Biotech Investing At The Earliest Stages With Santé Ventures' Omar Khalil

0:03Omar Khalil: Welcome back to the business of biotech. I'm your host Ben Comer, chief editor at Life Science Leader, and today I'm speaking with Omar Khalil, managing director at Sante, a venture capital firm with over$1 billion in managed funds, including a$330 million fund, Sante's fifth, which closed in October. Sante is focused on early stage life sciences covering biotech, medtech, and health tech. Omar, however, is exclusively focused on biotech and therapeutics at Sante, and I'm thrilled to have him on the show today to talk about the work he's doing at Sante, not just writing checks, but also working with scientific founders and entrepreneurs to form new biotech companies.

0:46Omar Khalil: We'll talk about the current investment trends and the shift from biology risk to commercial risk, the funding options for biotech startups prior to clinical data, what investors look for, and why he considers targeting previously undruggable targets a compelling investment proposition. Omar, thank you so much for being here. Thank you, Ben. It's great to be with you. Yeah, I'm excited to talk to you. But before we get into Sante and what's happening in biotech investment, I want to ask about your background. You started out as a bioengineer at the University of Michigan and focused on tissue engineering.

1:27Omar Khalil: What excited you about that field? them. Yeah, you know, it's, it's interesting. So when I was, when I was in high school, you know, I remember, you know, I was always interested in, in the human body biology and kind of really the, the integration of engineering with, with biology. And, you know, the, actually, I remember it was, you know, in the mid nineties, if you remember, there was the, the famous, I'm blanking on the name of the mouse, but there was the famous image of the ear grown on the back of a mouse. And that just fascinated me. I thought that would be really amazing to work on that type of technology and the implications of what that could have on tissue engineering, providing tissues for patients across a variety of different diseases and indications.

2:22So that's what pulled me into bioengineering initially and, you know, had an incredible time, you know, in my training and was going down the research track. I then had a professor who was an entrepreneur of his own right and had raised some initial Series A capital, which, again, back 25, 30 years ago, this was not necessarily the common path that most faculty were taking at the time. and he introduced me to the concept of venture capital. What venture capital was, he actually brought in the venture capital firm, the investors who had backed him into one of our classes and they spoke about the investment model, the asset class, and that really got my imagination working.

3:17How I could bridge both this technical background with an idea of how we can how you can use that in the finance world to really bring new technologies to patients and to the market. And that was that was the the seed that got planted early on that, you know, put me on this track.

3:36Omar Khalil: So you caught the entrepreneurial bug after being introduced to these VCs, which I think the University of Michigan has something of a reputation for being early kind of on the scene of thinking about translation and tech transfer and, you know, you know, really putting those those inventions that were coming out of the university into practice. Right. Absolutely. Absolutely. No, it was, you know, it was it was a great environment that really encouraged commercialization, translation. And, you know, obviously publications are important, but the opportunity to take those, you know, those breakthroughs and those findings and, you know, package them into products that ultimately help patients and bring those to the market was something that the university encouraged from, you know, certainly when I was there.

4:25So it's been, you know, it's been important and really kind of formative for me to be exposed to that in my early days.

4:33Omar Khalil: So, OK, then you graduated from the university. Did you go and you had a previous stint at Sante? Was that immediately after school or no? No. So actually, I started my career with McKinsey. So I went to McKinsey in their pharma practice. And that was really the opportunity for me to get a grounding on the business side of the pharmaceutical industry and the life science industry. And so I spent several years there. It was a great training ground, great opportunity to really understand how the industry works, what drives value in the industry, what ultimately these large companies are focused on in terms of the biggest challenges that they're facing.

5:19But I always wanted to go to venture. And that was ultimately what brought me from McKinsey to Sante initially. So I joined Sante originally about 20 years ago when the firm was first formed and had the opportunity to be a part of the first couple of funds at Sante down in our headquarters in Austin, Texas.

5:41Omar Khalil: And then you left Sante and went into industry and worked in some leadership positions at Baxter, at Baxalta, and Kaleo before rejoining Sante in 2020. Is that right? That's right. That's exactly right. So it was a combination of factors. One, from a family perspective, was starting to have a growing family and needed to get back to the Midwest at the time. But then at the same time, I felt there was an opportunity for me to really get more operating and transactional experience and really being on the other side beyond just kind of having sat in the consulting and investing chairs, chairs, having the opportunity to really lead a business, lead an organization, understand what it means to bring drugs to market was something that was going to continue to advance my understanding of the field.

6:39And that's something that was something that I was searching for and felt like it would even make me a better investor ultimately. Because at the end of the day, I think what's important as an investor is certainly understanding how you can generate a return, but also, you know, fundamentally being able to roll up your sleeves alongside the entrepreneurs, the founders, the CEOs, the management teams, understand what they're dealing with on a day-to-day basis and work constructively to ultimately get to the kind of the same goal. So that, you know, that decade that I took between stints at Sante was, you know, really helpful for me.

7:20It helped me really connect the dots between the foundation of what I got from McKinsey and Sante and really understanding, again, how you can drive early-stage companies to important value, creating milestones. But then understanding operationally, how do you do that? How do you motivate a team? How do you engage a team, really develop a leadership team and make sure that they're ultimately focused on the same mission and objectives as the company? Yeah.

7:56Omar Khalil: And I asked about your industry experience and I'm sure you got a taste, you know, of the industry dynamics and interworkings at McKinsey and the first time at Sante. But it strikes me as pretty important, you know, for someone working in venture capital to actually have those real experiences in, you know, the company four walls. And if nothing else, to just give you that perspective of what it's like for the people actually in the company. And I do wonder if that helps you make decisions, you know, about the companies that Sante is now investing in. Yeah, absolutely. I mean, I think it gives you a different perspective.

8:39Now, again, you know, everybody, every company is going to be focused on different targets, Yeah, absolutely. So there's a variety there. But honestly, more than anything, it's the empathy for the leadership and the CEO and understanding what they're dealing with on a day-to-day basis that I think has really helped me, you know, I can put myself in their shoes and understand, you know, know, how they're reacting to, you know, the feedback and guidance that the board and the investors are giving them. Right. And how do you make that most practical from their standpoint so that they can operationalize it and really, you know, understand what needs to happen and how do you focus on that critical path with all of the other noise and challenges that an early stage company is facing.

9:27So, you know, I think that's the piece where, you know, having spent, you know, time outside of venture and really kind of being in similar shoes is what allowed me, I think allows me to be a better partner for them and a better investor overall.

9:43Omar Khalil: Yeah, that makes a lot of sense. We'll move our conversation into the investment realm and Sante now. There's a huge focus for a number of reasons that we can get into on mid and later stage clinical data as a key catalyst for investment funding. But of course, biotechs can't get to clinical data without a substantial amount of funding. Many simply run out before they get there. What can you tell me about Sante's criteria for company funding? Yeah. So as you mentioned early on, we are early stage investors. So just in terms of when we get involved in companies, I mean, we are helping form these companies.

10:25And in some cases, we're incubating them. Other cases, perhaps a team is coming to us with an idea, but the company hasn't been formed yet and we're helping catalyze the formation of the company. But we are there really at the earliest stages. And so the dynamic of how you fund early stage programs from those kind of most nascent concepts to ultimately what's going to be valuable and And, you know, either be in a position to go public or be acquired by pharma or even bring a drug to market. You know, those are things that we focus on quite a lot. And, you know, there's a profile that fits within kind of what we're looking for.

11:13I mean, one of the things that we really like is, or actually, I should say, one of the things that we really focus on is, you know, you really need to have some sort of unique biological insight, right? And some sort of unique technology or unique kind of finding that allows you to do something that nobody else has been able to do, right? And, you know, that's the ability to pinpoint something that, you know, the undruggable targets, I know you mentioned early on, we'll talk about them some more. But that's a great example of, you know, where there's biology that has been studied for a long time and has been explored and yet hasn't been appropriately drugged because of some sort of, again, either biological or technological challenge.

12:04and somebody can develop a tool, a system where you're able to really unlock that biology and bring that to market in a way that nobody else can, that is something that creates a moat around, at least for a certain period of time, where it's much harder for others to copy what you're doing and where you have the opportunity to, you know, take it into the clinic. At the end of the day, you've got to get to real clinical data, right? I mean, our business in biotech, you know, in venture capital, broadly speaking, right, you ultimately, you know, your companies want to go and generate revenue and users and maybe even profitability at some point.

12:52You know, in biotech, we don't, you know, we don't really talk about revenue, right? The fundamentals of our business, at the end of the day, is clinical data. And so the best, you know, the best scientific hypothesis in the world is great, but ultimately you need to validate that through clinical data. And the question we ask is, you know, what's it going to take to go from this initial insight to ultimately being able to generate that real clinical data that validates that thesis and then ultimately put you on the track towards FDA approval and registration and commercialization. And, you know, there's some indications where that's, you know, it just becomes, you know, the capital behind that becomes too hard for us to really get comfortable with.

13:41But there's many, many indications where, you know, you have a clear path to clinical POC. You can focus on, you know, you can bring together the right clinical advisors, be creative around biomarker strategies and other techniques where you can really, I pull, you know, extract that insight around that, yes, this is having the clinical and therapeutic effect that we needed to have. And then, you know, be in a position to, you know, go forward from there. And that's, you know, that's one of the ways we really analyze our, you know, the companies that we invest in.

14:16Omar Khalil: So Sante is not going to be coming in to fund a large phase three trial, for example. Can you give me a sense of the typical amount of funding that a company might expect to receive maybe in the beginning of the relationship? Well, Sante itself, you know, are are in terms of what we'll invest in a company. You know, we typically write, you know, there are really no lower bound because we're you know, we'll invest in the earliest stages. So we might put in a million or two million dollars early on. But typically, if it's a full round of financing, we'll typically write$5 to$10 million from our fund directly.

14:58And then we reserve capital to go to, on average, about$20 million per company that we invest in. But we can go up to$35 million or more in a given investment if that's what makes sense for that situation. But that's just from the Sante standpoint. And how we think about that in terms of the overall financing that the company needs is really, again, dependent on the nature of the technology and, again, how we think about what's the data package that we need to generate after this financing. In some cases, there may be a couple of very basic preclinical questions that we still want to answer. Perhaps it only needs$5 or$6 million to put together that initial preclinical package that's going to enable a larger financing down the line.

15:48We're comfortable doing that type of investment and doing it ourselves. In other cases, it may be a$20,$30, or$40 million round of financing to get the company to something perhaps a little bit more definitive. If they're at that development candidate phase and want to get into the clinic and have a path to clinical POC, we can invest in more of that$30 to$40 million, participate in that$30 to$40 million financing to get them there. And we would be comfortable leading those types of financings and syndicating it with our fellow venture capital firms. So it really depends on the nature of the company, the nature of the asset.

16:30But again, we're not going to come in and participate in the$300 million phase three trial. I mean, I think we're looking for those high leverage opportunities where, again, we can put in some capital. But where there is a modest amount of capital that can really create value, you know, because you're validating this big scientific question, you know, then it creates a lot of value on the back end. And that's, you know, we do a lot of portfolio modeling, you know, within Sante. We've got a pretty defined portfolio theory around how we can build the portfolio for each fund so that we're generating the types of returns that our LPs, our limited partners and investors are expecting for, you know, for a venture capital asset class.

17:17And, you know, and we know, you know, when you look at the history, the loss ratio, right, the, you know, 40 to 50 percent of venture backed companies fail.

17:28Omar Khalil: At least, yeah. And there's, you know, it's and honestly, you know, you can't really reduce that. And to a certain extent, if you're, you know, some would argue that if you're if you're trying to reduce that, you're not taking the right types of risks. Right. And so from our standpoint, it's really about how do we make sure that the winners, the ones that work the way we think it's going to work and we can validate those scientific and clinical hypotheses, that those are going to pay for that 40 % to 50 % that doesn't return capital. And so that's how we think about it. And you have to make sure that the upside is there once we're able to get to those key value inflections.

18:09Omar Khalil: OK, so when you're talking about portfolio modeling, you're talking essentially about balancing risk, having some companies that maybe are taking a really big swing, but it's a little more risky versus one that has maybe more of a established pathway to market. Am I right on that? Yeah, I mean, well, we look at diversification across the portfolio on a regular basis. Honestly, it's one of the reasons we do invest across biotech, medtech and health tech, even at the highest level. I mean, we're very, like, at the end of the day, our mission is to invest in companies that are going to have a meaningful impact on human health, right?

18:43And we're agnostic whether that's going to be through biotech, medtech, or health tech. But each of the sectors has, you know, have their own sets of risks, and they're very cyclical, right? Biotech can, you know, can generate great returns. But at the same time, you know, we can go through some really tough bear markets, you know, in the biotech ecosystem. Medtech has its own set of issues, health tech likewise. And so, you know, even at the highest level, we focus on diversification at that level. But then even within the biotech portfolio, we're also looking at diversification of, you know, therapeutic areas.

19:20You know, we do a lot in oncology, but, you know, we don't want to build the portfolio 100 % in oncology. We do a lot, you know, we look at the modalities, small molecules, antibodies, oligos, right? How do we make sure we're not stacking the same types of risks within the portfolio to make sure that, you know, we're ultimately building a fund that can drive the, again, consistently drive the returns, even if something, you know, completely out of left field happens that, you know, is outside of our control, but limits our ability to, you know, win in any one of those areas. Yeah.

19:59Omar Khalil: And unfortunately, those left field field items pop up all the time. And, you know, science, a risky, risky endeavor. You mentioned oncology. Are there are there specific therapeutic areas and drug modalities that you're, I guess, more interested in than others? Or are you completely agnostic and are just really looking for the best idea? Yeah, no, we are focused on, you know, the large unmet needs where, again, there's an alignment with strategics, you know, because at the end of the day, our primary customers ultimately are going to be pharma and big biotech, right? And so we know in most cases, our companies are not going to be commercializing these drugs directly.

20:52They're going to be partnering with pharma. And so when you look at our portfolio and where we're active, you'll see an alignment generally with where pharma is most active. And so that's going to be oncology. It's going to be immunology, CNS, you know, increasingly cardio, renal and respiratory. But these are large markets, right? These are large markets. These are large unmet needs and where you see a lot of transaction activity. At the same time, there's also, you know, we're also, I guess I mentioned, focused on, you know, how can you create a path to clinical proof of concept and registration in a meaningful way without having to raise too much capital that the press has returned?

21:38And that opens up certain opportunities like rare disease and and and other indications where you can you can still do that. And even if you have to advance the programs, you know, closer to approval and registration before you can achieve an exit, there's you know, you don't have you know, you're not raising the seven, eight hundred, nine hundred million dollars to to get to those points.

22:01Omar Khalil: Right, right. How many companies, and I guess not just in your exclusive area of biotech and therapeutics, how many companies are currently in that portfolio? Yeah, our biotech portfolio is about 15 or 16 companies right now. A lot of them are earlier stage. And we've got a mix right now. But certainly, the recent investments we've made tend to be in stealth in our earlier stage. So we haven't announced them altogether. But yeah, we've got about 15 or 16 active biotech investments at the moment. And as you mentioned, we've recently closed Fund 5, and we're actively deploying out of Fund 5 now and investing into additional companies as we speak.

22:48Omar Khalil: Yeah, and this maybe goes without saying, but Sante is investing in private companies only, correct? Yes, yes. Yeah, we only invest in private companies, largely based here in the U.S., can have operations outside of the U.S., but largely based here in the U.S. and, you know, and, you know, really, again, the typical time we're coming in is if we're not helping form the company, it's the first time that the company raises any sort of institutional financing. So we're coming in really at that earliest stage. That's an exciting place to be. And I want to ask about the formation piece. We, Life Science Leader, published a contributed article from William Garner at EGB Ventures recently arguing that biotech needs more what he called venture formation as opposed to venture capital.

23:40Omar Khalil: You know, working with scientific leaders and entrepreneurs at the earliest stages of company formation, that's part of what you do at Sante. What would you say, Omar, are the key elements that those individuals need, aside from cash, you know, what they need to get started and get to work? You know, what's usually missing? You know, it's, so typically the way, I mean, I'll just speak in terms of how Sante approaches it, because typically most of the venture creation, venture formation efforts that we do, it's a combination of unique talent. So a CEO, somebody that we respect highly, we have experience with, we know, understands direct development, along with really cutting edge technology.

24:33And we try to, you know, we, we, because of where we sit, we have a strong network and we, in both cases, right, we're engaging with, with academics, academic institutions that may be looking to spin out technologies.

24:46Omar Khalil: So if you had just one of those pieces, then you could potentially find the other piece. Exactly, exactly. So our job is how do we, how do we bring those together? And, and, and often, And sometimes, you know, we have thematic areas where we're very focused in potentially looking at areas to invest. We find a talented entrepreneur that we want to back. We work with them on kind of aligning that thematic area. And then we go hunt for a technology that fits within that thematic area that we feel is going to be disruptive. And so, you know, that's a big piece of really getting something off the ground is having the right people and the right technology coming together at the same time.

25:28Because those things can sometimes be asynchronous, right? You can have the right talent, but not the right technology or vice versa. And really trying to bring those together at the same time is something we focused a lot on. And then, you know, it's interesting that, you know, I'd be curious if you talk to some of the CEOs that we've backed who've, you know, been involved in our company incubation efforts, what they would say. But, you know, a lot of what we do is really just kind of share with them, you know, how we think about deals, how we think about opportunities and, you know, the evaluation of the differentiation of the platform, the timeline for the financing, the milestones, the program, if it's a platform technology, how we think about the programs.

26:14really, and it's not necessarily specific to the company, but it's just more broadly, you know, just give them exposure to how venture capitalists think and how investors think about technologies. Because at the end of the day, when you're building your development plan and your financing plan, you know, there's no, I mean, there's basically, there's no biotech company that's ever going to be able to be funded, you know, by one investor all the way through to, you know, approval. You're always going to be, you're always going to be fundraising. You're always going to be financing. And so I think it really helps narrow the focus to say, all right, how do we spend the right time up front picking programs that are going to be commercially attractive?

26:56And what does it mean to be commercially attractive? And how do we think, and how do we set up the assays and the experiments early on that are going to demonstrate the differentiation even before we get to the clinic?

27:07Omar Khalil: And commercially attractive to whom as well, right? Exactly. Yeah. Exactly. I mean, we, we spend, again, as I mentioned, we spend a lot of time getting feedback from pharma in terms of what's interesting to them, how they think about different mechanisms of action and, and different targets. And, you know, real, again, really making sure that, you know, that thinking upfront around, you know, what those early programs are, especially for platform companies. I mean, and we still invest in, you know, the, the, I know there's, it's a, it's a conversation in the field around platforms versus asset centric programs.

27:41And, and we still invest in platforms and we can talk about that a little bit more, but if you're going to be, if you're going to be a platform, the number one biggest mistake that we see is picking the wrong initial targets and the initial programs. And that's where, you know, we spend a lot of time just, you know, pressure testing and beating up on, you know, what's the best program to take forward as, as the lead within, you know, within any of these companies. And then it's the network. And then once we align on that development plan and the development path for the company, our network of people we can bring around the company and help the company to get to the next level is something that, again, we're in there within the trenches with the CEOs to get the right people around them.

28:30Omar Khalil: I did have Raul Aris, who is the CEO at Iterion Therapeutics, a company that Sante has invested in. I didn't ask him about the incubation period, though. Now I wish I had, so I can't read that back to you, Omar. But I am curious about when you decide to write a check to a company, how do you how you manage that investment? And what I mean is, you know, are you so confident in the team by that point that it's it's pretty hands off or is it more of a kind of trust but verify situation where you do things like, you know, structure tranches in the funding to try to incentivize companies to move quickly towards specific milestones or catalysts?

29:15Omar Khalil: even if they're preclinical milestones or something like an IND application? How do you think about that? Yeah, I think tranching is something we do put tranches in many of our investments, typically around, you know, important milestones. Not so much to incentive. I mean, I think everybody's incentive is to move forward as quickly as we can. But it's just, you know, there's so many uncertainties when it comes to early, especially early stage preclinical drug development, that it's important just to have, you know, to have kind of a forcing function to take a step back, you know, around the program and make sure that you still have conviction on the program or if you need to pivot.

29:59And we've done this a lot where, you know, perhaps, you know, we've funded the company, you know, for a certain, you know, for a certain program, structure the tranching, you know, focused on that program. But once we get into the investment and we're generating some data, perhaps something, you know, unexpected, you know, comes up. And, you know, we end up deciding to pivot. Well, you know, the tranch structure allows us to just reset and say, like, okay, here's, we're changing programs, we're changing the development plan, here's where we should really be focused. And, you know, I'll make sure that the board and the investors and the management team are all aligned on, you know, kind of how we're going to go forward from here.

30:45But overall, I mean, I think the way, you know, we are, the way I like to describe it is we will roll up our sleeves with the management as much as needed. And so, you know, we'll take board seats and we're certainly engaged with management. And at the end of the day, if management's running and they have what they need and they're confident in the path forward, then we're good just touching base with them and making sure that we obviously will be in the board meetings, get update calls, but we don't need to insert ourselves.

31:23Omar Khalil: If we can help, again, along the way, if it's finding the right talent, if it's pulling in vendors, other service providers that we have relationships with, we're helping and chipping in. If it's just problem-solving, brainstorming and problem-solving, just like the target selection. I mean, that's probably one of the areas where we spend, our team spends an inordinate amount of time with our companies, especially in the early days is, all right, how do we robustly evaluate the different targets that we can go after and get alignment on? You know, which one's going to be best? And then engaging with other investors, with pharma, you know, really helping all those pieces of the network together.

32:10So it's really it's, you know, I like to say we are active investors and we're hands on, but we, you know, it's really kind of we try to be helpful where where we can and as much as needed.

32:21Omar Khalil: I think that role that the VC can play as a convener or making those connections is, you know, aside from, you know, deciding on on target target selection. This is his own can of worms are difficult anyway. You any way you think about it. But in terms of making those key connections that a young company will need to to progress an asset, you know, to to grow a company seems seems really valuable being able to flex your your network. I wonder if you're also doing that kind of at the exit stage. I mean, do you guys have, you know, kind of active lines of communication to big pharma companies to the extent where, you know, you see a company and you can already sort of have in mind a potential acquirer like down the road?

33:09Omar Khalil: Is that something that you're also helping to facilitate? Yeah, yeah, we do. We maintain, you know, pretty regular contacts in many cases quarterly or semi-annual. just check-ins with many of the big pharma to hear what are the areas of interest that they have, where are our companies, the companies that are relevant for them that they're interested in, how are they advancing and developing and making the connections at the right time, making those introductions. And with pharma and biotech, this isn't something where you're just going to introduce it at the end, right, after a milestone. Right.

33:48It's a it's a relationship. You know, Farmer likes to follow the story, see the progress along the way. And so, you know, that's something that we we help facilitate, you know, kind of throughout the lifecycle of the investment. Once we get past kind of, you know, once we get out of stealth or get to the point where we have more data to share, we want to engage in those conversations, you know, even from the from even if we're not actively ready to sell to to Farmer or partner with Farmer. And then we also have strong relationships with the other key players in the exit ecosystem, right? So bankers, other service providers that can help facilitate whether it's an IPO exit or a strategic exit or in many cases running a dual track process.

34:37Omar Khalil: I I've I've spoken with a number of executives at startups and companies in the preclinical stages who tell me it can be exceedingly difficult to get novel scientific ideas funded, especially when there isn't, you know, that established path to market, you know, the so-called valley of death. But as you, I think, alluded to earlier, it wasn't so long ago that, you know, an idea and a platform could bring in very substantial dollars at those earliest stages. stages. I'm curious about where you think the pendulum pendulum sits today in terms of the broad investor landscape's willingness to go in early versus, you know, really demanding that mid-stage or late-stage data before investing.

35:27Yeah. Yeah. Well, and, you know, it certainly may have, you know, perhaps the pendulum had swung a little bit too far a few years ago where, It probably wasn't the healthiest for the ecosystem to have that amount of capital going into such early concepts and early ideas. But the pendulum has swung. And finance, I mean, the last few years, it's certainly been a challenging financing environment for everybody in biotech. you know the last 12 to 18 months have become much much more attractive i think a much healthier financing environment for later stage clinical stage uh programs and i think you're seeing uh companies that have clinical data are able to to get financed and get funded you know relatively yeah i mean fundraising is never easy i never want to say it's easy but it's you know certainly not as challenging as it was, you know, a couple of years ago.

36:27Early stage is still, it can still be challenging. You know, there's still, there's such a supply of clinical stage companies and clinical stage programs right now that a lot of investors, I think, who are stage agnostic would say, why should I invest in a preclinical company when, you know, I've got this phase two asset that's still got a pretty good valuation on it and I can potentially get to a near-term exit. It's a reasonable position again.

36:58Omar Khalil: Yeah, what's your answer to that question, Omar? Yeah, I think the question I would have, I mean, it really comes down to, what is the differentiation? And I think the bias over the last few years has been people are really hesitant to take biology risk. They want clinically validated targets. They want programs that have a little bit more of a best-in-class profile. The challenge, I think, in a lot of those cases, again, maybe you're increasing the likelihood of success of the next clinical trial because, yes, you're not taking a lot of biology risk. But with the volume, again, back to the supply of programs, the number of targets, the number of programs that are going after the same target is usually, you know, immense right now.

37:51I mean, the amount of hurting, the amount of competition, and that's going to translate into commercial risk, right? Do you actually hit the target product profile that's going to be the best in class compound in a very crowded field where there are so many other competitors, including probably competitors in China that you're not even tracking that, you know, and how long will you keep that? will you keep that differentiation and that competitive advantage? Those are real question marks that I think are still going to be played out in the next couple of years. I think it's still early. But I think if you look at the precedent that we have with PD-1, right?

38:32PD-L1 was, you know, that up until the GLP-1s, you know, that was the largest market, largest pharmaceutical market we've ever had. there were, I think, what, seven or eight of those that were really, you know, really, you know, actually generated meaningful, meaningful revenue or some revenue of some scale, at least. And, you know, I think when you look at a lot of these other, these other targets that are, you know, that have seen the type of herding, I mean, these are much smaller markets than PD-L1. And yet you're seeing, you know, ends of compounds all being developed in parallel to at the same time.

39:14And, you know, it is a question of, you know, how many of these are actually going to be commercially viable and commercially successful? So, you know, I think there's, you know, so yes, it's attractive in the near term to think about I can put in capital for something that has low likelihood of failing its next clinical trial. But at the same time, I don't know that that's necessarily a guarantee that you're going to see a significant commercial opportunity as a result.

39:41Omar Khalil: Do you think it's a good time in August of 2026 in the U.S. to start a new biotech company? It is. Well, you know, starting an entrepreneurial journey in any in any time, in any period always takes a lot of a lot of guts and a lot of a lot of courage. So, you know, I think it's always, you know, going to be there's always going to be a certain phenotype that's drawn to doing that. And I don't know that they're necessarily going to be scared. You know, those people aren't going to be scared or influenced necessarily about the specific timing. But that's a good point. Yeah. But I think if you have real unique differentiation, I think there is opportunity right now where you can be in a position to do something that nobody else has done, that nobody else is doing, and have a meaningful impact on patients.

40:42And, you know, it's a, you know, how you start a company today is very different than what it was in 2020, 2019, 2020, 2021, right? That time period, again, where it was a zero interest rate environment, capital was much more available, you know, and the market dynamics, the global geopolitical dynamics were very different. But I think if you can start a company, you know, if you've got, again, that opportunity to unlock a high-value target or a really high-value biology in a way that nobody else can do it, and you put together a plan that is efficient, right? I think that the challenge right now is how do you make your plan, you know, generate the science and the data that you need, but do it as efficiently as you can?

41:30Because I think the competition, you know, whether it's coming from China or other geographies, is getting to clinical POC very, very quickly and without a lot of capital. And so it's going to be hard, even if you're right, you can't raise an order of magnitude or two more capital than other programs and expect to be able to just take it forward. So you got to be much more laser focused on how do I generate the data that I need to validate my thesis here as efficiently as I can. And if I've got a plan to do that in an area that nobody else has been able to crack this code and take that to investors, I think that resonates with investors these days.

42:18Omar Khalil: I want to ask you about a couple of the companies that you're working with now as examples and maybe companies that you're excited about or programs they're excited about. But before I get to that, I have a couple of just kind of broad investment questions and probably having to do more with the exit side of your work, Omar. But my first question I want to ask you is on retail investors coming back into the biotech sector. Is that happening in your view? Do you expect to see the IPO market continue a kind of return to health in the sector? Yeah. Yeah. Well, you know, again, back to the supply and the backlog that we've had.

42:59I mean, I think it's telling that we've had a couple of the biggest biotech IPOs in history just in the last few months, right? And those are companies that, you know, had the IPO market been more consistently healthy, would probably have gone public much sooner. And so, you know, we've got this backlog of really high quality companies that haven't been able to go public, but are now starting to go public. And so, you know, I do think, you know, the IPO market, you know, feeds on success. And so the fact that these companies have done well, they've gone public, they're, you know, in general, the IPOs are performing fairly well, post-IPO, you know, that's going to continue to, you know, increase the confidence in the IPO market.

43:52And we're going to continue to see, you know, more, you know, more companies that, you know, reach that stage go public. Again, I don't expect it to swing back to where it was in the COVID years where you had preclinical companies going public. And again, I don't know that that's healthy. Again, the fundamentals of our business is clinical data, having the right cadence of clinical data catalysts and readouts. And I don't know that it's healthy actually to have a lot of preclinical companies public. I think having clinical companies post-POC that are advancing towards registration and deeper into clinical development, that's really the right time to be public.

44:38And so I think we're going to continue to see that. We're going to continue to see those types of companies go public. With retail investors, I think the nice thing about the retail investor dynamic is they're going to come as long as the performance is good. I think if IPO performance starts to fade or if we start seeing lower quality companies going public or we start seeing other dynamics in the biotech ecosystem that make the performance challenging, they're going to go away. But I think right now, as long as that IPO window is open and performance is strong, we're going to continue to see them start to come back.

45:22And, you know, they also have a lot of other, you know, potential places where they can be putting their money. You've got some large tech IPOs, you know, happening and coming up as well. And, you know, that's going to be it's going to be interesting to see how that how that plays out as those really large IPOs, you know, come to the market and what's that what that's going to do to the to the biotech IPOs. But, yeah, I think I don't know that that'll necessarily suck all the air out of the room. I think there'll still be opportunities for for buys, like at least from a diversification perspective, at least.

45:55Omar Khalil: The other thing I wanted to ask you about, there are some rumors floating around recently about potential merger between AstraZeneca and Bristol-Myers Squibb. And my question for you, Omar, and I should say, we don't know if that's going to happen. Those talks came up and died away. We'll see. But those kinds of large mega mergers between really big pharmaceutical companies, Is that a kind of net positive or net negative for you or neither? How do you think about those kinds of deals? Yeah, I from so as an early stage venture investor and somebody in the biotech ecosystem, it's a negative for sure.

46:36It would be a negative. I mean, I think it's, you know, one, I'm not sure we've really seen those types of mega mergers pay off in the past.

46:44Omar Khalil: I mean, they always recently we are. We always see them, you know, every way Pat and Cliff wave. There's a wave of mega mergers. And I'm not sure that they always pan out the way the consultants think that they will. But the big issue right now is – well, actually, the big, I think, kind of momentum driver that we have in the industry has been the M &A market. Right. Farma, as these, you know, they they have these massive patent cliffs that have already started. And and that, you know, they've been buying up a lot of assets, both later stage and earlier stage assets. And it's been, you know, over the last 18 months, 24 months, it's been a very, very healthy biotech M &A environment.

47:36And when you have a mega merger like what's been discussed in the media, that takes two potential buyers off the table for at least two or three years. The odds of them really doing a whole lot in the M &A market when they're busy integrating these two massive organizations, trying to find cost synergies, all of the disruption that happens to the management teams. it takes a couple of potential buyers off the table. And that's generally not a good thing for biotech that's looking to transact. And so from my standpoint, it's a negative. I'm hoping that the solution for these patent cliffs aren't these mega mergers.

48:24I'm hoping that the solution is going to be them being more active on the biotech M &A front and BD front, whether it's M &A or partnering, you know, to fill their pipeline versus, you know, trying to, you know, trying to, you know, put these two massive organizations together.

48:43Omar Khalil: Right. Okay. I do have one final kind of macro question that I wanted to ask really quickly, which is, I'm wondering how biotech companies in the U.S. compete with China, especially in the early and preclinical stages when investors and large pharmas, you know, can pick from an ever growing list of development candidates that are cheap to license, already have some amount of clinical data. How are you thinking about that dynamic? Yeah. Again, I think you've got to start with real differentiation and real novelty. That for me, especially in the early stages, is the most critical. But then after that, it becomes a speed and efficiency game.

49:31You know, how do you move as quickly as you can and as efficiently as you can? And I think that when you look at the assets coming out of China, you know, that's one of the big things that jumps out at you is, you know, they're able to get to clinical data in a fraction of the cost of what historically has been the norm here in the U.S. and we've got to do a better job of that. And I think the government is, and the FDA is proposing, you know, various ways to accelerate both IND enabling and phase one, path to phase one. That's important. You know, we tell our companies, you know, you've got to, obviously we've got to look at how we make things quicker here in the US, but then also how do we look at other geographies?

50:17Australia has been the most common geography for companies to go to, but are there other geographies? And for certain modalities and certain therapeutic areas, you can get creative. And it doesn't have to always be Australia. But again, what you're trying to do is you're trying to validate a scientific hypothesis that you've generated a lot of preclinical data for. And you're looking for clinical data to support that. And so how do you get there as quickly and efficiently as you can? And then, you know, from there, you've, you, you know, I think you, you can, you're in a position where you can significantly reduce your cost of capital, raise the capital or partner with, with pharma and, and really think about development more broadly and more holistically to get to registration.

51:02But it's, you know, how do you how can you think about the development differently than than how we thought about it five or six years ago, where, you know, you it would be 80 or 100 million dollars before you before you got to the clinic that I mean, I think those days is much harder to compete when you can go license a development candidate or, you know, a phase one asset out of China for, you know, a fraction of of that capital. So we have to think about it differently and we have to be more efficient and get more shots on goal.

51:36Omar Khalil: Well, I'm running out of time with you, Omar, but I do want to ask what you're excited about, if there are any examples of companies. And as you were talking, I do remember Raw at Iterion talking about the importance of efficient development. So those values have been instilled. If they weren't his, they are now. But is there an example of a company or two that you would mention, Omar, that you're particularly excited about in these early stages of product development? Well, I'll give you an arc of companies that all kind of hit the undruggable target theme. So you mentioned Iterion focusing on the Wint Beta Catenin pathway and the program Tegavivant that they have focusing on TIBL-1.

52:25you know that's been a pathway that people have been trying to target and trying to drug for a long long time. Iterion's approaching it with SIBL1 in a way that's generating some really interesting and exciting data and you know moving into colorectal cancer now in addition to that they have in a couple of other tumor types. And so that one is very exciting. And you see, I think, a lot of momentum building in that space now, even with Parabolus and their IPO and the data that they've generated. Along those same lines, Kestrel Therapeutics is a company that we led the Series A, or we co-led the Series A a few years back for a pan-KRAS inhibitor.

53:20This is another one where RevMed has just generated incredible data, especially in pancreatic cancer for patients who really have had no other option. And now with Kestrel's compound, which has a unique aspect to it that's probably too – we don't have enough time to go into the specific differentiation here. but it's in the clinic now and generating some encouraging data, even early in dose escalation, that's getting us pretty excited. And then kind of the last one in this theme is MYCRX. So you've got, you know, Wnt-beta-catenin, KRAS, and now MYC. You know, MYC is kind of the next of the holy grail on druggable targets.

54:07And we've just advanced our, you know, We just nominated our development candidate for that company and are moving into IND enabling work now for the first ever oral direct MIC inhibitor that, you know, I think has the potential to be possibly bigger than KRAS and beta -catenin as a potential segment. So, you know, those are...

54:31Omar Khalil: What's that company? I'm sorry. What's that company called? That one's MICRX. MICRX. Yeah, the name is very focused on... Got it. Okay. Yep. Yeah. Yep. Yeah, so it's, yeah, it's an exciting, I mean, I think that that arc of companies and, you know, investments focusing on these very well researched targets, well profiled targets that have been hard to drug for a long time. And these companies have, you know, in different ways, cracked the code and developed really nice, really nice compounds to to go after them. Those are those are kind of a series of companies that I'm very excited about. But that being said, I love all my companies equally.

55:14I can't you know, you can't force me to pick one, but I love all of them equally.

55:19Omar Khalil: Well, we are we're out of time, Omar, so we'll have to leave it there. But I really appreciate you coming on the show. So, no, Ben, thanks so much for having me. It's been great talking with you and appreciate it. Likewise. We've been speaking with Omar Khalil, Managing Director at Sante. I'm Ben Comer, and you've just listened to the Business of Biotech. Find us and subscribe anywhere you listen to podcasts and be sure to check out our weekly video cast of these conversations every Monday under the Business of Biotech tab at lifescienceleader.com. We'll see you next week. And thanks, as always, for listening.

56:00We'll see you next time.