Pathfinders Podcast | Research

5AM Ventures: Fueling the Next Generation of Innovators

In this episode of Pathfinders, Brian Abrahams, Co-Head of Biotechnology Equity Research at RBC Capital Markets speaks with Andy Schwab, Co-Founder and Managing Partner at 5AM Ventures, one of the world’s leading venture capital firms focused on creating value in early-stage life science companies.

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By Brian Abrahams
Featuring Andy Schwab, Co-Founder and Managing Partner at 5AM Ventures
Published December 14, 2020 | 3 min read
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Key Points

  • Prescription Digital Therapeutics, targets identified using in silico technologies, and genetically-defined diseases will be a vital part of future treatment approaches
  • Unlocking the potential of the microbiome could be the missing link to better disease management
  • Growing links between academia, industry, and venture capital are spinning out more innovative biotech companies
  • New companies are being created at an accelerated pace, with younger, less experienced but more innovative management teams
  • Biotech is now seen by investors as a growth space as well as a safe haven, fueling the recent IPO boom

In an exclusive interview, Andy shares some of the unique characteristics of 5AM’s investment approach, how he identifies high potential scientific innovation at the earliest possible stage, and his perspectives on the IPO boom in biotech.

Brian Abrahams: Can you give us an overview of the big-picture mission for 5AM Ventures?

Andy Schwab: 5AM means early, so we look to get into companies at the earliest possible stage. We find entrepreneurs that we want to work with and technologies that we're excited about that could be breakthroughs. In some ways, we’re really classic, old-fashioned venture capitalists. It’s about falling in love with the science and the entrepreneurs you want to partner with to build meaningful companies over time.

BA: What are some of the cutting-edge technologies across your portfolio companies that you think are the most exciting?

AS: I think everything that's being developed in cell therapy and the CAR T space right now is incredibly interesting. Obviously, there are read-throughs into lots of other cell therapy technologies, and into diseases outside of oncology. The in silico space, on the technical side of identifying new targets, is also another area that we’re very interested in and excited by.

The hardest part of the job is to look at where the industry is going to be in a number of years. Gene therapy is a classic example of that. The first gene therapy trial was in 1989. It’s taken over 20 years for gene therapy to really come to fruition.

BA: Can you talk more about the importance of digital health? How is that evolving, both in terms of developing new drugs and improving patient outcomes?

AS: From a digital health perspective, we're big supporters of a company called Pear Therapeutics, which is a leader in the Prescription Digital Therapeutics (PDT) space, using software in conjunction with pharmaceuticals to improve patient outcomes.

In 2019, Pear Therapeutics launched the very first PDT product, reSET-O, for the treatment of addiction. We think PDTs will be a new modality – just like gene therapy, cell therapy, or antibodies back in the day – and will be ubiquitous technologies going forward.

“One area I'm really excited about is the microbiome. That’s going to be really interesting, to have living engineered microbes in your microbiome that can impact disease.”

- Andy Schwab, Co-Founder and Managing Partner, 5AM Ventures


BA: What therapeutic areas do you view as most ripe for investment with the most potential for innovation? And, conversely, are there any disease areas that you see as particularly challenging?

AS: We think any disease that has a genetic basis that you can attack and target are the best diseases to go after. The low hanging fruit there has been in oncology, in precision medicine, in gene therapy and gene editing.

Some of the more chronic, lifestyle-driven diseases are just harder to pursue. They’re so multi-factorial. It’s much more challenging to choose points for meaningful intervention and innovation in those areas.

BA: You talked earlier about CAR T. Could you expand on any early-stage modalities that you believe could radically change the treatment paradigms going forward?

AS: One area I'm really excited about is the microbiome. That’s going to be really interesting, to have living engineered microbes in your microbiome that can impact disease. If we can engineer microbes to live – safely, obviously – in your microbiome over time and treat disease, there's a huge opportunity there.

BA: How much does the FDA influence your strategy of cutting-edge investment? To what degree does the regulatory landscape dictate the opportunities that are pursued by companies, and how you value them?

AS: I think the FDA is incredibly important. Over the past decade, I’ve been very impressed by how much more entrepreneurial, thoughtful, and science-driven they’ve become, particularly with the response to COVID-19 under extremely tough circumstances.

I can remember, earlier in my career,  going outside the U.S. to develop therapeutics because it was easier to get into clinical trials in other countries.

Any swing back in a negative direction would have a huge impact on investment. I’m not sure that the folks in Washington understand just how important it is. I’m on the board of National Venture Capital Association and a lot our work there is educating everyone in Washington about how important the FDA is to investments and innovation throughout the country.

BA: What’s your perspective on the relationship between venture firms and universities? How has that evolved?

AS: We've seen more and more interest from universities in spinning up companies and being entrepreneurial with the financial community. Scientists have also become more entrepreneurial. You can name a number who are involved with dozens of companies at this point.

But it’s not as easy as just taking your best researchers or your best research and starting companies. It takes experience. It takes capital and it takes manpower.

From a venture capital perspective, we’re excited about working much more closely with universities, and trying to get there early to see the best ideas and talk to the researchers we believe are going to be great entrepreneurs.

“Biotech is now a growth space as well as a safe haven, There are incredible opportunities for growth because diseases are accelerating, and as a society we need answers to these diseases. That’s really fueled the IPO boom this year and in the year ahead.”

- Andy Schwab, Co-Founder and Managing Partner, 5AM Ventures


BA: What do you see as an early marker of a great idea? How can you tell when a concept can lead to a successfully marketed product?

AS: We see incredible science from the best scientists in the world on a daily basis and we get excited by all of it. But, ultimately, this is an investment business, and our job is to bet on the ideas that are going to get to market and help patients.

Several things help us to do that. One is having very deep and broad investment teams, both in San Francisco and Boston, who are ex-pharma executives that have been there, done that, and seen all the pitfalls in terms of which drugs ultimately get to market.

From a primary diligence perspective, we aim to do the hard work at the outset to define early on exactly what it is that’s going to prove this science is going to be meaningful. We can put $5 to $10 million to work to find that out.

Sometimes it leads to failure and we write off the investment and move on. But by asking the hardest questions early on, when it does lead to success, we’ve got a lot of confidence in its ability to get all the way to the market.

BA: Beyond innovation, how does a company’s management team play into things?

AS: One of the challenges right now for the sector is the number of new companies being created at an accelerated pace, with management teams that have less experience working together. I think the tech sector is a good parallel here, where most tech entrepreneurs are first-time entrepreneurs.

We’re seeing more of that in the biotech sector and that will produce some interesting results, some good, some bad. It’s now an industry with a lot of younger entrepreneurs, so I think we’re going to see some very different and more innovative management teams going forward.

BA: It’s been a record-breaking year for biotech IPOs. How do you see the public markets receptivity to innovation today?

AS: Two key points on that. The first is that companies are going public much earlier. Half of the IPOs this year are either preclinical or early clinical, and I think that's a nod to the fact that we are now able to see much earlier in clinical trials whether a product is going to be successful or not. That bodes very well for the future, and it's why the public investors are excited about investing in companies at earlier stages.

The second point is that biotech is now a growth space as well as a safe haven. There are incredible opportunities for growth, because diseases that are accelerating, and as a society we need answers to these diseases. That's really fueled the IPO boom this year and the year ahead.

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Required Disclosures and Disclaimers

Featured Guest:

Andy Schwab

Andy Schwab
Co-Founder and Managing Partner at 5AM Ventures

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