Too Lucky To Be Just “Lucky”

Good morning, dear Daily readers. Here are a few things I learned at the J.P. Morgan Health Conference this week: (1) Vice-presidential motorcades tie up as much traffic as presidential ones; (2) San Francisco hotels have no compunction about charging pharma-sphere prices, especially when the city is overrun by pharma executives; (3) no one will ever know if you brought more than one blue blazer to a four-day meeting; and (4) in my next life I want to come back as Bryan Roberts.

Allow me to dwell on No. 4 for a minute.

If you’re going to be a venture capitalist, you ought to have some fun doing it—and nobody in Silicon Valley looks like they’re having as much damn fun as Roberts, the Venrock partner who may well be the most successful health-startup investor around. A slew of biotechs the VC has backed have been gobbled up for big bucks by the likes of Roche, Merck, Allergan, Celgene, and Mallinckrodt. Other early seeds include the hot diabetes-drug company Intarcia Therapeutics (which I wrote about in November) and the Jonathan Bush-helmed athenahealth (now worth nearly $5 billion), which has become a prominent force in the age of the cloud-based doctor’s office and hospital. And as Roberts tells me a story about his first investment—in genetic sequencing company Illumina—the guy in the black tee and blue jeans in a Marriott full of suits is either in mid-grin, or in mid-guffaw, or both somehow, the entire time.

It was probably about nine months after the company’s founding in 1998, Roberts recalls, and he was talking strategy with John Stuelpnagel—Illumina’s original CEO and cofounder. Even before the company’s novel gene-profiling tool was market-ready, even before they knew how to outflank a long-established competitor (Affymetrix), Stuelpnagel was looking far into the future. Says Roberts: “He quickly figured out that if Illumina was successful, it would need more than the world’s supply of oligonucleotides”—the short snippets of nucleic acid that are designed to pair up with specific genetic sequences, and which are critical for DNA or RNA analysis.

So what did Stuelpnagel do? “He went out and he found somebody who was, at a very early stage, working on novel oligonucleotide synthesis technology, and bought it. He brought it into Illumina, got it working, licensed it out to the oligo manufacturers, brought the price of oligos down by like 90% and dramatically increased supply”—which enabled the now–$24 billion-in-market cap Illumina to succeed. “Imagine,” says Roberts, “if you woke up one day and said, ‘Oh, this Illumina thing is awesome. It totally works. And we can only sell twelve of them a year because there’s not enough oligos in the world.’”

The way Roberts talks about Stuelpnagel, interestingly, is the way lots of people talk about Roberts. He has a way of zooming in on the one or two issues that will actually matter to a young company’s viability, says one of his investees, Serge Saxonov, co-founder and CEO of 10x Genomics.

But what matters most, says Roberts, who came to Venrock in 1997, just after earning a Ph.D. in chemistry and chemical-biology from Harvard, isn’t that “brilliant idea” that launched the company—but rather the brilliant person who’s leading it. “Most of the people I invest in are first-time CEOs and most of them make it,” he says. “Some not-immaterial proportion of the companies that I invest in that are successful are successful in something other than what I invested in. And then we find our way to success—not necessarily with the thing we were doing.”

That said, the VC does have a natural feel for what he calls “themes”—the broad directions where healthcare is heading. And his internal compass now points to a world that many entrenched health system players will find uncomfortable, if unavoidable: The asset foundations that made them solid businesses for generations are now keeping them immobile—essentially paralyzing them.

“For many decades, capital assets—whether that be stores, MRI machines, you pick it—have been a strategic advantage for companies across sectors,” he says. “Those high-value assets were a competitive advantage in a marketplace. I feel like we are entering a time, because of the liquidity of data and analytics and software, when that’s flipping on its head—such that all of those capital assets (that used to be these huge strategic advantages) are now actually really constraining. Obviously, they cost a lot of money and depress margins. But I think they could also dramatically constrain business models, too.”

(Notably, Sue Siegel, the uncannily insightful CEO of GE Ventures, told me exactly the same thing yesterday at a meeting at Stanford. “Everything is going from ‘CapEx’ to ‘OpEx,” she says—from capital expenditures to operating expenditures.)

Take hospitals, says Roberts. “They are essentially big capital assets trying to stuff people through them.” Just a bunch of pricey beds and CT scanners and other giant machines—a heaping pile of fixed costs—looking for customers. And if I’m a doctor or patient in a metropolitan area with five major hospitals, I’m looking at essentially five commodity items with all the same stuff.

“Yes, there will be some small percentage of cases where I need the pediatric interventional neuroendocrinological radiologist person—there’s three of them in the universe,” he says. “For that, I know where I gotta’ go. For the other 99% of stuff, why wouldn’t I call up five hospitals and ask, ‘What’s your bed rate for the day?’”

Good question.

Clifton Leaf
@CliftonLeaf
clifton.leaf@fortune.com

DIGITAL HEALTH

Palantir is teaming up with Merck KGaA on drug development. Now here's an intriguing collaboration: Palantir, the data analytics firm co-founded by Peter Thiel and which originally contracted with covert ops services, is getting into the drug development game. The Silicon Valley company is teaming up with German pharma giant Merck KGaA (not to be mixed up with the U.S. Merck) to spur the drug development process by analyzing which potential therapies would be best matched with which potential patients. This is an increasingly popular method in an age of personalized medicine, especially in cancer care, as evidenced by partnerships between IBM, GE, and other tech firms with pharmaceutical collaborators. Not only does identifying the best prospective patients give drug companies a better idea of which molecules to chase in the clinic - it also allows them to make the human trials process more efficient. Merck chief Stefan Oschmann says Palantir can also help with forecasting supply chain problems, such as whether or not a demand spike in one country will require manufacturing or logistics tweaks. (Fortune)

Wearables can tell if you're getting sick: study. A new Stanford University study published in PLOS Biology finds that wearable fitness and activity trackers may be able to help you tell when you're getting sick. In a small trial, researchers equipped 60 participants with a number of different trackers and collected a vast array of biometric data such as heart rate, sleep, weight, body temperature, and blood oxygen levels. A sustained change from the typical vital sign baselines could indicate that a participant was getting sick, the researchers found. What's interesting is that, even if the sensors aren't completely accurate on individual metrics, an overall shift in vital signs could still be used to assess whether or not someone might be getting sick. In fact, study author and Stanford genetics chair Michael Snyder was able to tell he was getting ill while flying to Norway by monitoring changes in his vitals (Snyder was eventually diagnosed with Lyme disease). "I see a world where everyone is wearing these and your smartphone is like your car dashboard: lights go off when things are not quite right, like elevated heart rate or skin temperature," he said. (TIME)

Two digital health firms show major promise in tracking sleep patterns for apnea, other patients. Digital health companies EarlySense and ResMed both published some promising data this week on their respective sleep tracking applications. ResMed has an app called myAir which is meant for patients undergoing continuous positive airway pressure (CPAP) treatment, a common method of tackling conditions like sleep apnea with the use of a special mask. myAir allows patients to track their sleep cycles and issues advice on how to best hew to CPAP treatment (the therapy can be quite cumbersome since it involves putting on a funky mask with tubes that go into your nostrils while you sleep). And a PricewaterhouseCoopers white paper finds that myAir users used their CPAP devices for 46 minutes longer than other patients. Meanwhile, EarlySense's contact-free sensor, which is placed underneath the mattress, was able to rival much more intricate hardware like polysomnography (which involves attaching electrodes to a patient in order to monitor sleep patterns). (MobiHealthNews)

INDICATIONS

Japan's Shionogi prepares to file a new antibiotic with the FDA. The world is in dire need of new antibiotics in the face of a growing "superbug" threat. Japan's Shionogi may be close to delivering one, with promising new data for its experimental Cefiderocol paving the way for an FDA application in the near future. The treatment was being tested in complex urinary tract infections (cUTI) involving Gram-negative bacteria. And the trial results were striking: Nearly 73% of those on the experimental antibiotic were cured compared with 54% of those treated the existing treatment imipenem. Cefiderocol also produced fewer serious side effects. "Unlike most studies, this cUTI study was designed to include patients that are more difficult to treat," said Shionogi chief medical officer Dr. Tsutae Den Nagat in a statement. "The data clearly demonstrate that cefiderocol will be an important option for serious Gram-negative infections." (Endpoints)

Lilly gets a crucial patent win on blockbuster cancer med Alimta. Eli Lilly just got some critical news on the patent front, with a federal appellate court ruling that its blockbuster cancer drug Alimta has IP protection through 2022. That means generic competitors from companies like Teva will have to stay off the market until then, essentially giving Lilly four extra years' exclusivity on the drug. While the base patent on Alimta will be expiring soon, Lilly has been arguing that its regimen combining Alimta with a vitamin B cocktail (necessary for preventing dangerous side effects in patients) warrants its own patent protection. A loss in this patent spat would likely derail Lilly's ambitions of achieving 5% sales growth through 2020, especially after a 2016 which delivered a crushing clinical flop in Alzheimer's. (FiercePharma)

THE BIG PICTURE

Some House Republicans also begin to fret on a rapid Obamacare repeal. One day after the Senate set the Obamacare repeal train into high gear during the dead of night, the House of Representatives is set to vote on the budget resolution that would get repeal rolling. But some GOP-ers are worried about a hasty repeal without knowing what an eventual replacement plan is - and what the effects might be on the federal budget. "I don't want to vote for this and say it's the first step (toward repeal), and find out that there are some long-term budget consequences," said Republican Representative Mark Amodei, for example. President-elect Trump has recently begun pushing for a simultaneous repeal and replace strategy for Obamacare, but Congressional Republicans have yet to coalesce around a concrete proposal. (Fortune)

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