BIOS Podcast #2: All Things Biopharma w/ Rob Chess — Serial Entrepreneur & Chairman @ Twist / Nektar

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Rob Chess is the chairman @ Nektar Therapeutics (NASDAQ: NKTR) where he was previously president and CEO, the company develops new drug candidates by applying its proprietary PEGylation and advanced polymer conjugate technologies to modify chemical structure of substances. He’s the lead director @ Twist biosciences (NASDAQ: TWST), which produces synthetic genes using an innovative high throughput silicon based manufacturing process. Rob was previously chairman and CEO of OPX biotechnologies, a renewable chemicals company that was sold to Cargill and also the cofounder and president of Penederm, a dermatology company that went public and was later acquired by Mylan Laboratories. He’s also Co-founder & Board Member, and until recently the chairman of Biota Technologies, which uses DNA sequencing to optimize oil and gas production.

This article is a summary of key takeaways from the BIOS Podcast episode w/ Rob Chess — Listen Here!

Success in Healthcare as an Outsider

Rob started off in the tech industry as a product manager at Intel after doing his undergrad in CS and MBA at Harvard. In the early eighties, he quit and took a trip around the world, coming back to start a dermatology company, Penederm. After three years, he spent a year and a half in the first Bush White House staff. From there, he founded Inhaled (now Nektar) and has been in biotech ever since.

On not having the domain expertise of a PhD,

It allowed me to jump in without knowing all the things that could possibly go wrong … I was able to get involved frankly through people who knew me and thought I could add some value in some way.

On traits of successful biotech founders and early employees, flexibility, strong communication skills, and independent thinking are essential skills. The most important characteristic however, is fit to company goals.

Some people are good at the we’ve got it up and going how do we start to build and grow and professionalize what we’re doing, and some people really good at the late growth phase so I think it’s important to actually understand your own strengths and how that matches to the companies you’re looking at.

Rob sees healthcare and biotech as the idea learning experience for an MBA. The skill set of understanding how to diagnose and project what’s going on in business and understanding at a micro-level what everybody’s incentive structures are is essential especially in biotech. Pulling out and teasing out the economics to understand what’s actually going on is what’s the hardest part about understanding healthcare.

Biopharma Market & Business Models

As a 33 year industry veteran, Rob notices the rise of single product specific companies due to the ability to outsource R&D to CROs and a plethora of platform services companies. A hot acquisition market has been fueled by rising R&D costs, owing to the rising difficulty in developing drug compounds and larger and more expensive trials due to increasing pre-trial testing. Current market dynamics have allowed large biopharma to outsource early state R&D in order to better play to their strengths in regulatory, marketing, and post Phase 1/2 scale up work.

So for the Pharma companies it’s not a question of competing here because competing with a small company is really how much they are willing to pay. To me I think the question is if you have a broad-based biotech industry there’s enough product for them to choose from, for the company to buy.

Diagnostics have seen success out of academia recently but are not seen as strong business models.

In diagnostics, which is actually where I think a lot of the innovations are coming from right now, there haven’t been that many successful business models. If you look at up until the last four or five years it was like three three or four billion dollars in venture money that went into diagnostics with one or two companies coming out. That’s starting to change now with liquid biopsies and a few other areas but I think that’s actually where a lot of the interesting innovations out of academia are coming, is actually on the diagnostics side.

Even though diagnostics may be a strong area for growth with high clinical value, the business model for reimbursement has been suboptimal. Cancer therapeutics may run over 100k per year, while a diagnostic might cost up to 5k.

Industry Trends & Opportunities

Rob notes that there are several experiments and trends he sees going on in biopharma and healthcare right now. First, medicine is trending increasingly towards DTC. As consumers become more aware of their health and pay a larger share of their healthcare costs, DTC marketing versus sales spend becomes a key indicator to track.

Another trend Rob sees is in drug design strategies. Modern drug design algorithms are able to factor in toxicity, formulation, and biophysical dynamics into a single model for higher efficiency drug screening. Drug design is transitioning from a monkeys and typewriters ‘spray and pray’ approach to genuine engineering of biology and its mechanisms

But now with the machine learning computation and computational models, you can factor in a lot more factors than you could back then. Back then there were safety issues, scientific issues, formulation issues. A lot of people didn’t understand that you can create all these drugs but they were basically brick dust and you couldn’t formulate them into something people could take. And now all that can be factored into the model so I actually think that that’s really promising.

Finally, Rob describes some experiments to address the misaligned incentives problem in healthcare. These include capitated payments, bundled payments, and over time payments for large payments.

On strategies for reducing churn in healthcare,

In the absence of something that says you have to stay with an insurer for an extended period of time, the other solution for that would be obviously there’s a single-payer solution for it. If you go short of a single-payer solution it would if you got insurance off of being on your employer base and had it all be individual based. You could basically have something where you can give incentives to people to stay with you for a long period of time.

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