An Alaskan fund­ing boom­let for biotech

Alaska’s $50 bil­lion wealth fund is show­er­ing money on star­tups Em­brac­ing risk that’s “iden­ti­fi­able and iron­i­cally kind of at­trac­tive”

Bloomberg Businessweek (North America) - - Contents - �Doni Bloom­field

Alaska’s eco­nomic em­i­nence stems from the dis­cov­ery of oil on the North Slope in the 1960s. But its more re­cent crown as a biotech sugar daddy started in March 2013 with a chance meet­ing on a flight from Bos­ton to Seat­tle. David Fal­lace, then head of spe­cial op­por­tu­ni­ties for the Alaska Per­ma­nent Fund, the agency that man­ages the state’s mas­sive oil wealth, was board­ing a plane when he met Larry Corey, who then led the Fred Hutchin­son Can­cer Re­search Cen­ter. The pair talked so much about Corey’s re­search into us­ing the im­mune sys­tem to fight can­cer that a flight at­ten­dant had to in­sist they stop block­ing the aisle and go back to their seats. The dis­cus­sion re­sulted in Alaska that year ini­ti­at­ing what ul­ti­mately be­came a $129 mil­lion in­vest­ment for about 25 per­cent of the com­pany Corey started, Juno Ther­a­peu­tics. The stake is now worth $1.04 bil­lion.

With a $50 bil­lion fund will­ing to sit on illiq­uid in­vest­ments for years, Alaska sees pa­tience as a com­pet­i­tive ad­van­tage in mak­ing long-term bets on the drug in­dus­try, says Stephen Moseley, who suc­ceeded Fal­lace in Jan­uary. “When I worked on my first biotech deal in the ’90s, this old in­dus­try sage said to me, ‘You know, Moseley, it’s called the life sci­ences be­cause it takes a life­time to get your money back,’ ” he re­calls. “Liq­uid­ity is a risk, but it’s one that’s iden­ti­fi­able and iron­i­cally kind of at­trac­tive to us,” as the lack of liq­uid­ity is re­warded with the op­por­tu­nity for higher re­turns.

Alaska has poured more than $280 mil­lion into three biotech star­tups, huge bets in a field where the av­er­age ven­ture cap­i­tal in­vest­ment is less than $15 mil­lion. The state’s stake in Seat­tle­based Juno is worth more than its hold­ings in Ap­ple. The fund’s top three in­vest­ments were all iden­ti­fied by its ven­ture wing. “The sig­nif­i­cance of their ac­tiv­ity in terms of over­all com­mit­ments is not com­mon at all in the biotech busi­ness,” says Bruce Booth, a part­ner at ven­ture firm At­las Ven­ture, who’s talked with the fund about po­ten­tial deals.

Last July the fund said it had in­vested $153 mil­lion in De­nali Ther­a­peu­tics, a com­pany tar­get­ing Alzheimer’s dis­ease. And in Novem­ber it was among the few firms in an $80 mil­lion fund­ing round for Co­diak Bio­sciences, which is look­ing to send tiny sacs the body makes through the blood­stream to help di­ag­nose and treat some can­cers. Al­though none of the three biotechs is based in the state, Alaska made sure they rec­og­nize their Last Fron­tier tie— they’re named for the state’s cap­i­tal ( Juneau), its lo­cal brown bear (the Ko­diak), and its tallest peak (De­nali).

The state says the biotechs hap­pily adopted Alaskan names when they got fund­ing. “It’s not a co­in­ci­dence that th­ese names sur­faced, but it’s not an

Equal to the value of the ven­ture in­vest­ment in a pri­vate biotech the fund an­nounced in July

in­vest­ment pri­or­ity,” Moseley says. Hans Bishop, Juno’s chief ex­ec­u­tive of­fi­cer, says the biotech’s in­ter­ac­tion­ac­tio with the Alaska fund is sim­i­lar to th that of its other big in­vestors— ex­cep­texce that Alaska in­spired the com­pany’spany name, which is that of a Ro­man god­dess but also al­ludes to the state’s cap­i­tal. “The com­pany was orig­i­nally in­cor­po­rated as FC Ther­a­peu­tics, ‘f’ be­ing a fourlet­ter An­glo-saxon word and ‘c’ be­ing can­cer,” Bishop says. “It’s a re­ally, re­ally mo­ti­vat­ing guid­ing call for all of us. But we re­al­ized we thought it was a su­perb name, but it prob­a­bly wasn’t with­out its lim­i­ta­tions.”

Juno is work­ing to ge­net­i­cally re­pro­gram im­mune cells to fight can­cer, re­mov­ing T cells and then chang­ing them to rec­og­nize and kill tu­mors. High cure rates in small tri­als have im­pressed doc­tors and at­tracted a $1 bil­lion in­vest­ment from Cel­gene.

The Alaska fund’s ad­min­is­tra­tors say they were con­fi­dent about mak­ing such big bets in a no­to­ri­ously boomand-bust in­dus­try be­cause they worked closely with biotech-in­vest­ment spe­cial­ist Arch Ven­ture Part­ners and had the deals vet­ted by out­side ex­perts. And they say it’s all about mak­ing money for Alaska. “It’s not our job or ex­pec­ta­tion that we’ll cre­ate some Ken­dall Square in Juneau, Alaska,” Moseley says, re­fer­ring to the biotech hub in Cam­bridge, Mass.

None­the­less, Juno’s value has fallen about 9 per­cent since the be­gin­ning of the year, part of the roller-coaster ride for biotech stock val­u­a­tions this year. “If you took all the dol­lars we’ve in­vested in life sci­ences com­pa­nies and all those that are con­tem­plated over the next cou­ple years,” Moseley says, “it’s still less than half the cur­rent cap­i­tal gain on that one deal, Juno.” That per­for­mance hasn’t gone un­no­ticed by politi­cians, who rely on oil for as much as 90 per­cent of state rev­enue. Since the re­cent cra­ter­ing in crude prices, Gov­er­nor Bill Walker wants to tap the fund for bil­lions to off­set bud­get short­falls.

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