Back during the great Ebola Panic of October 2014, Silicon Valley academic Vivek Wadhwa tweeted the following:
To which I immediately thought: Wait a minute. Didn’t venture capital firm Kleiner Perkins try to do this very same thing in 2006, when it raised $200 million for what it called the Pandemic and Bio Defense Fund? According to a press release, its goal was to “accelerate innovations for worldwide pandemic preparedness and global health over the next three years, with a focus on surveillance and detection, diagnostics, vaccines and drugs.”
The fund launched with the announcement of an investment in publicly-held BioCryst (BCRX), which later had an emergency-use swine flu drug approved in 2009, and also has been working on an Ebola vaccine. It later would back such companies as flu-focused NovaVax (NVAX), which also has an Ebola drug in the pipeline, and Trius Therapeutics, a developer of superbug antibiotics that was acquired for more than $700 million by Cubist Pharmaceuticals (CBST).
But that three-year investment period is long past, and Kleiner Perkins never raised a follow-on fund. So what happened? Is this stuff just too hard and/or unprofitable for Silicon Valley venture capitalists to pursue? Must they instead occupy themselves with the bits side of these problems, and leave the molecules to someone else?
To get some insights, I spoke with Beth Seidenberg, a healthcare-focused partner with Kleiner Perkins who helped to manage the Pandemic and Bio Defense fund. Here were some takeaways:
1. For starters, Seidenberg disputes the notion that KP didn’t raise another such fund because of poor performance (she says returns will be “fine”). Instead, she says that the firm made a broader decision to stop raising small specialized funds, in which the lack of diversity can artificially hamper short-term performance (particularly in a long play like healthcare). It’s also worth noting, although Seidenberg didn’t, that KP today has has fewer healthcare-focused investors than it did in 2006.
2. Dealflow was not a problem. “A lot of people were in the woodwork desperately trying to find people who would fund their work.”
3. A big downside to investing in “pandemic” startups is their inherently-binary nature, so the KP fund thesis was only to back companies that also had an underlying platform or pipeline that could be applied to treating diseases in non-pandemic situations. That filter helped narrow the deal-flow — not only by excluding pandemic-only companies, but also by aiding companies that weren’t adequately focused on relevant product candidates. “We’d sometimes have an introductory conversation where we’d tell the company that we saw they had a drug on the shelf that could be important if a pandemic occurred, and then asked if it would be interested in moving the asset forward with our help,” Seidenberg explains. “That meant funding from our fund, and also help in navigating how to get government funding. Some people were very excited by it, while others said that it would be a distraction.”
4. Speaking of government, Seidenberg said she was very proud of the work she and her partners did in helping to form BARDA, a U.S. agency focused on the development and purchase of drugs and other treatments for public health medical emergencies: “I was in D.C. one or two times per month talking to Congressional staffers, so that there could be an agency that would have the authority to take a systematic approach to looking at vaccines and diagnostics… A big part of it was getting the model right, so we tried to model it after DARPA [an R&D unit of the U.S. Department of Defense], which had managed to really embrace the idea of a public/private partnership. I believe it’s worked out extremely well.” Also worth noting that BARDA has committed nearly $25 million to Mapp Biopharmaceutical to help speed development of its Ebola drug ZMapp.
5. Seidenberg rejects the accusation that Silicon Valley, big pharma or governments focus too little on pandemic R&D until the virus or bacteria reaches U.S. or Western European shores. “Just look at NewLink Genetics (NLNK), which did a big deal with Roche/Genentech because it already had in its pipeline what is probably one of the best Ebola drugs. People in life sciences are all very focused on what we call the horrible-oma, and I think people in both companies and the government are providing enough funding and attention. What becomes problematic, sometimes, though is building up manufacturing capacity in time to match a pandemic.”
Seidenberg says that she has not backed a pandemic-type company in the past couple of years, as some of her focus has shifted toward healthcare IT, but adds that any future deals would follow the same investment strategy as was used for the Pandemic and Bio Defense fund. “To focus an entire company around a single pandemic is just too risky, even from a venture capital perspective. They are too dependent not only on the pandemic occurring, but also on governments for choosing to purchase their product. They key is still finding a great company that can help fight a pandemic is it occurs but, if it doesn’t, will still do fine.”
Sign up for Dan’s daily newsletter on deals & dealmakers: www.GetTermSheet.com