NEA venture capitalist bullish on CAR-T cancer therapy, less so on neuroscience

? Resurgence in biopharma initial public offerings is most notable shift in the venture capital landscape.

? Investments include companies focusing on CAR-T cell-based cancer treatment.

? IPO market is still challenging for medical device companies, especially those without marketed products.

Venture capitalist Ali Behbahani is a partner at New Enterprise Associates, which is looking to invest more than $1 billion in life science startups from its latest $3 billion fund.

A trained physician, Behbahani provided S&P Global Market Intelligence with his insights on the life-science arena based on his 10 years of investing experience.

The venture-capital industry aims for a return of three to five times its investment over a three- to five-year period, Behbahani said, acknowledging that it does not always pan out. NEA typically invests $25 million to $40 million over the lifespan of its portfolio companies, he said.

Behbahani ranks his successful investments in spinal cord stimulation device company Nevro and drug company Hyperion Therapeutics, which focuses on rare diseases, as his most notable deals. The device company's stock has more than tripled since its November 2014 IPO, while Hyperion was sold to Horizon Pharma for $1.1 billion in May 2015. U.S. life-science venture investments had a record start to the year, according to a quarterly report released by PricewaterhouseCoopers and CB Insights.

A former NEA colleague, Scott Gottlieb, was recently confirmed by the Senate as the head of the FDA.

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Ali Behbahani, partner at New Enterprise Associates

Source: New Enterprise Associates

In an hourlong interview at his office just outside of Washington, D.C., Behbahani described emerging therapeutic areas and investments that ran afoul during the financial crisis. Here are some of his comments, lightly edited for brevity and clarity.

S&P Global Market Intelligence: What therapeutic areas are you interested in?

Ali Behbahani: I went to medical school at UPenn where a lot of the initial [chimeric antigen receptor T-cell, or CAR-T, therapy] work was being done. It's becoming a bigger and bigger area. In CAR-T, you're taking a T-cell that for whatever reason wasn't doing what it's supposed to do, re-engineering it by putting in a new receptor, and then activating that cell and putting it back in your body to hopefully go and attack the cancer. We did a series A round in a T-cell receptor company called Adaptimmune that is based in Oxford, England. In addition, we've seeded a couple others in the cell therapy space, Arcellx and Nkarta.

What are the advantages of modifying the patient's own blood instead of using donated blood?

The reason why people are doing it using their own blood, or autologously, is you want to avoid two things. One, you don't want the T-cell that they are putting back into your body to attack your own body. Also, you don't want your immune system to attack the T-cell, because you want that cell to be around to kill the tumor. There are companies working to develop allogeneic cells, or cells from a donor that your body won't recognize as foreign. If you can get an allogeneic solution to work, then you can build up a blood bank so that the manufacturing process is shorter and cheaper. We have not yet invested in a company developing an allogeneic cell therapy.

Some investors fund clinical trials in return for some of the financial proceeds if the drug is approved. Is that something you are interested in?

In the last five years because of the healthy biopharma IPO market, you've seen less of those types of deals being done. Pre-2012, when there really was not a viable IPO market in biotech, you were seeing a lot more of those. Although we've looked at them, we haven't done that kind of deal. It usually comes down to the payout. VCs want a venture-like return, but the company wants to pay as little as they have to. That's where the tension is.

What is the medical technology and devices VC landscape like?

It's been challenging because it's really difficult to take a medical device company public right now. A pre-revenue device company can't go public. A pre-revenue biotech, even if it's not even in the clinic, can go public. We're in a period where it's difficult to raise capital, especially at the early stage end of the market. It's not easy to take a company from the beginning to getting to $20 million in revenue, especially if you're going to do something innovative. That requires $100 million to $150 million. It's not an easy sum to raise.

Can you describe an investment that didn't work out?

A while ago we made an investment in a company called Brain Cells. This was a big idea company. We took an anti-anxiety drug that had never worked in depression and got it to work in a phase 2 trial by adding this agent based on our assays. That was great, but that was a time when it was difficult to raise money, and we ended up running out because we couldn't convince investors that it was worth funding additional development. The lesson there to me is that in those periods when it is difficult to raise capital, you have to do everything you can to line up that capital.

Coming up with neuroscience treatments has been a struggle recently, hasn't it?

I would said that is true. I've had some successes, but I've also had Brain Cells and others where we've taken it on the chin in the neurology space. Having said that there is real unmet need there. I'm probably a little bit more gun-shy than others.

What is your reaction to Scott Gottlieb's confirmation as the next head of FDA?

As someone who doesn't have a political leaning one way or the other, I can't think of anyone better. He's someone who is really thoughtful about patients, but also understands the process of trying to get new drugs approved that are safe and work. He brings a balanced a view from his perspective of being a physician, someone who's worked with companies and as a patient, since he was a cancer survivor himself during his time at FDA.