Viva Ventures has a long history in supporting drug discovery for disease cures in China and the United States, can you explain more about the market opportunity?
It goes back 26 years when the founders of Viva Biotech, including my brother Dr Cheney Mao, were researchers and scientists in the US. Many like my brother were scattered around the top institutions and pharmaceutical research labs in the US; focused on precision medicine and drug discovery. They faced the same dilemma, were the existing funding resources allocated to the most promising new drug projects? Drug discovery at top pharmaceutical companies experienced high attrition rates with lower success rates from internal discoveries than in-license from small biotech firms. Many of them shut down their drug discovery departments. The real problem was how in-house scientists were incentivised and remunerated. All of them were on equal pay despite some of the scientists being very innovative and discovering new drugs, and other scientists only taking their salary and not innovating. Thus the “burn rates”—the cost to keep scientists working on these programmes—were so high that all the drug discovery programmes constantly required fundraising without promising outcomes.
The solution we provide is clear: 1. we identify who are the innovative scientists, 2. the investors distributing our investment funds are experts in drug discovery, and 3. biotechnology and drug development has reached a mature period as human gene data is now widely available so researchers can now identify the basis of new drugs with a much higher success rate.
You’ve seen an increase in families investing in the drug discovery sector, what are the advantages of investing in the asset class?
Biotechnology and pharmaceuticals are very profitable sectors for investments, combined with the fact that our family has a competitive market edge in the sector built on our biotechnology platform with hundreds of scientists. For our family, deploying large capital into the sector is just a reasonable thing to do. Families are long-term investors, compared with other types of technology sectors, and investing in biotech and new drug discovery companies is a most rewarding experience. Not only can it produce handsome returns, it also improves human living conditions. It is the best impact investment with high returns.
How does your unique approach give you a competitive advantage?
The business partners at Viva Biotech are 24 leadership scientists who have been in the precision drug discovery field since the 1990s. Between them they have five US Food and Drug Administration (FDA)-approved drugs including Sutent (cancer), Venetoclax (leukaemia) and Lifitegrast (dry eye), TIBSOVO (R/ R AML), Paladiao (veterinary drug) and 50 pipelines that have reached clinic trail stages in US and China. Viva Biotech has moved its drug discovery base to China where it has three accelerators as of 2018 and will have more built by 2020. Currently based in Shanghai and Jiaxing, China, each accelerator has 150 scientists and 30,000 sq ft of lab space, undertaking 12 projects per year. This has addressed the “burn rate” as the scientists can live off a third or lower salary with similar quality of life, regardless if they are US, British, or Chinese. Viva Ventures Biotech Fund is able to verify whether the project will be successful or not, much earlier than the common venture capital or private equity firms can. So we are able to invest much earlier, without increasing the risk.
What has been your track record for investment returns?
Our investment strategy is to enter early and start to partially exit at the round after the pre-clinical stage. We totally exit if there is merger and acquisition from an Investigational New Drug (IND) application - the first step in the drug review process by the US FDA – or from secondary markets if companies are listed. Analysis by market research consultancy Frost & Sullivan estimates the market average return for investor multiples is 23 times in pre-clinical market capital returns. If they invest in stage one clinical trials the market average is five times. While a few incubated startups have not succeeded, the capital loss from these investments has been in the single digit percentages. With an early failure strategy, capital is conserved for more successful projects.
You’ve recently opened a new USD-denominated fund, Viva Ventures Biotech Fund, can you share more about this new opportunity?
Our first fund was issued in RMB when our investors were from China. For the future, we have continued our investment strategy, but issued a $300 million fund for overseas deals that require US dollar investment. The fund currently has $150 million in assets, with Viva Ventures or the Mao family contributing $100 million to the fund. Viva Biotech accelerators are planning to house 100 companies at a time, taking on 50 new companies each year, with 50 companies from previous years. Selected companies will stay with us from year one up to year three to assist completing their innovation period from ideas to the pre-clinical stage.
Your family invests significant amounts of its own capital into its funds, why is that important to you?
By investing $100 million of our own capital, we combine work for our own investments and offer investment services to other investors at the same time. By offering two-thirds of the fund size to other investors, we can leverage the capital markets for the benefit of biotech and precision drug discovery. This enables more capital to invest in an earlier stage for higher returns. This will produce more top-quality drugs and better diagnostic technology companies for venture funds, private equity, and big pharmaceutical companies to invest in further. While we are excited about this big opportunity, by encouraging more qualified and sophisticated investors into the early stage of drug discovery we are making better drugs faster. That is a great thing for investors and society.