As part of the German Accelerator “Pass The Mic” Series, we hosted a virtual fireside chat with leaders of biotechnology industry organizations from Germany and Massachusetts to speak about the current trends and challenges from a global perspective. Horst Domdey (BioM) from Germany and John Hallinan (MassBio) from Massachusetts were joined by investor Mike Serrano-Wu (Sprout BioVentures) to comment on how the pandemic has lit a fire under the whole healthcare industry in terms of collaboration and virtual adoption.
John: Massachusetts is ranked as the top biomedical cluster independently across many dimensions. It is important to note that this was an evolution. The Washington Post in the 1980s referred to Cambridge a gritty, industrial blue-collar city, which clearly it is not anymore. R&D is a long-term game and MassBio has played a crucial role in shaping the industry. It was always based on a public/private partnership. Today MassBio has 1,300 members and operates in a complete life sciences ecosystem. Collaboration between industry, academia, and government is incredibly important and a key ingredient in this recipe. For other clusters, such as Munich, if you can truly integrate these three parties you will be successful.
John: The first trend I see is a tremendous response by organizations of all sizes who have pivoted to help with COVID-19. It is exciting to see new models of collaboration forming and emerging. Those efforts to develop vaccines, therapies, and diagnostics will provide an important pathway to define the new normal when we come out on the other side of this. The R&D engine has experienced profound disruption and lab capacity has been reduced. Companies have to adjust to remote work environments and clinical trials are clearly being impacted. We are seeing an increase of virtualization across organizations.
At the same time, in Massachusetts we continue to see healthy levels of funding and company formation. It should be noted that our industry is not immune to the economic impact of COVID-19, even though we are working to provide immunity and improve patient health. Overall, I am bullish on the future.
Horst: In Germany, we had a very strong improvement in financing conditions over the past two years, as before this we had to depend almost solely on either CureVac or BioNTech. However, currently we are witnessing a “set-back” in Germany due to COVID-19. After speaking to VCs, they tell me they are being very careful and focusing on taking care of their current portfolio. Even family offices are stating they are “living on bread and water”. There has been only one exception from Wellington Partners, who funded a COVID-19 dedicated company.
To help with COVID-19, the German government has doubled tax exemptions. Now companies can get 25% of their R&D costs back from the tax they paid, and the limit is being doubled to €1M. Additionally, the European Union has done something to help biotech companies who did not have a budget for working on COVID-19. They have improved the funding conditions. Companies now only need 20% co-funding, and they are eligible to receive 80% from the EU funding organization. If you have a European corporation project, you are allowed to receive 95% of funding from the EU funding organization.
Mike: I see investing not all that different from managing your own personal finances. At a time where there is uncertainty, you have to be a little more thrifty. Similar to Horst’s observation, I am seeing groups making sure that the assets in the current portfolio are taken care of.
Therefore, there has been a conservative focus over the past few months to reserve capital for existing companies. However, I don’t want to discourage entrepreneurs who are currently fundraising, as I believe the market is already starting to warm up again. This pandemic has illustrated to me how important it is to diversify how you get your work done. All industries have realized the importance of supply chains, with the biotech industry being no different.
Horst: What has worked nicely in the past is that German startups either open an office or even move their headquarters to the U.S. It is much easier for U.S. investors to invest when the company is there. While Germany has strict rules, many things are easier in the U.S., such as starting a company and opening up shares. Through experience, I can understand why U.S. investors prefer to invest in U.S. based companies. In Germany we have the problem that we are not a venture capital country. I have been working for years to change the rules and convince the federal government that there need to be more incentives, but change has not been as extensive or as quick as it could be.
John: We saw an unprecedented level of collaboration when COVID-19 first began. The ongoing efforts to develop vaccines and therapeutics are unparalleled in the history of the industry. We are globally interconnected in ways we weren’t before because this is an issue that impacts all of us. COVID-19 testing is a great example. I am particularly interested in testing programs as it has been determined that testing is the key to reopening the economy. We are actively talking to the stakeholders about what MassBio can do to help shape the testing program that will help get people back to work safely. Beyond a Massachusetts perspective, there is a role for industry, academia, and government to collaborate and define best practices and optimal testing programs.
Horst: It was fantastic to see how these collaborations started so quickly, beginning even before the contracts were finalized. Special COVID-19 related funding from the government was available within a week, compared to the month it normally would have taken. On the European level, companies brought together their different technologies to develop a joint effort for vaccines. I am also very confident that approval processes will be faster for new COVID-19 related therapeutics and vaccines.
Mike: One of the biggest challenges in the field of infectious disease is the swinging pendulum. I worked for two big Pharma companies and both companies closed down their infectious disease groups for whatever reasons. I hope this pandemic makes us more aware of how to end the cyclical nature of infectious disease investment. Perhaps big Pharma can rethink their clinical development for infectious disease programs or the U.S. can rethink its patent laws. The field of infectious disease is probably the best example where academic, industry, and government partnership is most crucial. In recent months, I’ve seen a U.S.-based biotech startup license technology out from a University, which had dedicated scientists who had spent decades studying Coronavirus. The biotech startup did all the non-clinical enabling work so that it was ready to go into humans. Then it was handled over to a big Pharma company to apply their clinical development expertise towards it. Entrepreneurs who are at the early part of the lifecycle need to ignore what has been historically a very short attention span by some of the larger industry players.
We have to divorce political situations from science. We are seeing how the scientific community can come together and tackle the problem in a borderless way. One thing I consciously did when I started working in this space, was to change the terminology. The industry we call Contract Research Organization, I now refer to as Collaborative Research Organization in order to engage everyone as true team members from the beginning.
Horst: While we try to think globally and locally about COVID-19-based collaborations, we do need to acknowledge difficulties. Germany, for example, has its own tracing app and Austria has its own tracing app. This is a bad sign that not even on the European level can we have a joint solution. How can we open our borders if our tracing apps are all different?
John: In regards to tracing, I believe it will highlight the potential of digital health and deliver incredible value to patients. It’s hard to see all these fragmented efforts regarding tracing when we really need a more unified, integrated effort. Looking at the past 20 years we have learned that viruses and infectious diseases don’t need passports? Early notification is key and the ability to track the movement of these things around the world is very important. History has shown us that the next pandemic will be coming and we need to be prepared! MassBio has a great relationship with FlyingHealth in Berlin and I would love to figure out the best contract tracing app and implement it without regard for borders.
Mike: One of the collaborations I’ve been watching closely is on the discovery side. There is a consortium of major Pharmaceutical companies and academia forming an integrated research team to come up with therapeutic strategies for COVID-19. Large companies have come together before, but this feels different. A friend of mine involved in cross-company collaboration has been asked to drop everything and is working 70 hour weeks for this effort. The severity of the pandemic is a huge driver, but the individuals driving for this collaboration have been champions of open science throughout their careers. Since COVID-19, I have been following Twitter more, and this platform has become quite a communication tool for the scientific community. Large companies who have been historically competitors are collaborating because they want to do the right thing. Real collaborations, that are fueled by incredible need and strong interpersonal relationships, will redefine the norm of what scientific collaboration is.
John: We have been working with Bayer a number of times since they launched the East Coast Innovation Center in Boston a few years back. We were speaking to the team at Bayer Asia, who operate in an incredibly vibrant ecosystem but they needed a way to connect to the reservoir of expertise we have here in our ecosystem. Even though this program began in Asia, I hope to be able to connect it to Europe as well.
Horst: Asia has always been a challenge for us in the past 20 years. First you must build trust. In Japan, for example, through the introductions of our communicators we were successful in building this trust. In China however, we were not as successful in establishing the element of trust. When we visited different bioparks, they told us not to trust other bioparks. We would still be very interested in working with these markets and had planned to attend China Bio in May, but it was cancelled due to COVID-19. In recent months, we have seen the power of science in China and I believe they will have a huge contribution to vaccines and therapeutic treatments.
Horst: We could compare ourselves to other countries who have a VC culture, just not in the field of life sciences. Australia for example, has a lot of venture capital dedicated to gold mines and diamond mines, but not in the biotech industry. There was an incentive from the Australian government to make a joint fund, with the government and private investors each contributing 50%. If we could translate this to Germany and use the public money as a catalyzing instrument, this would help. We also need big successes in Germany, so that German biotech companies become more visible and more attractive.
Horst: We have this saying in German “the curse of the good deeds” – this is what we are experiencing in Germany. We have less than 9,000 fatalities, but I am not confident that we have learned our lesson. I, of course, don’t hope for a second wave, and to get back to normal life we need better diagnostics and drugs. At the end of the day, I hope society realizes that permanent and sustained rescue comes from innovation within the biotech industry.
John: The pandemic has produced a very strong tailwind for the industry as a whole. We are going to need greater collaboration and more investment as we have an aging demographic around the world. I am intrigued by the potential for Health IT and the convergence of telehealth and “standard” methodologies. With every great economic disruption, there is opportunity.
Mike: If the pandemic has taught me one thing, it’s that we are really bad at predicting the future. I don’t think anyone anticipated the magnitude of the impact of this current pandemic. Scientists and entrepreneurs need to try to avoid being influenced by what one particular part of the ecosystem considers to be important at a given point in time. My advice is to stick to what you think will work and be persistent with it.