Deploying Private Equity in Biotech

Speaker 1:
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Host:
Thank you for joining us for another exciting episode in our Biotech Decoded podcast series. I'm Yaron Werber, biotechnology analyst at TD Cowen. I'm super excited to be joined today by Ricky Sun in this episode called Deploying Private Equity in Biotech to discuss his view on the flexibility and innovation that private equity offers in structuring biotech deals. Dr. Ricky Sun is a partner at Bain Capital Life Sciences. He's currently a member of the boards of directors of Emalex, ADARx, and Tenacia. Prior to joining Bain Capital, he was a director of corporate development and strategy at Biogen. Prior to Biogen, Dr. Sun served as vice president at BlackRock and senior healthcare Analyst at Citadel and Alyeska. Before becoming an investor, he was a pharmaceutical analyst at Lehman Brothers and Morgan Stanley. Dr. Sun began his career as a senior scientist at Ironwood Pharmaceuticals where he was involved in a discovery and development of the drug Linzess for inflammatory bowel syndrome.
Ricky, it's so great to see you, and thank you so much for joining us. We've known each other for 20, 25 years and you've accomplished a great deal in your career. Joining us recently having taken Mitsubishi Tanabe Private, and I believe that deal just closed in the summer, so congratulations on that deal and let's dive into it.
Guest:
Thanks, Yaron. I was trying to hide my age, but now you've said it. Yes, we've known each other for over 20 years.
Host:
Both of us. All right. So let's start in February of this year, 2025. You announced that Bain Capital Life Sciences's team co-led the carve out of Mitsubishi Tanabe along with Bain Private Equity. The deal was valued at roughly 3.3 billion, and I believe it closed over the summer. Can you talk a little bit about what made Tanabe's clinical and commercial assets compelling for your team, and how does this really align with your broader strategy in Asia as well?
Guest:
Yeah, I'm glad you noticed. It's not something that a US-based firm do every day, but Japan has been a very important marketplace, both from a commercial but also from an innovation standpoint. For a long time, as you could recall, back in the days, maybe in the '90s or even early 2000s, all the global pharma companies go to Japan to look for assets. Case in point, I don't know how many people know this today, Opdivo, one of the most successful PD1, actually was originally developed by Ono Pharmaceutical in Japan itself. So yes, there are very important molecules that the Japanese pharma can develop. For us, our interest really is finding a great Japanese firm where we will be able to bring more medicine that's in the Western markets to Japan, which is kind of counter to some of the other larger Japan-based pharmaceutical companies are focused on. Why that is the case is that there is a "drug loss - drug lag" phenomenon in Japan that is about 50% of the medicine that is available in United States, for example, is not available in Japan.
Part of it is because the regulatory standards and the regulatory requirements are pretty tough in Japan for a long period of time. But that has really changed with the PMDA really leaning forward, with the support of the Japanese government, to say, "Hey, we want to solve this issue." With that backdrop, we really thought that we would like to be able to work with a company that we feel is on the cutting edge, both of the science but also on commercial. Mitsubishi Tanabe, at that point, was the division of pharma for Mitsubishi Chemical Corporation, so it's a subset of a big conglomerate. And that was a genesis of Tanabe being fully acquired by Mitsubishi Chemical Corporation. For us, why that matter is because it has almost 400 years of history, used to be called Tanabe Pharma, and has a real reputation being a stalwart in the Japanese domestic market for all that period of time.
Unfortunately for them, in the last 10 to 15 years, they have been really underinvested under that conglomerate structure. And the management within that pharma division do recognize that, and they're looking for the right partner of choice to really help them reinvigorate the discovery engine, but also really be able to take it commercial in Japan and also worldwide. And that's where we came in. It took us quite a while to get there, but suffice to say that we're really excited now that we have closed the deal. We also announced an additional new management structure, so it will really help to drive this forward for the near future.
Host:
How did the deal, Ricky, come together? Doing deals with Japanese pharmas, as you said, does take time, and it needs to be a cultural fit, which is very, very important. Did they approach you or did you approach them? We visited them in Japan, Adam and I, years ago, in one of the trips to Japan, so I know you've known them for a long period of time.
Guest:
Yeah. As you say, rightly pointed out, things in Japan takes a long time. And luckily for us, we have two advantages. Number one is that we have a very patient time horizon. So we did spend more than five years really perfecting our, I would say, life science strategy in Japan, and we collaborated very closely with our Japan private equity team. I don't know if folks know, private equity in Japan actually is a pretty negative word for a long period of time. And up until maybe 10 years ago, I think the Japanese market really opened up and understand that private equity can actually create a lot of value and create jobs for the domestic market. Case in point is Bain Capital. I think we're the the longest tenured pure private equity in Japan, and probably one of the largest with more than 60 full-time employees in our Tokyo office.
So I have partnered with our Japan team for the last five years to search for that one interesting platform from which we can build, and that one we really thought was going to be Mitsubishi Tanabe, but we knew it's going to take a while for us to really engage. And interestingly, you said you went with Adam and others, my partner Adam, to some of these pharma trips to see Japanese pharma companies. We don't go there all the time. And it was actually during one of those trips I was on many years ago, I met with an interesting CEO at a smaller biotech company in Japan. And I thought their products... I wasn't sure, but I thought the CEO was quite impressive. And a couple of years later, I didn't know that, Aki Tsujimura-san became the divisional president of Mitsubishi Tanabe. So we had a very strong personal relationship with the help from our Japan colleagues in Tokyo office, they had a really strong relationship with the parent company, the Mitsubishi Chemical, and we're able to engage them for a good period of about three years before we finally transacted.
Host:
Yeah, congratulations. I know these things are tough deals to get done. So this was jointly executed by private equity and the life sciences team. How do you collaborate? How are the two funds and teams slightly different? And how do you then integrate to really be a lot more competitive and provide a much better product to corporates?
Guest:
It's one of those true collaboration deals in the sense that we are dependent on each other for this to really work and to really create the value we think we could here. For the Japan private equity team, this is not the first conglomerate carve out they have done. In fact, they've done three apart to that. A few notable ones out there are... In the late 2010s, they partnered with the Japanese government to carve out the memory division of Toshiba. And then, subsequently to that, they did the carve out of the heavy-metal division from Hitachi. And more recently, I would say, the lab business from Olympus, another conglomerate. So they really understood how to do that kind of carve-out transaction. Especially in the Japanese context, it's quite complicated. Second is also with the three other carve-outs, they have a lot of good learning experiences on how to really streamline and improve efficiency for these entities.
And I don't think it's that different, from an infrastructure perspective, for Tanabe itself as well. What they don't do and where we really come in here is really on the scientific front. There are two things that we can do better. Number one is really to be able to have a great diligence in evaluation of the current clinical pipeline and the research. The second piece is that we jointly do with them is that we also think that we will be able to do in-licensing and business development very well, because a lot of this is to be able to evaluate outside assets for what we need to bring in. So it's because of these symbiotic relationship that we felt we're well-positioned and uniquely positioned to do that. And as you guys know, there's a lot of great private equity firms out there who could also do something like this, but this is the true unique circumstance whereas you need both to be successful in the future.
Host:
Yeah, absolutely. You mentioned that Japanese PMDA has recently implemented some regulatory changes to really try to streamline and expedite drug approvals. And it really has to do with orphan indications, it has to do with consultations and early feedback, it has to do, in some cases, supporting pediatric exclusivity and pediatric indications, and also offering some multi-original clinical trial flexibility and providing some guidance. Can you talk about all of that, and how that's really going to feed into your ability to develop drugs faster?
Guest:
I think this is one of the reasons, from a macro standpoint, we're really excited about Japan and be able to do these things in concurrent with the rest of the global trials. In the past, the Japanese mantra of developing drugs, especially, if it was originated from anywhere else, is that you have to do a Japanese phase one healthy volunteer study of some sort. From the standpoint of PMDA, at that point, it was really making sure that there is no ethnicity differences. But that became a really bottleneck, very limiting step for a lot of Western companies because the Japanese market, in terms of size of the market, just by pure population, is not as big as United States. So therefore, if you were to restart from phase one, it's going to go through somewhere between 8 to 10 years. And from an NPV, if you re-calculate, all of a sudden, "We weren't sure this is going to be a business that we can support."
So when that changed, where the PMDA said, "Okay, all right. We understand what the problem is now. For the right sponsors, that's the companies, and you present us the right development plan, we are going to be flexible. We are open to the idea that we can skip over the Japanese patient-focused healthy volunteer phase one study, and will allow you to use Western data to go directly into phase two, and perhaps even pivotal trial on its own," that really changed the game. Right? That's very important. I would say, for orphan diseases, this is more likely to be accepted because it just makes more sense and they are being very reasonable. For larger indications, I think if you make the right argument, they will also be really receptive today.
And the last thing I would say is the Japanese government also want to encourage innovation. So if you were to submit something that is concurrent with, let's say, US approval as Japan approval, you get a special medal. And then they have some Japanese word for it, [Japanese 00:12:12], which means, essentially, our version of breakthrough designation. And not only do you get a so-called designation, but the reality of that is, also on the pricing reimbursement side, you might have more favorable durable pricing as well. That is something that's really favorable for sponsors, the companies that's developing them.
Host:
That's critical. I want to quickly touch on, culturally, doing deals with Japanese pharma. I was at a company, and we had a tremendous partnership with one of the big Japanese pharmas. The food is incredible, visiting Japan is incredible, the culture is incredible. And these are things you need to kind of weave through as you do deals and partnership with local companies. Can you talk through that process a little bit, and how that worked out?
Guest:
Yes, the food is incredible. I'll tell you that I had a few, I would call it, training episodes. One of the things I felt was really important in training was that before we did any of this with Mitsubishi Tanabe, I actually went back to school way back, more than 15 years ago now. When I worked at Biogen, we had two Japanese partners and, today, they are household names in the Alzheimer's space. One of them is Eisai, and that was a true collaboration. Right? And to do that, essentially, A, you need to have the right cultural etiquette. You need to know when to say something and when not to say, and then go to dinner to make sure you eat all of it. I still recall one of the dinners we had was at a sumo-ring-based restaurant. And I usually think that eating Japanese food, there's not a lot of quantity, so we should just eat it all.
So we had a 12-course meal. And in the end, they still brought another two decks of sushi, and that was an old problem. So I looked to my left, at that time, the head of corporate development, Steve, and I said, "Steve, I think you got to eat it all, man. Otherwise, we're not getting this deal done." So we stuff our face and we're hurting, and that's what it takes to get the Japanese deal done. Now, that's a joke and it's not a joke. But when we came to Mitsubishi Tanabe, I feel like that culture started to subside a little bit, and so we weren't subject to the same level of food scrutiny. So we were a little bit better at that. And part of it's also, as I said, their divisional CEO is much more westernized and a good friend of mine. So to that extent, he understood what's important is really about the business, not the culture alone.
Host:
Well, let's shift now and talk about China. You've, along with Primavera, participated in the $200 million strategic investment in China-based Avistone. And then recently, your team spun out Kailera from Hungary, focusing on obesity. The data looks really good, and it's a phase-three-ready asset. I've actually read out their encouraging phase three already from the first study in China. China, in general, is becoming much more of a powerhouse now, a real player on a global basis, both on innovation and fast-follower of best-in-class drugs. Yet, it's drawing a lot of scrutiny. There's concerns on the political side. The Chinese local market, I think, is struggling still very much to draw capital in. Pricing is weak. Can you talk a little bit about what is going on in China? Why has that become such a hotbed for innovation?
Guest:
Yeah, I think this is a very timely topic. It feels like, in the last two years, that interest and curiosity has really risen. We have been in China as a business entity, and doing work in life sciences, in about 2018. Again, really drawing on our strength of partnership with our Asia private equity, especially China private equity team. We studied the market for quite a few years. One of the things you touched on is like, "Hey, domestic Chinese market," the venture support community is not as strong at that point and still is not. And second is, at that point, they could probably only do a me-too and sometimes maybe a me-better. And the third is that the pricing, not like here in the United States. You'd be lucky to get one-tenth of the price from a drug point of view. So why still go there, and what are we trying to do?
We had two goals in mind. Those hypotheses were not proven yet, and that's what we thought that we would like to do. The first we thought, we would like to make an investment in China. In China, the prices are one-tenth or lower, but the number of people is vast. So when we made our investment in Avistone, it was late 2021, early '22, we're studying the market for almost four years. What we are looking for is a Chinese innovation engine that can create actual product that can sell in the Chinese market. So roll forward, four years later, we have one drug that's approved with three indications, and the second drug is soon to be approved on the Chinese market as well. Also, the combination of the two, that's showing interesting data on the global stage today. So to us, that thesis start to prove out.
And because it's commercial, the initial ramp of the sales is very encouraging. This is a targeted oncology-focused company in lung cancer, all in lung, so it's one of the largest market. So for us, it's really to be able to back a company, to really have a group of assets in a focused area that you still can create a very exciting business because the innovation engine is very much local and they were able to do a whole lot. It's all self-built, it's not really acquired. So that made sense to us. So through that process where I learned something, that is, guess what, Chinese people can also innovate, and the speed at which they can do is quite fast. Also, the cost is a fraction of what we can do here. Then, we start to turn our attention to, "Hey, what can we do here to leverage that kind of advantage?"
So we start to really pay attention to other companies where we may be able to bring innovation to the global stage. During that period, during 2023 and '24, we did two transactions. The first one was Aiolos. And some of you may know, this is a long-acting TSLP antibody for asthma and COPD. We built the company with a hope that we would be able to take it all the way through commercialization. Unfortunately, for us, GSK saw the same thing as we saw, "This is a very important market and a very interesting asset." They acquired the company about six, seven months after we have actually established the company. And that was in partnership with Hengrui. After our initial partnership, we went back to them and said, "Hey, now that we have worked together once, we would love to be able to do repeat business with you."
We do realize that obesity is a very important market, and we are going to go up against some of the big heavyweight. But we do believe, with our asset portfolio and the strength of the initial data we already had, the lead molecule 9531, which is injectable, you talked about that phase two/phase three data in China, we feel like we can compete effectively in this vast market. That's why we consummate a deal in the middle of last year, and now Kailera is a fully engaged entity with a lot of very talented people. Hopefully, you can ask Ron Renaud, who I know you will interview later, about his experience in working with a Chinese partner.
Host:
Yeah. That's going to be the next episode after this one, is with Ron Renaud, the president and CEO of Kailera. When you're looking at Bain, you're investing now globally, as you mentioned, both in China and Japan you're actually investing locally. So it almost seems like the secondary strategy is then to spin out and go global or take some of those molecules globally. Bain, in general, as I think of it, you could do private rounds as a series for... you could do a new co and you could also do strategic grow capital, and obviously carve out as well. As you think about it, what are some of the opportunities and challenges, and the differences between success and failures for those kinds of deals?
Guest:
Yeah, great question. Now that we have enough data points, now we've invested in over 80 companies, I can tell you we can look back and do some performance analysis to say, "What did we get right? What did we get wrong?" And I feel like if you asked me nine-plus years ago, "What would you say what you fear the most?", I would've told you, "Boy, I just fear that I'm going to get it wrong on some clinical data." That still happens. But that turned out to be, actually, not the most important mistakes that sometimes we'll make. And then one of the biggest challenge, and actually the thing that we get wrong the most, is actually around team. As you think about assets, you can evaluate, you can do a lot work on. A great management team, they don't grow on trees and they're only a finite number of them. One of the biggest challenges that happened during '21 and '22 is that there has been a great proliferation of new startup companies, and they don't have a great management team.
And we struggle. Even with we trying to create companies as much as we have the aspiration to do and find the best people, we're competing with everybody else the same way. So as a result, sometimes we sub-optimize a management team, and even great assets do not perform under those circumstances. So that's one of the principle challenges that we faced. The second thing I would say is about inflation of everything. I would say, if you asked me, in 2015, when we start thinking about this, "Would it cost from phase one to phase three?", I have a pretty good idea. Today, I can tell you it's at least double. So where is this coming from? I would say a couple of things. Number one, oftentimes, most of us rely on external parties like CROs to help us run clinical trials, run preclinical experiments. We require CDMOs to help us manufacture the actual drug product.
In the end, these people, they have to protect their business, so they're always inflating their cost. So as a result, that's going on. The second is that also I feel like there's always this, I will call it, a-rising-tide-raises-all-boats phenomena. In terms of just general infrastructure, G&A costs keeps on rising. And we all sit on boardrooms and on the compensation committee, and the joke is always, "I've yet to see somebody who's willing to pay their employees below 50th percentile, never. What do you think that does after 10 years? We are going to go to the 60%. We're not going to go 75, we're very disciplined." So everybody goes 60%, so it's 20% each year. That is one thing that has been a struggle. As a result, what you see is that sometimes you get great products, but very challenging valuations. And as a result of it, return becomes a little bit stretched. And what do you do at that point? So some of these I think start to manifest itself, really, in the last couple of years.
Host:
And that manifests in the burn that you're talking about, and then the natural dilution, and how do you continue to invest in the company and support the company. When you're thinking about your career, you're thinking about... We talked about what drives success and failure in your companies. In many ways, it's very much the team. What advice would you give CEOs based on your experience?
Guest:
Yeah. I would say, choose your team carefully. I do think that for a CEO, he or she cannot do anything alone. It is really the power of the team. So I keep on emphasizing, having the right team is really important. You're very fortunate if you can have a group of people who have worked together and battle-tested have done well in the past. And I think it's a lot harder when you haven't worked together. But it's not impossible, we've done those, just bar is just going to be higher. And the second thing is be really, really disciplined in terms of your spend. So you know, with what you have, what can you really generate. Before you can raise the next tranche of capital, those are really, really hard to get in tough times. We are in one of those modes. Every few years, there's some period like that, and you hope that you can get yourself through. And there's always going to be a more optimistic period that we've seen just a few years ago.
Host:
Yeah. What about the differences between success and failures in boards? What advice would you give to new boards?
Guest:
There are two types of boards... Or just structurally, there's the private boards and the public boards. They tend to be quite different. Private boards tend to be dominated more by investors who invest in these companies, VCs and people like us, if we choose to engage. Whereas the public boards, you rarely see investors, unless it's a pretty special circumstance, and most of them are independents. I think there's both pros and cons. I feel like for boards, that's effective. And that's both for private and public. You need to have very transparent conversations. There's going to be times where there will be a difference of opinions, from a fundamentalist point of view. And I do hope that everybody's willing to share their perspective, but also resolve around differences to get to the right direction. What I don't want to see is the bad boards, people who are friends of whoever, the chairman, the CEO, whoever, and they're only there to perhaps be part of the show, so to speak. And there will be tough times the company needs to go through, really exercising your fiduciary duty is really, really important.
So in my mind, for public companies, I wouldn't mind if you have the right investors on the board because that truly represents investor-shareholder interest. Because if you think about it, from a board perspective, the independent board members don't have enough skin in the game, so to speak, to really truly represent the broad shareholder base. I'm not advocating every board would need to be like that. But certainly, what I've seen when I step on the board of a public company, the other investors seems to think, "Okay. Well, at least, we can sleep a little bit better at night knowing that these guys, who are investors, at least is watching out for us as well." On the private side, my criticism sometimes is we have too many investors. We really don't have the operating experiences to judge what's good for the company. So I always encourage, "What if we can get more independent operators to help us? People who've done it before, the ex-CEOs, ex-CMOs. Those tend to be great," and I'd be first to say, "Hey, maybe I should step the board to make room for those people."
Host:
Absolutely. You've done a lot of private deals in biotech as well. So can we talk a little bit, in terms of life science investing, in this environment, what are some of the real opportunities and some of the real challenges right now?
Guest:
It feels like people think there's challenges everywhere right now. Mostly, it's around funding. Right? Private funding's tough and, I would say, IPO is non-existent. It has been going on. I don't know. I feel like it's not just seven, eight months, and realistically it's been two years-plus. It's been really, really challenging from that perspective. I would say the other challenges, at least, for early stage companies, because of the rise of China, there has been a real shift in terms of where the big pharma is finding great partnerships, quote on cheap. So the VC-backed company that's still in pre-clinical, even early clinical, find themselves in a more difficult position. They have to compete, not just with the person next door, but the person across the ocean. So those are really challenging dynamics for those. Where are the opportunities? Sure, there are opportunities. I do think that because of this, it's actually a buyer's market.
If you have patient capital and you can really last out for quite a few years, and see the true vision, this is a great time. Why? Because you can choose the right asset, choose to partner with the right management team, and have a longer vision. By the way, we don't have to just flip something at phase one, phase two, or phase three, we'll pour it out in commercialization. Because at the end of the day, what matters to all of us is actually developing great drugs and get it to patients. And we always say this to our entire team, "If you do that, all good things will come. But please focus on that."
Host:
That comes first. All right. Well, let's get to my favorite part of the podcast, which is the little personal touch and humor where you really get to know the guests. So maybe the first question for you, what is the one non-scientific skill that has been surprisingly useful in your career as an investor?
Guest:
Oh, I don't know about useful in as an investor. I would say one of the things I'm really good at, I found out later in life, is that I can drink a lot. So if you think about, if you ask me, "In Japan and China, you want to get deals done? You need to be able to drink a lot and drink everybody under the table." And that's one hidden skill I didn't know I had when I was a scientist, but only learned when I became a business school student in New York. So I frequent every bar around the entire NYU campus.
Host:
There you go. There's probably a plaque for you somewhere. That's always a great skill to have. It comes at a price, lack of sleep and LFT elevation. And then, if you weren't investing in biotech, what would be your dream job?
Guest:
Ah, I would love to be a chef. A lot of us who are scientists probably have great experimental skills, and I consider cooking both an art and a science. Growing up, my father is a chemical engineer and professor, but his passion really was cooking, so I had an early influence. When he retired, he became a professional chef. So I'd like to follow my father's footsteps.
Host:
What kind of food would you cook?
Guest:
I would like to cook Chinese food.
Host:
That's the one I have never really ventured into. I cook, I wouldn't say that I'm a chef at all, but Chinese cooking is not as easy for me.
Guest:
It's going to be hard. I thought about, "Should I go to the French side? Cordon bleu and all that?" Yes, we can do that. But I think if I like the food, I need to cook it.
Host:
Yeah. I mean, just the knife skills and cutting skills and prep skills is literally a course on its own.
Guest:
Oh, yeah. Now, we can do it. I felt like I need a little bit graduate school course, is what I'm looking for.
Host:
Yeah. Well, Ricky, thanks so much for joining us. Congrats on a lot of great deals. It's really good to see you, and we'll stay in close touch.
Guest:
Sounds good. Thanks again for inviting me.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.