We’re in Boston 🇺🇸 with top VC Otello Stampacchia of Omega Funds 🙌

We talked about the highest competitive tension in biopharma now that he has ever seen. We also discussed his career, especially the challenges and opportunities he had from moving to Boston over 15 years ago. We explore his insights on venture capital, Omega Funds’ biotech investments, and life science innovation.

💎 ABOUT THE SPEAKER

Otello is the founder and managing director of Omega Funds which he started in 2004. As an investment guru, he leads the investor relations and strategic initiatives. Previously Otello led the fund investment of one of the largest private equity asset managers in the world, AlpInvest Partners. He’s also been involved in many European biotechs such as Lombard Odier Immunology Fund, Goldman Sachs, and Index Securities (now Index Ventures).

Transcript

[00:00:00] Intro

Otello Stampacchia: Just across the industry, with the possible exception of Novo and Lili, almost everybody needs to do supplemental pipeline acquisitions. So the challenge is there aren’t many assets like that. The whole discussion makes me think about how much cash there is in pharma ready to be deployed. Yeah, it’s close to a trillion.

This is an incredible job. You, me, smart people every day. No, it’s true about you and obviously the CEOs that we invest with, of course you. Lessons learned. Again, I should have probably moved to the U. S. earlier because it would have allowed us to scale the organization and the fundraising faster.

Philip Hemme: Bienvenue to a new episode. I’m your host Philippe and on this show I’m interviewing the best Europeans in biotech to help you grow. Boston is the biotech powerhouse in the world. It hosts many top biotechs, pharma, academics, but also top VCs. And one of them who has a strong European background and connection is Othello from OmegaFonds.

So I went to Boston to catch up with him. I’ve known him and followed him for a few years where he has been very successful. especially on the exit 5. And he’s just a super fun and chill person that you talk to and also has strong contrarian views. So we talked about the highest competitive tension in biopharma today that he has ever seen.

We also talked about his challenges and opportunities for moving to Boston a bit over 15 years ago. So here’s my conversation with Zotelo and if you’re enjoying it, please hit the like and follow button.

Welcome to the show. 

Otello Stampacchia: Thank you. Nice to be here. Nice. Nice. Yes, you picked a very beautiful day today. Thanks. Very nice. That’s amazing. 

[00:01:57] Competitive tension in biopharma

Philip Hemme: I, I want to, I want to start with competitive tension in, in biopharma the shit today. Actually, I saw one, a few posts on, on LinkedIn and that’s kind of the trigger for me to, to reach out.

And that’s why we have this conversation now. And that was just after one of very nice exit of iBio. Right. And but you said that you have never seen such a scarcity for clinical stage assets in your past 25 years. I 

Otello Stampacchia: think that’s fair. Can you expand 

Philip Hemme: on that? 

Otello Stampacchia: Yeah, maybe a bit of background. So I used to do M& A when I was in banking in the 90s.

And I had a nice overview on what was going on in the European pharma consolidation at the time, and I’ve been a VC now for about 20 years, actually, with Omega, and before that I was doing also VC. So I think what’s driving the current situation is the result of, you know, I would call relatively macro trends within the pharma industry.

So one is the fact that, as you know, pharma companies need to continue to replenish their pipeline. Historically, in addition to their own R& D, they always done transactions, partnership acquisitions from smaller companies. But what was available to them up until a few years ago was also large transactions with other pharmaceutical companies.

That’s no longer available because of the environment with the FTC in the U. S. So I think over the last, I want to say three, four, five years, there’s been a shift towards smaller transactions from the pharma point of view. And those transactions have been rewarded. A very good example would be Merck, who has a very large patent expiry in a few years with Keytruda going off patent.

And they started really adding to, to their pipeline via some of these external transactions. Prometheus, obviously a very large drug. And a few others, including some of our companies like Imago and other companies have done the same. So Appview recently with Cerevel and a few other acquisitions. So, so I think what you’re seeing now is a result of a few years of needing to fill in their pipelines.

Usually a late stage clinical asset in our, you know, universe would be in a company that’s already public. What you’re seeing, though, is that the public market has been much more selective, in my opinion, rightly so, that’s a different topic, perhaps, but much more selective over the last few years.

I get a lot of, well, ways to put that away, but but, you know, again, different conversation. And as a result companies are staying private for a little bit longer, and they’re not unhealthy, in my opinion, and so what you see is that the, the low hanging fruit in terms of very lay stage.

Publicly available assets that have achieved a certain level of maturity is kind of gone, right? There’s no, I mean, obviously it’s not a steady state. So there’s obviously companies that go public and developments develop. I guess it’s always a great scale. It’s like 

Philip Hemme: this less, less, less mega deals available, less later stages.

So you end up more pressure. 

Otello Stampacchia: Right. No, that’s exactly right. So if you start, not that I’m a person like that, but if you are the head of clinical or the CEO or the head of business development in a large firm for companies, and you need to fill in a huge pipeline gap in terms of revenues, you start from, you know, large potential drugs.

And those will usually be housed in, in companies that have achieved a certain size, right? But once you buy those, and there aren’t a lot of those, then you need to start going, you know, smaller in terms of size. So, so that’s happened and that’s happened for a few years. And now as a result, the pharma companies are looking at private companies.

So I think just this morning, I believe Kind of a cascading Correct. Casing though. Right. And also eventually, by the way, this is going to end up again, that probably is something for next year and the year after next, but eventually these pharma companies need to also replenish their late preclinical and early clinical pipelines.

So what you’re seeing, excuse me, you started with large public companies, biotech acquisitions, then smaller public company biotech acquisitions, now the privates. And eventually in the next one or two years, you’re going to see probably more large revenue BioBucks headline preclinical deals or early clinical deals.

So, so back to your question, I’m sorry, it’s taken me a while to answer it. I guess. This is a dynamic that is now industry wide because there’s a, just across the industry with the possible exception of Nova and Lilly, almost everybody needs to do supplemental pipeline acquisitions. So the challenge is there aren’t many assets like that.

And. I guess our luck has been that we always focus on clinical stage asses or from clinical strategy. So as a result, we’ve been very busy, but also as a result, we’re seeing a lot of these competitive dynamics play out, which led to the post that you mentioned, which I saw was 

Philip Hemme: very popular. What was it?

What? It’s the. Now, what is the 20th deal in the last two years or something now? So, so, 

Otello Stampacchia: yeah, so, so thank you for pointing that. So, so since January 2022, I believe we had 10 MNA exits in our portfolio and three listings, you know. And I hope both numbers will go up a bit, but, you know, obviously, we can’t guarantee that, but 

Philip Hemme: We are very busy right now.

That’s what we do a lot. Yes. That’s amazing. It’s, it’s, yeah, I didn’t see it. I didn’t see the cascade that much, but it’s, it’s really, I think it makes, makes total sense. Yeah, and it reminds me also of like, so in, in like the, all the trend of, I think it started really a lot in 2008. They’re really like shutting down internal programs, internal R& D and going, and going more external R& D.

So I guess that kind of started the movement and now we are like, we’re doing pharma. Yeah, within pharma. 

Otello Stampacchia: Yeah, I mean, it’s a very long trend. So, I hope I remember the numbers correctly, but when I, when I started Omega about 20, 21 years ago now, about 40%, maybe 44, 43, whatever percent of all clinical trials were done by smaller companies.

Yeah. So now it’s about 75%. So, and I think if you speak to most people in pharma, they acknowledge there’s a real challenge in doing fundamentally innovative. Again, there are exceptions, I mean and there’s always going to be phenomenal programs that these companies develop. Again, I mentioned Lillian Noble, there’s quite a few others, but it’s almost a built in structural issue.

These organizations are massive, it’s super hard for a true drug developer to push forward for a controversial program, it’s just not going to, it’s going to be a lot of inertia. It’s easier in a small company. I guess what’s, what’s 

Philip Hemme: also, and I want, I want, it’s interesting and I want to challenge or what’s your view on it, but what was interesting as well is that this number you mentioned of going from 45 to 75, what’s interesting in the background is that it was positive from the ROI for Pharma as well, as it was basically cheaper for them to buy in than to do the internal R& D.

I’m wondering now with the size of the deals, when you pay 1. 3 billion upfront funds for. Early stage clinical compound, or drug, starts to be more expensive if you pay, whatever, 10 billion, or a company that doesn’t, free revenues, like, 

Otello Stampacchia: yeah, no, it’s a great question. So and listen, I used to run this counter cash flow analysis when I was a banker a few years ago.

I think that. There’s a couple of comments on that question. Maybe I use the Merck Prometheus example, and then you mentioned iBio, which is the latest acquisition. By the way, we weren’t the founders of this company, but we invested in the latest financing. So a lot of credit should go to the founders of the company, by the way, but so back to your question.

So, so I think the thing that really shocked me when Merck announced the Prometheus deal, which was a relatively expensive deal, if I remember correctly, it was close to 13 billion, 12. 8 or something like that. The, the Merck share price went up by more in terms of value by more than the acquisition.

And that is a fantastic result because a, he provides. Management of this pharma company is the cover to say, well, okay, we’re doing top line accretive pipeline, accretive transactions versus what they used to be able to do before the FTC kicked in, which were these financially accretive transactions where you basically buy big companies, cut down all the costs, you keep the drugs, you already have your sales force, but that doesn’t give you a top line growth.

And we need top line growth in this business. That’s what this business needs. You can’t just keep engineering your way out of a lack of a pipeline. So that was something that really was important to me. And it’s happened since. In a number of these other transactions, once you see them announced, very often the market cap of the buyer goes up by more than the value of the acquisition.

You’ve seen this for a number of things that AstraZeneca and so on have done. Now, the second question when you talk about iBio is that, A lot of these acquisitions are for very large market opportunities. So I think the challenge right now, and it is a problem, I believe, for some disease and for some patients, is that pharma is really not interested in indications that are less than a billion minimum.

And I understand that. I think it makes perfect sense from their perspective. So now, again, back to your question. Okay. Well, you see, okay, you know, it’s a company that just finished their phase 1b, 2a study, right? You’re talking about iBio again by the way, I wasn’t the Omega board representative, but you know, obviously I was quite involved from our point of view, but it is an absolutely massive market.

And, and what really shocked me when they announced the data at an ophthalmology conference is that every single patient responded. So what Merck has done, and by the way, there were other people interested in the drug, obviously, but what Meck has done, which I thought was very attractive to, to us and the company, was they’re gonna go straight into Registrational trial.

So I think from a, obviously I don’t have the DCF point to me, but, but the, that is a quite phenomenal thing because if you, if you do that, and this is a, a huge market, right? See, see what Vamo is doing from Roche and there’s a few other drugs on the market. Of course it just, it’s a pretty large trial to run us.

Right. Which is why this was a great fit for a pharma company. I have to say they’re very good at that. They’re very good at clinical trial execution for large, large trials. So again, I agree prices are going up in the space. But at the end of the day, that’s, that’s what people need to pay. If it is a large addressable market, the option for these companies would be not to be acquired and go public and it is still an open IPO market to be able to finance these large indications once you have very convincing clinical trials.

So that option is still viable. Now, obviously you need a team that can execute on those large trials. And I agree, pharma is better there, but at the end of the day, there’s a bit of a competitive tension. Is this am I the only bidder? Yes or no. Is this something that I absolutely need to diversify my pipeline?

And what was interesting about Roche, this is their first approach into ophthalmology. So this will become actually a cornerstone asset in my opinion, for their therapeutic area, for them. I think that obviously. I’m biased, but I think that more than justifies the price. 

[00:14:43] Cash in pharma

Philip Hemme: Good to hear. Yeah. I mean, also the whole discussion makes me think about how much cash there is in Pharma ready to be deployed.

I remember a thing was two years ago from Nubar, from Flagship, a comment that there was whatever, 760 billion in thing. I think this month I saw the figure was more like a thousand billion now in the Yeah, it’s close to a trillion. 

Otello Stampacchia: Close to a trillion. Well, I mean, these companies are very cash generative, right?

And also they can leverage. They can leverage, they can raise debt without any problem if they wanted to. They’re phenomenally resilient businesses, right? I mean, it’s wonderful to have a drug on the market, right? For a number of years, great margins. So, there’s a lot of financial firepower available to these companies.

What they need is, is top line growth and, and, and they’re going to lose, I forget the exact number, but close to 200, 250 billion of their current revenues will go off patent in the next four or five years. It’s a huge number. And even you 

Philip Hemme: mentioned, I mean, Kay Trudeau, I think now it’s like 25 billion.

Trudeau, by the time he was off patent, it would be close to 40 billion. 

Otello Stampacchia: Which is, which is any good. Just 2023 was 2023 was about 25. And I think this year is going to exceed 30 billion. No, no, it’s an incredible drop by the way. But to replace that, he’s super hard. And incidentally, I mean, think about the problem that Nova and Lily will have in four or five, six years.

Right. The, the, the. I forget exactly which drug expires when, but between 2030 and 2032, both of the GLP 1s will go off patent. That’s also very good. Yeah, we can talk about patent extension tactics, and I’m not a huge fan, for example, of what happened to Eumera, right? But you know, that’s a separate topic, which is an important topic, by the way, for the social contract.

But I can tell you, both companies are already thinking, what will happen? In those four or five years and, and they’re going to continue to leverage those cash flows in two ways. First of all, they’re going to have to increase manufacturing supply 

Philip Hemme: because 

Otello Stampacchia: they can’t supply enough of this drug and they will not be able to for years.

Yeah. I thought it is building like six plants or something like that. So Lili, between Lili and Novo, I see, I think I’ve seen over 20, 22 billion of investments in manufacturing and this is probably an understatement. So, you know, one thing is going to be manufacturing supply increase. And the second thing is going to be, well, pipeline acquisition.

And I can tell you, both companies are incredibly active into, into that. So, so you will see a lot of that cashflow being redeployed in 

Philip Hemme: my opinion. Makes, makes sense. And I mean, makes sense of also of what we just discussed, like, I mean, it’s a good fit for them, I guess, that most of the optionality is on the early, early station assets, because this means.

If they buy it now, yes. Yeah. And so four or five, six years would be ready. Okay. Makes sense. I mean, we had the Claudia from Cardio on the show and it was exactly this as well. Like they just finished a phase one B, or one B to a, I think, had great data and then had some options, but was basically the best options to go with.

To go with, 

Otello Stampacchia: I mean, what these people can do is, is really blow up the The size of the future clinical development, right? They don’t need to take shortcuts. They can invest in multiple trials, large trials. They can look at different indications. So I think for a certain type of indication for certain stages of the drugs these people, the national buyers of these businesses now, you know, I still think there should be some companies that go it alone.

Like, look at what happened to, obviously, Regeneron was a while ago, Vertex. So we need those champions as well, not just a big, big pharma. And there are, there are a lot. I mean, I forget what the exact number is, but I think there’s over a hundred, more than a hundred companies with market caps above 5 billion in our, in our industry.

And they are a great source of competitive tension, you know, pipeline, optionality, partnership potential. So. Hmm. So I think the ecosystem needs the, the very big guys, the not so big guys and the small guys. This 

Philip Hemme: place, I mean, there’s so much space as well. I mean, as you said also from a, at the end, I mean from a benefit to patients and how it translate into economic value, there’s just a huge need.

And this drives, 

Otello Stampacchia: so I, there’s two things that make me I’m glad you bring that up. The, the, you know, first of all, I consider myself incredibly lucky, right? This is an incredible job. You, me, smart people every day. No, it’s true. And, and, and it’s well, you and the CEOs that we invest with, of course, of course, but the, so we are quite fortunate to do this and we should never forget that, but, but looking at it from the patient perspective, which was a great comment you made, we are truly in a golden era for our industry.

Because there’s been an absolute convergence of a lot of technologies. You know, CRISPR cell therapy, gene therapy, you know, AlphaFold, computerized drug design and discovery, blah, blah, blah. And, and we are better at deploying this for patients. We’re not only better, we are faster. When I started, I think, investing a while ago, it would take 6, 7, 8 years to go from an idea to the clinic.

Now, across our portfolio, routinely, this happens in two, three, three and a half years, which is an incredible improvement. And the drugs that are being developed are truly impactful. Again, not to keep going back on the GLP 1s, but everybody talks about it, so it might be an easy thing for your audience to understand.

These drugs are truly impressive in terms of the effects they’re having, not just on obesity or diabetes, but a lot of other diseases. So, so I think this has been really we are at the cusp of a convergence of a lot of factors that are making this industry really impactful. Now, it is still expensive to develop these drugs, of course, it is still, we still need to figure out, particularly in the U.

S., the affordability for patients. And I do think there needs to be a proper societal debate about how insurance works in this country. Obviously, I’m European, so I shouldn’t, I shouldn’t talk about this. Yeah, but it’s a, it’s a very complicated topic. That’s the problem. So for the, for the normal average public, it’s super hard.

And it’s easy to obviously paint the drug companies as the bad people. And there’s been some bad behaviors for sure. We mentioned you Mira. Yeah. But I do think this industry fundamentally wants to have an impact on patients and develop good drugs. And, and they need to be given the opportunity to do it.

I think we could talk about yeah, that’s a very long topic as well. Absolutely. Next 

Philip Hemme: week. Yeah. We, I mean, we talked about it just for your information, also for the audience. We talked about it with Tim from having where the episode is not released yet, but we thought quite a lot. And actually exactly about this, because.

He is quite active in the U. S. without being worse. And making a lot of returns in the U. S. But at the same time as British, he’s a very strong French French anchor as well. Yeah, his wife is French. And he speaks perfect French, actually. And he speaks, so he’s also like, he was a bit, I mean, not schizophrenic, but a bit like, on one hand, okay, we need all the benefits.

But on the other hand, as a patient, it’s like, actually, what we do in Europe is, on the drug axis, it’s also not that bad. I said it. Same on like. But what I find extremely difficult and maybe you can comment on this is like, is, is where to, if you need to take a, basically a decision and, and what’s, what’s the like close it, not ideal, but like, what can be improved?

Because at the end, I mean, of course we need to find a solution. Of course we need to make it affordable, but just, I think what’s, I mean, at the end, it comes down to, I don’t know what exactly for me, I feel like it’s. It’s basically on like the margin where it’s, the key thing is saying, are you talking about 20% EBIT for big pharma per year, or should it be 18 or should it be 15?

To me, I think it boils on a bit to like, 

Otello Stampacchia: yeah, I don’t 

Philip Hemme: know if 

Otello Stampacchia: we rewarded as well, but, listen, I think this could be hours, obviously. It is a super important topic, so I’ll try to address it and, and I’ll make a couple of comments. I, I, I’ll start from the point. I don’t know if you want to regulate an industry that is so innovative as a utility, right?

If you say, okay, you should have X percent profit margins, I think they’re going to say, is it possible to regulate? Like, well, no, no, you could, you could, I mean, but, but obviously very difficult. And there’s a lot of second and third order consequences that are probably even hard to predict. I will make a couple of comments.

Maybe one is that I think the social contract needs to be understood better by all parties involved. And, and the social contract is. You society give us a protected monopoly for these innovation that I will eventually bring to the market. So I will make the investment in that innovation at the end of that protected monopoly, which is X years, right, right now with the IRA is actually quite short on it.

And by the way, there’s a whole conversation about small molecule versus biologics, which is completely insane, but let’s not go there. So at the end of that protected monopoly, that innovation would be available in perpetuity to society forever. At much lower prices. So conceptually it’s a great social contract.

There been distortions, you mentioned companies who, who extend their patents for a long time. I think that is a, not, is a behavior that should be fought against. The other thing that’s very important is that the, the price of drugs actually doesn’t go up as much as people think. And hospitals also never go generic.

Right? And the inflation of hospital costs and, and, you know, just billing on patients is, is actually much worse than drugs. So that’s the second comment. The third, the third comment is that in this country in particular, obviously, I lived a lot of my life in Europe. I still spend a lot of time in Europe, obviously.

But in this country in particular, there’s a real issue about the way health care insurance works. Because take the average European country. It’s very often going to be a national health insurance program, which means the national health program will count on you being a patient for your entire life.

So as a result, you can do an amortization of the cost of the therapy now versus your benefit in terms of your quality of life, your, your length of life for some diseases. For a much longer period of time. So you can amortize the cost over a longer period of time in the U S that doesn’t happen in the U S where you have is most insurance because us, obviously it’s a huge country.

People change insurance and your insurance is more often than not provided by your employer or private insurance. So insurance companies shake the term and yes, they made a calculation that you’d be with them for two or three years. So these causes all sorts of challenges. And also there’s this you know, Purchase benefit managers is PBMs whose whole reason for existing is they’re, they will extract a discount from the cost of the drug from the drug manufacturer versus the employers.

The problem is that this actually pushes them to a very high list prices because then the discount looks bigger, their profit is bigger. Versus an actual net cost, which is lower. So, you know, there’s a lot of distortions in this country. At the same time, I think it is untenable. that basically the US system continues to pay for innovation for the rest of the world.

That’s just not fair for the US. It’s not fair. So I think some kind of equilibrium needs to, 

Philip Hemme: but you, Geoff, I mean, you just said that it’s something around, if you calculate it on three quarter or 80 percent of the cost of it covered by the US. 

Otello Stampacchia: Right now, in terms of profits this country is probably the majority of the overwhelming majority of the profits of all the pharmaceutical sales in the world or in the US.

Again, the country also reached the benefits, right? A lot of the research and innovation is here. These are highly earned, high earning jobs. So they pay taxes. There’s a lot of investments. I mean, look just at this city, biomarket investments. I mean, go look at the seaport where all these pharma companies, including European pharma companies, AstraZeneca and so on, have been making as investments.

So the U. S. also benefits from that. And by the way, they will continue to benefit because this industry is actually a very strategic industry from a lot of perspectives. But again, very long topic and and I think you should speak to people who are better equipped than me, but it’s a 

Philip Hemme: fascinating topic.

I will just mention also for the audience, what you were saying about the hospital costs not going down versus technology slash drugs that go down. Reminds me of Peter from Kolshevsky from AI Capital. And Peter has written and said a lot about this. He is very into, as he should, absolutely, but very into one side, but I think he goes very deep.

And at least it’s very well researched. I would say, I mean, not biased, but very opinionated and taking one side. We all agree. Very 

Otello Stampacchia: interesting to see. No, and Peter, to his enormous credit, has spent a lot of time researching the topic, trying to make it available to a broader audience. He’s obviously a fantastic thinker.

So, and he should be commended for trying to explain this. It’s a very difficult topic to explain because the, the slogan from, you know, one side is the, the drug company is profiteering, right? That’s the quick slogan, which is very catchy. And our answer is war and peace, 850 pages. I mean, that’s obviously very difficult for the general public, you know, and 

Philip Hemme: yeah, anyway, interesting topic.

It’s a great topic. We could talk a lot. And I mean, amazing first part of the conversation. 

[00:29:19] Personal background from Italy

Philip Hemme: Before continuing this, I want to take a bit of, of attention to more your personal history also for our listeners to understand also where all these, all these comments come from and where you come from. And especially as you mentioned, I mean, we’re here in Boston, you grew up in Italy, started studying Italy, lived quite a lot in, in Switzerland, Geneva.

No, I think most of the time in Boston, but still quite a lot. Try not to be in the winter though. You prefer to ski instead of the. 

Otello Stampacchia: Yeah, I do prefer to ski in general, but yeah, the winter is a little bit tricky. I’m from the South of Italy and I still have a, and obviously, as you can tell, I don’t have a lot of hair cover.

But yeah, everybody, I mean, it’s a wonderful city to be, particularly this time of the year. It’s absolutely amazing. Yeah. Absolutely. 

Philip Hemme: And can you tell a bit like in short or expand a bit on your background of what’s kind of free omega and maybe some of the lessons there you had as kind of, as I said, the European, a bit two foots on both continents, especially connected to bio, biotech.

Otello Stampacchia: Yeah, I’ll, I’ll can do a quick bio. So yes, obviously I studied science quite a bit. So I actually have a couple of PhDs. Doing my PhD in Switzerland, I did three years of patent law, which was very interesting for me at the time. Then ended up working in an investment bank. So I was at Goldman Sachs for, for a few years in London in the mid to late nineties.

And that was a period that, that saw a lot of pharma M& A in Europe and Goldman was working on that. So it was very exciting. Yeah. Interesting. Then eventually I joined a very large private equity firm in the Netherlands called Alpinvest Partners. They’re now a part of Carlyle, which is a, obviously a big buyer shop.

And there As a big worth. Yes. Yes. Yes. So, so this yes. They’re all these very large private equity shops have figure out in a sense that this is a very unique asset class, which is hard to, Invest in and develop without some very specific competence, like, you know, what we have been trying to build.

Exactly. And interesting enough, a lot of our peers, ourselves included, have been approached for some kind of partnership or whatever, acquisition from one of these shops. Because, you know, it takes, I mean, the joke, and it’s not really a joke, is that I’m, I’m, you know, I’m in my mid, whatever, fifties. And I’ve been doing it now for 25, almost, you know, longer than that years.

And I’m getting good at it now. So and people laugh when they hear it, like you said, but, but it’s true because it’s a, it’s a very long apprenticeship process and, and persistence in this industry is really disproportionately rewarded. But back to your question about my life. So I ended up at Alpinvest and I was there in the Netherlands which was a wonderful place to be and a wonderful time to be there.

I spent a bit of time in our New York office as well. And I had two jobs, actually. One was to build a investment portfolio on the healthcare side. But then I was also helping the fund of funds team on building some kind of framework analysis for investing in venture funds. And so they gave me a lot of exposure to, to, you know, different styles of investment team from, from these GPs and these venture funds and different geographies and different type of companies that they were investing in.

And the thing that really struck me is that more often than not, drug companies were the most consistent sort of exits. And that looks simple enough, but I want you, when you start digging what’s gonna be needed to be successful about investing in drug companies, it’s actually very hard. So it’s an easy recipe, but very hard to execute.

It’s almost like Italian food. So the, the, the recipe is very simple. I love pasta. Right. So do I, obviously, as you can tell. But so the recipe is relatively simple, but the quality of the ingredient is absolutely essential. And if you mess up one ingredient, it’s working on True carbonara from, ah, yes.

I still don’t manage to get the eggs perfectly well. You gotta get the guanciale. Guanciale is the secret. I have the guanciale, the egg part at the end. Ah, yes. Well, we can talk about that as well. I mean, it’s one of my favorite pasta, actually. So, so I decided, okay, this wasn’t going to be necessarily the place to do it.

And, and actually just a few weeks before I got married I decided to kind of spin out. And, and I became a consultant for a few other companies for a few years to just raise money. And then we started raising a very small first fund, we did it in 2004 out of Switzerland. And then, you know, try to raise capital in Europe at the time was difficult I think still is.

I don’t think there’s a real appreciation in most institutional investors portfolio for the asset class. And certainly there wasn’t at the time. I think still is there. Yeah. I think, well, it’s changed a bit. Changed a bit. But it’s still hard, I mean, It’s funny. Most of the conversations I used to have, and I still do to a large extent with European investors that they don’t understand the asset class.

And okay. I’m sympathetic to that, but my joke to them, and some of them get upset actually, when I say that, but my joke to them is that, well, If you were to understand this asset class, what would you need me or our firm, right? I mean, we have, I don’t know, 13, 14 PhDs here, MDs and all that. And, and, and, and we don’t look at this counter cashflow.

That’s a relatively commoditized tool to look at the you know, private equity companies. We look at a one drug versus the other, the quality of the management team, clinical development strategies, what are potential buyers, competitive landscape, blah, blah, blah. So it’s very complex. But once you handle that complexity, there’s an incredible note.

to protect from, from competition. Also, and I don’t know if people really appreciate Returns are just there. And the returns are there to a certain extent, independently of market conditions. Because if you invest, and again, this is something that I don’t think the industry does a good job of explaining to our own investors.

We try, hopefully. But if you have a drug that addresses a very severe medical need in patients, And you show data that demonstrates an impact on those patients. Well, that is the most uncorrelated asset class on the planet. You don’t care about China. You don’t care about the war in Ukraine. You don’t care about inflation.

You care a bit about inflation. You don’t care a bit about unemployment rates compared to other asset classes, I guess you care. Wait, the tech industry, a huge part of the tech industry is actually much more subject to those macro factors than, than drug companies are. And 

Philip Hemme: even to our discussion, you see it today.

I mean, there you go. Even with uncertainty, nobody 

Otello Stampacchia: cares. So, so I think the, the, the, again, if you invest in this specific Aspect of our industry, which is drug discovery and development. There’s a lot of uncorrelated returns that can be met if you can pick the right drugs. Right. And, and actually, maybe I should have started with this.

One of the statistics we are proudest of at the firm is that over the last 20 years, we’ve been involved with companies that have launched 50 drugs on the market. That’s a huge number. And obviously that has had an impact on patients, which makes us very proud, but it’s also had an impact on our investors because of those exits.

So, so I think it’s a real unique opportunity to have an impact on patients and society providing uncorrelated returns to your investors and work in a very exciting field. So that was very difficult to explain in Europe. I think we, we, you know, probably are doing a slightly better job of that now, but there’s still a bit of a reluctance there, to be honest.

U U. S., The U. S. investor community has always been much more prone to accept this type of investment. Obviously, a lot of endowments, foundations, pension plans have been investing in this sector for a long time and they’ve done quite well out of it. And with 

Philip Hemme: the venture capital basically being started here.

Correct. Since you can write in the 70s. Their marginal 

Otello Stampacchia: background and everything. So they’re more familiar with these things. Yes. So we opened a Boston office here in 2007. I eventually decided to move here myself. And honestly, I should have done it earlier, to be honest, in, in, in our life. And now I spend my life a little bit, you know, across both parts.

But, but it’s been quite rewarding. I think it’s truly incredible, particularly in Boston what can be done in this ecosystem. I mean, my My comment to some of my European CEOs is that you need to start planning to have a presence here as soon as you can, because the capacity of recruiting exceptional talent in this town, in the U.

S. in general, but in this town, is truly incredible. And it’s because, you know, at the end of the day, it’s a huge city for biotech, but it’s a small city overall. So we all run into each other, constantly, like literally, on the way over, I saw somebody that I knew I had to say hello for five minutes. So, and it happens to me every day when I walk from my apartment.

So, so it’s kind of a truly unique ecosystem, particularly for therapeutics. 

Philip Hemme: That’s amazing. I mean, maybe just, I mean, if people can see with the view, but basically, I mean, if you have Kendall square there and you add seaport, I think that’s basically like, I would say maybe 20 percent of the world biotech or something in this area.

And pharma. Yeah. Biopharma, biotech. Yeah. Yeah. In like, whatever, a few square miles. Yeah. Yeah. 

Otello Stampacchia: Which is so dense. I saw a statistic, and honestly, I haven’t been able to find it again. I need to go and do a better job, but I saw statistics that I believe was 2022 or maybe 2023, or maybe 2021. Boston received more therapeutic drug, you know, development investment than the rest of the U.

S. combined that year. I mean, that’s an incredible statistic. Yeah. So, so yeah, there’s a huge concentration, there’s always like almost every other week, there’s a big conference on, you know, cardiovascular cancer and stuff like that. Always the big ones are ASCO and ACR, but, but there’s much, you know, more focused conferences here.

And you know, it’s a small city, as you said, right? So you bump into each other and that kind of Brownian motion is very conducive to business because Transcribed It used to be, so if I can take an analogy for a second, it used to be, so you had the hardware and the software, right? The hardware is the technology improvements, so CRISPR, drug discovery, X ray, crystallography, all that stuff.

The software is that people can transform those technologies into drugs. And that drug development expertise used to be locked up within big pharma companies, like up until I would say 10, 15 years ago. These people would not leave pharma. They didn’t think you could do a good job developing a drug in a small biotech.

Now that’s completely changed, right? These people are actually very happy to leave pharma because they don’t have the bureaucracy in a lot of cases. And biotech companies can actually now raise the money to do the proper drug discovery and development work that they need to do. So, there’s been a much more fecund intersection between those two industries that used to be, you know, not necessarily as joined to the hip as they are now.

And in this city, you see it very clearly. I mean, literally the amount, I mean, there’s head of R& Ds of pharma who come here to our office almost every day. So, and we learn from that and we learn what they need and we try to put it together for them. So, it’s a very symbiotic ecosystem. 

Philip Hemme: That, that’s a, maybe on the, what I like with your, yeah, it’s a great submarine lessons on your background.

[00:41:10] Getting into venture capital

Philip Hemme: Just to go back. I like this part. I was always curious when I saw your, like your track or whatever, the different steps, I was curious and I was missing a bit the link of what brought you into venture into like starting your own venture fund. But now I kind of get it. But can you tell this like, and you said, you just said like it took you, I mean, now you’re just starting to be good, which we must be about Warren Buffet to say, yeah, 10 years ago, , I wasn’t sure what I was doing.

It’s true though. I guess. I mean, 20 years human learning a lot, but can you tell maybe from a, if you remember how it was basically 20, I mean, 20 2004 to thousand 10, like. Or some of the lessons you had of like moving into venture, especially, I think a lot of people, I guess, a lot of people listening to us want to go into venture, I think it’s a wonderful world, I think it’s also new ones, but maybe what was some of your, of your lessons there, like, 

Otello Stampacchia: Yeah.

And to, to be honest, I always, I was always excited about the idea of getting into venture and I ask advice. So the one thing I would ask people is advice, but, but back to your question and say, and there’s one particular person who was very helpful in providing advice, Kate Bingham at SV Life Sciences that you probably know.

And so she told me, I was still doing my PhD and I asked her, well, you know, I would like to get into venture. She had just got into a venture fund a couple of days, years, sorry, before me. And she, she told me, well, there’s a couple of ways you can start as a junior person with a scientific background. That was a while ago.

That was a long time ago. There was nine. What’s he? Four gunmen. What are you working? Everything else. Wow. I was still doing my PhD. You’re already thinking about venture? I was already thinking about venture. Wow. I wasn’t obsessed about it, but I enjoyed the concept and, and I wanted to figure out how would I get into it.

Philip Hemme: Yeah. 

Otello Stampacchia: She said, well, you know, you can start as a junior analyst or whatever with a scientific background, but then you might end up being pigeonholed. In a research only kind of role and I was already consulting for a few venture firms and banks at the time and I saw that happen in me. It takes very long to.

And it would take very long. Analyst associate. Or, right. Or you go out and learn something after your PhD like another skill set. So I went out and I joined a bank to, to learn because I knew nothing about finance. I didn’t know how to use Excel. Now I can probably make coffee with it. So there was very good advice.

And now, you know, the lessons learned, you know, there’s a lot of lessons. I mean, I mean, this is the ultimate Renaissance job, right? You need to be good with people. You need to be good at analytics. You need to have a lot of content because without good content, it’s very hard to make good convictions at good investments.

You need to, you know, be sometimes brutal because sometimes there need to be changes in a company and, and they’re not fun, to be honest. And if you avoid that discussion, no good things happen. But I like this, this aspect of having to learn to do a lot of things. And obviously I like to continue learning.

I also like the impact that he has, as I mentioned earlier, but you know, lessons learned, you know, so many, I mean, you mentioned, yeah. Yeah. So, I mean, hiring the right people is essential. In my opinion. So you didn’t talk about your co founders because I, I think that was just me at the beginning really.

Yeah. Okay. Yeah. But eventually, yes, I had, I had a few people joining me and, and at the beginning probably there weren’t the right people. And then eventually we, we managed to figure out how to find the right people, but there’s also natural. You’re just the only founder left still, or like 

Philip Hemme: operational, no?

Otello Stampacchia: Yeah. Yeah. I’m, I’m, I’m always a bit operational. I’m trying to be a bit less operational and focus on other things. But Yeah. So the history is that really it was me for, for a few years, like two or three years. And then we started adding, you know, general counsel, CFO, some junior investment professionals.

And then eventually as we managed to grow, we, we add the more senior people and so on. So, so I think again, the evolution can be fast or slow depending on where you start. Again, lessons learned again, I should have probably moved to the U. S. earlier because it would have allowed us to You know, scale the organization and the fundraising faster, and that would allow us to hire a certain type of team earlier, but you know, there’s also personal choices, of course.

I mean, the other lesson is don’t fall in love with your investments. I mean, obviously we need to be passionate about it. Because without passion, nothing happens really in our business. But in some cases you need to take a cold, hard look at your investment. At the end of the day, we are investors. So our job is to make a profit.

For the people who entrusted us with their capital, and to help patients. Yes. No, things are not mutually exclusive. Yeah. On the contrary. But you need to keep in mind that you cannot stay on a board forever. You cannot be an investor in a company forever and so on and so forth. So that’s very hard.

Hard scale 

Philip Hemme: of like how much detach, how much passion you put and how much you need still a bit detachment. Yes. I mean, I have the same problem with my own companies I’m building is like, it’s super 

Otello Stampacchia: hard and and it’s not something you learn quickly. You need a few very difficult lessons early on in your life.

And I did that. I had quite a few mistakes early on that made me realize how important this is. The other thing is, is. You know, working as a team is very important because nobody knows everything and nobody knows everybody. So trying to have a culture where it’s not just one person making the investments from the beginning to the end, but you have a real team around you that can also exercise dissent.

Because, you know, it would be super easy for everybody to just do whatever the senior people say. But sometimes you gotta really listen to objections. And again, that culture is quite specific. And I think it did help me as being in the Netherlands for a few years because the culture of Alpinvest, and I don’t know if you know many Dutch people, but they’re incredibly straightforward.

So to, to a certain moment I was actually showing results. So to a certain, I mean, I remember my first investment committee at Alpinvest where they’re really kind of went at each other and I say, Whoa, okay. So that was, but you know, it’s, you need to encourage truth seeking behavior. So I think we try really hard, certainly encouraging the junior team to hear, to, to express dissent.

Because at the end of the day, you shouldn’t care about how you’re saying something. What matters is what you’re saying. And this is a lesson that is very hard to accept for a lot of people, but you know, we keep trying. So again, there’s a, there’s a lot of other lessons. I mean, this could be a whole kind of section by itself, but fundamentally perseverance pays off in this business.

Yeah. And perseverance also in maintaining relationships. Sometimes, you know, we say no to companies for years before we decide to invest. And for some management teams, that is very hard and understand that I had the same thing on our end. We had investors. We invested with us. Exactly. So, so at the end of the day, you need to invest in the relationship.

It shouldn’t just be all we’re raising money within the next few weeks. You know, you’re out. These are, I mean, in this industry, you have relationships going decades. So you got to invest your time using that timeframe. 

Philip Hemme: Yeah, that’s, that’s great. That’s great lessons. I think. Yeah. But I think as every lesson as well, I mean, what you just, it’s hard to apply them like, like individually.

I think they also go into a bigger package and what you just said about giving super honest feedback. Yes. But what you just said also, like if you know the person and you have trust, the honest feedback is very different versus. If you don’t know the person, you just give a super honest feedback. 

Otello Stampacchia: So that’s super hard, right?

I mean, one of the things that I hear a lot from entrepreneurs is, well, you know, we like to understand why you’re investing. Well, if we are investing, I don’t think they care why we’re investing, but they like to know why we’re not investing. And it’s a, you know, it’s a fine line, because we like to be thorough and we don’t like to obviously ghost people, but I don’t think.

We can be super honest either. Because people don’t take it well. And there’s real game theory about this. Where, you know, you want us to be honest, which I’m happy to do. But I see more often than not that then ten years later, when you’re doing something that I’m really interested in, you’re not going to talk to me.

Because you didn’t like the feedback I gave you ten years ago. Even though the feedback might have made you who you are now. It’s the opposite as well. I mean, yeah. So, so it’s kind of funny and I hear this advice from a lot of my peers that entrepreneurs enjoy being, you know, getting feedback from VCs and it’s true.

I don’t think they would enjoy the full feedback, and that’s a challenge. And then it’s a gradient thing where Of course, and again, I learned too much from the Dutch, maybe, so I kind of lost a little bit of my Italian kind of nature, I guess. But, but it’s, it’s a dilemma because it would be my instinct to be very honest, but the reality would be incredibly damaging to me personally, to my relationship to the firm.

So sometimes that you’re going to say, well, you know, it just wasn’t a right fit for us at the time, whatever that means. So, so there you go. Probably I shouldn’t have said all this, but 

Philip Hemme: yeah, I like, I mean, for anyone it is, if there’s entrepreneurs here, it’s, if you’re going to fundraising, it’s, it’s hard to go, but, and I’m very sympathetic also from an experience.

I mean, it’s, it’s complex. I liked everything and a lot of good lessons. There’s so many things we could discuss. Well, life is long. Life is long. Then we have a few minutes left. 

[00:51:27] Decision to move to Boston

Philip Hemme: One thing that’s maybe on, on this, on the, like, you should have moved to Boston earlier or to the US, the US in general, but Boston, like, I can also, I mean, I can quite relate to that.

And I’m wondering on your side, how you. You mentioned quickly, there’s a personal side to it. That’s what I think at the end, that’s a big, that’s the hard part. I mean, as I told you before, but I studied at BU, somewhere there, I finished my studies here. I worked at Kendall just 10 years ago. But at some point I just, I moved back to, at least I moved to Berlin to start a company.

I’m still in Berlin. I come to Boston quite often and it opened my mind as well, et cetera. But Ideally, I would like to split myself or whatever, but that’s also very hard. Like, and I think, I mean, at the end of the day for me, it was also quite personal choice. If I, if I look at basically, if I listed everything kind of more trade off in Boston, for me, to my personal taste and my personal life, everything was better in Europe.

So everything from, I don’t know, family, close to family, being in Boston. I guess you can find good pasta anywhere, but I mean Important topic. With the same level of pasta, of food, and Just above Italy here, so it’s all, it’s all good. I mean, but food in general, I mean, culture, architecture, infrastructure, whatever.

Like, a lot of things. You can say healthcare, social, whatever, a lot of things. But business. For business, it was clearly way above. I think for anyone in biotech or in tech, if they’re in Silicon Valley, it’s clearly above. I’m wondering on you, maybe on you, how did you come to that personal decision, like, did you just prioritize business over personal life?

Or how, what kind of trade off did you have to like, to face? 

Otello Stampacchia: Yeah, I mean, Well, all the trade offs that you just mentioned, right? So, I mean, first of all, I didn’t come to the decision all by myself, obviously. So, if you have a partner in your life, that partner needs to be part of the decision. I mean, maybe a bit of background.

So, I think I moved 1, 2, 3, 4, 5, 6, 7, 8. I moved 8 times in my life. And by moved, no apartment within the same city, countries. Countries, yeah. And it really started after my undergrad, maybe even before that because I moved from a little village to go study close to Milan. And that was very important for me.

It was a huge decision for my family. We certainly couldn’t afford it. But it was also a huge period of personal growth, it opened up what was a very small provincial mentality of mine at the time and exposed me to, you know, still a small university town, but very different scale. So in a sense, I’ve always been more perhaps prepared for that than the average, perhaps, person.

That doesn’t make it easier. I remember, Doesn’t make it easy, but makes it probably easier. Correct. No, it’s very good actually. Thank you for saying that. You’re right. It doesn’t make it easy, but it makes it a bit easier, at least mentally. And also, to be completely honest moving is a little bit easier now also because I’ve achieved a certain level of comfort.

So 

Philip Hemme: stuff 

Otello Stampacchia: that when I was 20 or 25 or 30 was hard because I couldn’t afford to do it in comfort now is a lot easier. So, so there’s a gradient there as well, but, but I’ve been able to achieve the level of comfort. And listen, I work very hard, but also because of the opportunities that have been given to me over time by my parents who insisted on education, my college, who also was a great place to then be able to network, learn English, whatever.

And, and back to your question about these trade offs, this remains the country that gives you a lot of opportunity. So I’m very grateful to that. And, and, you know, the scale that the business has reached would not have been possible. Without here, without moving here and, and, and build a real presence and, and, you know, establishment here.

So, you know, you got to work on your priorities. Was it not impossible or not possible as fast? Just as a Probably not possible. Not possible. Okay. I mean, it’s hard to do the counterfactual. So it’s hard to prove the reverse, of course. But, but, yes. But, but I personally think it wouldn’t have been possible.

Okay. That said, I think, It is a very personal decision, right? And to be honest, there are a lot of factors, right? You have kids, are they going to school? What do they I was about to ask. So I don’t have kids. Okay. I was about to Because 

Philip Hemme: his very dear wife is a dietic, so most of it would fit well.

We’re talking about kids and that’s where like, that’s where moving becomes like 

Otello Stampacchia: Again, this is where this country is an advantage in a sense, because, not because their childcare policies are very advanced, not because of the, because of school. No, but there’s, there’s something to be said for a unified, you know, currency culture.

The school system is more or less, I mean, obviously it’s highly stratified depending on your income, but it’s more or less the same. So you can move country across the country here and have a fundamental understanding on how your system works. Whereas, say you want to move from Berlin to Bern in Switzerland.

As you know, and that would be a very difficult decision. So, so I think that there’s a lot of corollary benefits that I don’t, I don’t think people understand about a single legal system, a single currency, a single language, a certain way of doing business, a single listing, even for our companies. Whereas you look at Europe and there’s all this incredible fragmentation and listen, don’t get me wrong.

I love being in Europe. I mean, I speak three or four languages. I lived in seven, eight different cities, all that. But this country remains quite incredible when it comes to the opportunity that it provides and the ease with which you can then take advantage of that opportunity. Now, hopefully that will continue to be the case for a long time.

I’m already starting to see challenges with that in the educational system. But back to that decision, you know, in retrospect, it was the right thing to do, but it was a very difficult decision, even for me at the time. So I don’t think it’s easy. 

Philip Hemme: Difficult decision on the way as well after the first sort of like stay or come back or I guess over the 20 years I can remember.

I 

Otello Stampacchia: remember the first winter here, which was this incredible winter, the first full winter here. Where, you know, we had an apartment and so on, a small apartment we were renting. And it was that period when I think it did a hundred and something inches of snow in the park and everything. So every weekend there was a blizzard coming in.

And at the time I wasn’t aware of Canada goose and all that. So it was very interesting for me as a, as a winter. So I, I literally three, four weeks in and say, Oh my God, this is, this was the worst decision of my life. So sometimes you got to stick with it. So that’s the other lesson. You got to stick with it.

Cause again, perseverance is probably the single most important trait if you want to succeed, particularly in an industry like ours where it takes a long time to become good at it. 

Philip Hemme: Yeah. 

Otello Stampacchia: You got to persevere. 

Philip Hemme: It’s amazing. It’s amazing. It’s amazing how, I mean, how The whole discussion, everything fits together from the early days of Perseverance, the like, longer term, already like, commitment to science, already interest in VC to, I like it a lot.

Oh, there’s also been a lot 

Otello Stampacchia: of luck, right? Sorry to interrupt by the way, but I don’t wanna, I don’t wanna make it look like there was this great plan, right? And it’s always been like this. It’s been a lot of zigzags and, and, and the people you meet along the way are very important. So I wouldn’t be here if I hadn’t met Kate, if I hadn’t met the person who gave me a job at Golden.

So Kate brought you the iBio deal. Yeah, she, she brought me the iBio deal. Exactly. Very grateful for the case. She’s, she’s really a person I look up to a lot in this business and she’s done really, really well for herself, for her investors, for her patients. So it’s important actually to identify these people that could make a difference in your life.

Because I mean, literally I got a job at Goldman because I ended up sitting next to a person at the conference. So this is where being Italian is a massive advantage, right? We talk to everybody. We are more or less inoffensive. Nobody hates Italians really. Maybe the French every once in a while, but, but but, but there’s, and I speak a few languages.

So again It doesn’t advise I would give to people who are, you know, in school or thinking of a career. Doesn’t matter what you end up doing, but being able to relate to people, being able to connect with people, being intellectually curious, and then persevere. You’re gonna go far in life. That’s, that’s important.

But again, now it looks like a good ending because it is, I mean, I’m pretty happy as a person. No, I mean, no, but mostly probably about like, yeah, I mean, there’s always something to do. I mean, it’s, I’m not a person who kind of stops. Oh, wow, we’re, we’re good. We’re done. I really don’t have that mentality. And that’s a challenge for some of my co workers because I’m never super happy, but I’m happy with what we have achieved, but we can do more, of course.

But, but I think you need to persevere. That’s in free goods, happiness. We can 

Philip Hemme: do a one way session. 

[01:01:42] Thanks for listening

Philip Hemme: I think, I mean, I’m just seeing the time and not, you know, you have a hot stuff. So amazing. I think we should do a second episode at some point. Absolutely. And, Thank you. I had so many more things I wanted to put there.

Thanks a lot. Thank you. Really a pleasure. Thanks very much. Wow, that was nice.

Thanks for listening to the end. I’m impressed by the clarity of Otello, especially on the exit side of things. I’m also very inspired by his career decisions and how everything fits together, especially when looking back over a few decades. If you also enjoyed this episode, please hit the like, follow review button, any of these actions.

would help us a lot. I would also be curious to hear what you think so I can further improve the content. So if you could leave a comment wherever you are or shoot me an email at philip at flood. All right, see you in the next episode.