The interview presented below has been edited and abridged for clarity.
Geraldine, thank you so much for joining us today. We would love to kick off with your observations. Thinking back to the beginning of the year up until now, what have you observed in the dynamics of the market, particularly as you're looking for investment opportunities or looking at how to help your portfolio companies succeed through these turbulent times?
It's been quite a roller coaster ride for all of us for the last few months, both on a personal and professional and investment basis.
In terms of LSP, just a little background. LSP is one of the oldest and largest investors in Europe dedicated to life sciences and healthcare. There are two different sides to our business: the venture capital investing and the public market investing. In the last few months, the impact of the pandemic has been very different for each of these.
On the venture capital side, the main impact and the biggest overriding question for those companies has been capital reach: Has the company got enough cash to ride out the pandemic for however long that's going to be? Especially heading into the pandemic, not having any idea how easy or difficult it would be to raise additional capital. The other impact would be on clinical trials, as we have seen many be delayed or postponed or halted as all resources have pivoted to anything to do with COVID-19. On the private side, the main issues that the companies had to deal with were: Do we need cash? Can we get cash and also delays to clinical trials and how you manage that and communicate with your investors.
Surprisingly, also on the venture side, we have seen huge flows into the industry. LSP was lucky enough to close its USD 600 million LSP 6 fund literally just before the pandemic really took hold in mid-March. So, at least we have been in a happy position of being well-capitalized and able to support our portfolio companies. We have also been adding portfolio companies through the pandemic, so that has been, to a large extent, business as usual on the venture side.
On the public market side, which is where I focus, things have been a lot more immediate, transparent and dramatic. We saw an immediate sell-off in the market, everything dropped dramatically, the indices were all down about 30 percent, for no reason other than the not knowing. The uncertainty just hit the market, big time, and the predictions were that it was going to stay that way for, who knows, a year, two years. Funding was going to be difficult; all trials were going to be stopped and delayed. And then I think to everybody’s surprise the markets completely rebounded. It's almost like they touched off their noses and came back up, and now they are even higher than they were before the pandemic.
Any investor on the public side is still scratching their head, trying to figure out why that happened – why there is such optimism for the biotech sector, when the world seems to be falling apart. We've also seen flows into the sector. The most recent numbers I saw show over 10 billion has been invested in the healthcare sector since the beginning of this year. That breaks all records in terms of the inflow into the sector. We've been trying to analyze and find out where it's coming from. We never know for sure, but I think a lot of it is the additional focus on healthcare and considering it within the bigger picture. In some ways, it has been good for the sector, if you can say anything good can come out of a pandemic, in terms of healthcare being seen as part of the solution instead of the problem. There has been an increased awareness of the role of the healthcare sector in the broader community and the positive impact that it can have. And I suppose also maybe a need or a want to be involved in supporting that positive outcome, supporting that route towards a solution for the pandemic; that seems to have increased flows into the sector.
Tell us more about what you've seen changing or being different in the overall leadership in the sector. Like you said, we actually have the challenge now that we're stepping up to being part of the solution. Has that demanded different kinds of leadership, and if so, what are your observations there?
Yes, absolutely. Not just at the company level but at the broader level, as the market has dipped and panic took hold of the market, it also took hold of the response to the pandemic. I think we've all seen that the healthcare response became politicized and we saw responses from the FDA and WHO that you would never have seen in normal circumstances. You know, there were data leaks on ongoing clinical trials, there was emergency use authorization based on minimal data, and there were 1,200 clinical trials started for COVID-19 because basically everybody was throwing their focus at the problem. That also became an issue for the sector because every company suddenly had a COVID-19 program in their pipeline, and anybody who mentioned COVID-19 in their press release suddenly got a boost to their share price. As an investor in the sector, it became really difficult to figure out who had anything relevant or what was the right response here. There seemed to be a suggestion that nearly everything was going to work. Companies that had been tumbling along, not really getting anywhere for years suddenly had multi-million-dollar market caps, because they had a COVID-19 program.
That's created a lot of difficulties for companies, and the leadership within the companies as well, trying to figure out: Should we get into this? Is it worth it for us to look at our technology and see if we can do something here? There was a little bit of opportunism. And it took strong management to figure out where to participate and how to or rather stick to the current portfolio.
Having said that, of course, other clinical trials were also getting sidelined and delayed, so that presented a lot of problems for individual companies within the sector.
Continuing on this, as you think of LSP and other investors in the community you're part of, have you felt or observed any need to change on how you were leading yourselves and how you were engaging with the companies you were investing in?
You don't like to change in response to panic. We tried to keep our same long-term view, because anytime within the sector that we've tried to be overly optimistic or short-term, it just doesn't work out. An important message here is that clinical trials take time, there is risk involved and you have to wait for the outcome. Yes, as an investor, we have been scratching our heads, looking at companies we've missed that have gone up 300 percent or 400 percent based on a COVID-19 program that appeared out of nowhere. But we made a strategic decision to stick to our fundamental investment strategy and just focus on the fundamentals and continue our due diligence as we had done before. We try not to get sidetracked by the panic and the momentum, because momentum plays can also go against you very quickly. So, we try to focus on doing what we have been doing all along and the long-term goals for these companies. That's not easy in a market that's a complete roller coaster.
If we pivot now to the future, and think about this roller coaster probably not stopping for a while, what would you like to see or recommend that we do at a higher level – as a society, or as a system? What can we do to better manage through this period of uncertainty, but maintain exactly as you're saying our focus on the fundamentals, to make sure we continue to bring innovative medicines and devices to patients in need?
Starting with COVID-19, I think there needs to be more of a centralized effort. With something like 1,300 studies starting up, that means there's a scramble for patients. I've seen something like one in six patients have been enrolled in hydroxychloroquine studies which we now know doesn’t work. We need more coordination to try and get patients into the well designed, pragmatic, sensible studies so we can actually get a useful reading from those clinical trials. That will hopefully lead to positive outcomes for patients.
And then, one of my biggest fears is the collateral damage related to the other trials that are not taking place at the moment. A lot of the cancer studies, for example, have stopped enrollment and that has implications. That is something I would worry about in the shorter term, to really try and get those studies up and running, to keep moving forward with innovation and not ignore all the other benefits of the healthcare system.
One other important point is that infectious disease and vaccines have been underfunded for a long time now. It's been very difficult for investors to invest in that space because in general, it takes years, along with tens of thousands of patients and hundreds of millions of dollars, to develop a vaccine and then you only have one or two customers – i.e., governments. Now, of course, with Operation Warp Speed, it is going to be much faster. But it is a very difficult sector to invest in because it's binary as to whether this vaccine is going to be stockpiled or not. The same goes for anti-infectives. Everybody knows we need new antibiotics, but you spend huge amounts of time and money developing a new vaccine, and doctors then get this new drug and they put it in the drawer for last reserve – which, of course, is the right thing to do, but it just means this sector has been out of focus with investors. I hope and think that this current pandemic will also make us all rethink how we approach investment and innovation in the vaccine and anti-infective space.
As you think of the investment companies that you are working with and you are continuing to assess and explore, given the learnings of the last several months, do you think you will be looking at different leadership qualities in the companies you invest in and will be working with?
I don't think we will be looking for different qualities. But I expect we will look at their track record and how they have come through this phase. There will be winners and losers coming out of this, and it will become more evident which companies have strong leadership. The importance we attribute to the leadership role might increase. We will still look for the same leadership qualities, but maybe we put more emphasis on the team leadership. Is it all down to the one CEO running the show, or has he or she managed to pull in a strong team to move things forward? I think we may put more weight on this in our assessment.
Are you thinking differently about how you might invest LSP Fund 6? I'm thinking back to the beginning of our conversation where you're talking about being part of the solution. Have you re-thought how you might want to take a stake as a major investor in accelerating the solution?
The good thing about LSP Fund 6 is that it's big; the biggest one we’ve had yet, and that is not to be underestimated. It’s part of the evolution of the VC healthcare sector in Europe; not just the LSP funds but the other funds that have been raised recently are larger. The main reason that's good is that it means we can put more money to work in the same companies. It's not the case that we will do far more investments, but we can support the investments we do better. It's always been a problem in the venture world, particularly in Europe, that companies have been underfunded. That leads to trials being a little bit too small or a little bit too short to give you a clear answer.
Our main strategy and the main difference with the LSP 6 fund is that we can fund these companies to really run the trials that are needed to tell us if the asset works, if this new medicine can have a benefit for patients, so we can fund them beyond those trigger points.
It's fantastic. It's all about quality is what we're saying and placing the right bets, but then supporting them fully. Geraldine, this has been a great conversation. Thank you for sharing your insights with us.
Thanks for your time, lovely talking to you.