By: Hui Cai, VP of Corporate Alliances at WuXi AppTec (@HuiCai2)

Andrew Schwab
Andy Schwab, Co-Founder & Managing Partner, 5AM Ventures

We’re very compelled by entrepreneurs…. It’s really that combination of technology that you fall in love with and people who we want to work with that drives us. We’ve determined that we want to be in companies that are at the early stage of development. We think that gives us the ability to influence the outcome, to really help drive the strategy, and hire the right people. So we want to stay focused on early stage investing.

From novel therapeutics for highly unmet needs to mobile and wearable health, Andy Schwab and his colleagues at 5AM Ventures have a hankering for early, groundbreaking science. This has fared well for the San Francisco- and Boston- based biotech venture capital firm, which currently has $685 million under management. The company, which has invested in about 60 companies since its 2002 founding, has a keen hands-on approach to investing, including providing input to operating plans, strategy, and management team development.

I recently caught up with Schwab, 5AM’s co-founder and a managing partner, who shared the firm’s investment strategy, how his firm is getting an even earlier start in pushing novel science forward, and how industry convergence may impact the industry and patients.

Hui Cai: While 5AM is well known for its early stage investment, I noticed 5AM just launched a new initiative called the “4:59 Initiative.” I assume the name implies that it will be focused on even earlier investments? How early?

Andy Schwab: The “4:59 Initiative” was created to institutionalize our proactive thesis-building internally  – picking areas of interest and doing deep dives to come up with an investment thesis. We brought in Louis Tartaglia from Third Rock Ventures to drive the company creation side of 4:59. It’s the idea of maybe going a little bit earlier, seeding new technologies, and trying to identify big breakthrough scientific ideas. You won’t see that group be overly focused on one area or another, but they will look for breakthrough ideas in multiple areas.

Hui Cai: In general, what are the areas of 5AM’s investment focus?

Andy Schwab: From the beginning, we have been life science and early stage focused, and over the last five years we have become even more focused exclusively on biotech. The majority is in new therapeutics, new drug delivery systems or new products that are enabled by drug delivery systems that are faster, better, cheaper and more patient friendly. We also invest in the tools and instruments that researches use in academia and pharmaceutical companies to discover new therapeutics. We want to bet on technologies we believe in, and ultimately we believe in those that enable the way to success.

Hui Cai: What have been some of your favorite investments?

Andy Schwab: From return on investment perspective, the recent J&J transaction with Novira, which WuXi was part of, was a great outcome for investors and for patients in the Hepatitis B area. We believe it’s a potential treatment for Hepatitis B, which would be incredibly unique given that everything else is really just treating symptoms and trying to halt the progression of the disease. We think this is potentially curative. I think Ilypsa has been one of our largest investments and very successful. They have really enabled the field – the way their drug can control hyperglycemia in patients with chronic kidney disease. In terms of coming up with a fundamental scientific discovery and product to treat hyperglycemia, a chronic (disease), it was an incredibly novel idea that I am proud we were able to support.  If you look at what we’ve done in the tools area, one of my particular favorites is called DVS Sciences, which created disruptive technology in analysis of proteins. By using multi-parameter mapping they are able to increase analysis of proteins by magnitudes over current standards. It’s a novel system and novel instrument that we think will open great new areas of biology.

Hui Cai: There are so many great novel ideas out there. How do you pick and choose which ones to support?

Andy Schwab: We see about 500 opportunities a year; we make five investments. The triage of due diligence is very important on how we operate. There are a couple of general themes – we’re looking for breakthrough technologies; if it’s a therapeutic, we want to be part of something that is curative or first-in-class or best-in-class treatments. We are not looking for incremental discoveries.  If it’s in the tools area it has to be something that allows for a study of science in a way that isn’t possible today. We’re also very compelled by entrepreneurs. So if it’s a great idea but it’s somebody that we just don’t think we can work with or we don’t think is the right person to take the company forward, then that’s not something that we will get excited about. It’s really that combination of technology that you fall in love with and people who we want to work with that drives us. Obviously there are other issues to think about, whether it’s regulatory or intellectual property or reimbursement – those are all important. But I think the first two are key to getting excited about opportunities. 

Hui Cai: So looking at your latest investment, Pear Therapeutics, in February, can you tell us what is special about that company?

Andy Schwab: Neuroscience is really hard, and so much is unknown about the brain. We were looking for novel targets and novel chemistries in CNS– the perspective is that they are a long, hard, risky road. Pear came to us with the idea that we can take existing pharmaceuticals in the CNS space and improve their ability to treat patients by using a combination with software, so literally we are ‘pairing’ the pharmaceuticals with content. For us it’s picking the disease – whether that’s addiction or depression or PTSD or anxiety – looking at existing products on the market from a pharmaceutical perspective, creating content or accessing content that’s been created, and creating products that combine the software with the pharmaceutical. From a clinical perspective, what we then have to prove is that the drug plus the software is better than the software or drug alone, and that’s the goal we’re working towards.

Hui Cai: You have a presence in both the Bay Area and Boston. Do you see a difference in the dynamics in those two regions?

Andy Schwab: You’ve obviously seen the growth in Boston from a biotech perspective in the last five years, which has been fantastic. Before that there wasn’t much going on in Boston. We feel fortunate to have a presence in Boston. The one dynamic that’s different for the pharmaceutical companies that are based in or have offices in Boston is there’s more of a synergy between the Boston companies and pharma companies because of geography. The advantages of the Bay Area is you have great engineering, access to Silicon Valley, genomics, big data, and other trends that are a convergence of biotech and IT. There are some different dynamics, but ultimately we have had successes in all geographies and failures in all geographies, so I think there are great companies in lots of places and we just have to go find them.

Hui Cai: Do you have strong interest in companies that blend biotech with high tech innovations?

Andy Schwab: We’re very intellectually interested in the combination of pharmaceuticals with IT, whether that’s wearables, software, digital health, or real-time feedback for physicians and patients. We’re interested in those, but for us, we’re still a pharmaceutically-driven investment firm.  You’re not going to see us invest in the next Electronic Medical Records company; you’re not going to see us go into digital health or become healthcare IT investors, but we want to be seen investing in opportunities where we think there is a convergence or combination that enhances the effectiveness of the pharmaceutical.  For example, we have another company called Chrono Therapeutics, which has a wearable device for delivering drugs across the skin. The first proxy to this is the smoking cessation area using nicotine, and so the concept is if you can get the nicotine delivered in front of a craving it has a major impact on the ability to drive smoking cessation. What happens normally is that people have cravings, and the best way to get nicotine is a cigarette, versus patches and the other opportunities out there. We think the way to treat patients or drive smoke cessation is to drive that with a wearable. The concept with Chrono is if you’re going to wake up at 7 in the morning you would start introducing nicotine at 6 in the morning, so that when the patient wakes up they would already have a level of nicotine and wouldn’t have the craving or the urge to smoke. And it could be the same thing at lunch or other times of day when you might generally access nicotine. The delivery device would proactively deliver the nicotine. With Chrono it could be applied to any other products as well and it’s wearable, so you have a nice wireless communication with your phone so you can do real-time feedback with the community as well.

Hui Cai: If we take a historical perspective, how has venture investing changed over the last 14 years since 5AM was first started?

Andy Schwab: We’re much better at this now. As an industry there is a lot more sophistication across the board; the level of understanding through the industry – both entrepreneurs and investors is much higher. There are fewer generalists. Almost all of the biotech venture capital firms are specialists, and heavy Ph.D. and M.D.-driven organizations.   I think I’m the only person on the 5AM team that is not an M.D. or Ph.D. We have a very highly scientific driven team. There is also more capital; especially in the current environment, there is plenty of capital to get companies funded, and in many cases, taking companies from the beginning to exit is the norm, which really wasn’t the case 15 years ago. The other difference is the symbiotic relationships with the larger companies are ever increasing. The pharmaceutical companies are more proactively working with biotech companies. Outsourcing is more and more important as well. Companies like WuXi have been very important in helping to drive innovation and help companies access best practices without building huge, in-house teams. So hopefully the companies are able to build expertise and outsource and collaborate.

Hui Cai: We are at a time of transformative innovation. Looking at the big picture, what do you anticipate in the next five years will impact how we treat patients?

Andy Schwab: I’m a big believer in personalized medicine, and genomics that drive patient outcomes, so I believe we will be in a situation where everybody’s genome is sequenced and we use the best accessed information based on genetic sequences. While it’s not disruptive from a content perspective, I think the technologies that enable real-time sequencing and data analysis will really drive forward using data to treat disease better. I think you will see that be applied, whether it’s in newborn screening, delivery of healthier babies, all the way to treating end-of-life disease in a different way. I think everyone will walk around with their genome on their phone, and that will be the way we treat medicine.

Hui Cai: Any closing thoughts, Andy?

Andy Schwab: I think it’s an exciting time with lots of different approaches to treating disease. We’re coming off a number of years of big breakthrough discoveries, whether that’s personalized medicine, anti-virals, or oncology, or new technologies, so hopefully we can continue to drive the same sort of discoveries in the years to come.