeing trials kind of fail. So I know I'm throwing a lot at you. There's a lot of stuff going on at biotech, but um how do you see the nature of the work you're doing? I know you said something called the paradox of plenty, the more barriers there are to building a technology. mean, they've been coming down. So it's changing changing the way the industry is looking. But with China bringing in more assets, AI potentially finding more assets in the future, where do you see the level of innovation that you guys are going to do at Atlas, the rate of commercialization and and how these playbooks will look?
Overfunding and Opportunity Selection in Biotech
00:36:59
Speaker
I think it'll be drastically different in terms of how you de-risk this process, but we'd love to hear your opinion on how these things might change. I know it's a lot, but... Sure. know That's a set of good questions, too.
00:37:09
Speaker
So, you know, capitalism and markets are... really effective at doing is funding innovation. And they also tend to overfund and that's not a flaw and it's certainly not kind of like a moral failing, but just what markets do. You don't know where you are on the kind of diminishing marginal return curve until you're there. And of course these curves aren't fixed. They change shape as a function of other technological innovations and macroeconomic events. And so The industry is very, you know as we' we're saying, is very deep, very mature capital markets now. And we're able to provide enough funding, more than enough funding at each stage of development for these companies, including when they're public and commercial, obviously, but going all the way upstream.
00:37:55
Speaker
um And as an industry, we we very consistently overfund spaces. So, you know, i don't know, are there a hundred PD ones that have been in development? Maybe it's more than that, you know, and for all of these new new targets or new classes, you need more than one drug for a bunch of reasons we could talk about, but you probably don't need a hundred.
00:38:15
Speaker
So, you know, the paradox of plenty ist is in part that, that once we, have demonstrated you know interest, if not real validity as an industry in a given target or given
China's Role in Biopharma Innovation
00:38:28
Speaker
modality. As an industry, we tend to create an awful lot of companies, but it's really the first against each one of those opportunities. But it's really the first few companies in each case, or the few best companies, which may or may not be the first ones that win and most won't and most won't generate a return on capital. And so China
00:38:48
Speaker
in some way I think is that dynamic, you know, kind of writ large. There's very high quality science being done there. There's a tremendous amount of funding. There's huge research and innovation capacity.
00:39:00
Speaker
And so particularly in the biologic space, but more broadly than that, you know, once there's a validated target, there's ah a million programs that get spun up and many of them, will be undifferentiated, but some of them will be. And so what we do um at Atlas, whether it's companies that we're kind of creating out of thin air, which we do for many of our companies, or where we're in licensing some science or a molecule or even kind of an established therapeutic program like the ones that Kylara has in the obesity space is developing a view on what really best in class means and whether there's still an opportunity for it and whether it can still be developed. So China's had a huge impact as a source of high quality and relatively inexpensive innovation and it's roughly
00:39:45
Speaker
you know Half the programs that are out there now are in China, which is a huge change in ah in a few very short years. And so I'd say overall, that's a very good thing for the industry. It's bringing more high quality science and programs, making more of them available to us.
Strategic Asset Selection in Evolving Biotech Landscape
00:40:02
Speaker
And from an investor's point of view, you have to realize that most are not going to make it either because they're not best in class or they're just too late. At some point, it just doesn't really matter. You can't run the trials. You can't enroll the patients. There's all sorts of factors that come into play. So it's a very real consideration. It's a source of innovation for our new companies.
00:40:22
Speaker
um We have companies, several now, that are sort of US and Chinese companies that are doing work there and have key people and but have leadership here as well. um And so I think, you know, it's it's just a structural change that's happened in the industry that that overall is is for the good. And obviously it's a real source of innovation for the biopharmists that are in licensing also. Yeah.
00:40:44
Speaker
Yeah, I think it's just going to require, um ah yeah, so there's always cycles in capitalism that are like lead to inevitable overinvestment, but it just requires then good, like asset selection. And just, I think, as you said, don't want to be in the desert for 40 years, picking the right opportunities. yeah um But I'm definitely curious to see how things will change, not just with China, but especially with AI, seeing how the patent cliff will turn out. A lot of pharma companies have hundreds of billions of revenue they need to, or um millions of revenue they have to make up. So it is going very interesting, but I really appreciate your time today, Jason. I know we went through a lot. There's still lot we could have gone over. Biotech is a huge space that probably would take hours to talk about. So really appreciate your time walking through your story and what you guys do at Atlas today.
00:41:25
Speaker
um Thank you again. Sure. um You're very welcome. It's it's my pleasure. and And thanks for asking the great questions. it was a lot of fun. Thanks for listening to The Healthcare Theory.
00:41:36
Speaker
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00:41:50
Speaker
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