Thinking About Risk: Devin Rosenthal, PhD, MBA
Working in a biotech startup is inherently risky. A critical experiment could fail. Issues could arise during product manufacturing. A clinical trial could yield less than optimal results. Oh, and there’s the constant risk of running out of money. Any of these risks could fatally damage a startup.
We try to mitigate these risks as well as we can. We carefully design studies with experts, we develop backup products and perform numerous preclinical studies to test the product before moving into humans, and we’re seemingly constantly working to identify our next source of funding.
But even with these actions, there’s still risk. We know that. The world is full of risk. We are constantly evaluating risks, whether consciously or not, as we navigate life. How we think about risk fascinates me. Our backgrounds, educational experiences, and jobs all impact our thinking and provide unique perspectives (and blind spots) for when we evaluate risk.
By learning about how others think about risk, perhaps we can become more aware of our own blind spots and help mitigate the risks that we encounter.
Devin Rosenthal, PhD, MBA
In this spirit, I recently talked with Devin Rosenthal, a senior associate at NovaQuest Capital Management, a firm that focuses on product financing and invests in therapeutics and other healthcare technologies that are in late clinical and early commercial stages. Devin works on the diligence team, evaluating the risks and upsides of potential investments. Because his job relies on his ability to weigh risk, it’s interesting to see how his background and career path inform his thinking.
Devin earned his PhD in cell and molecular biology at the University of Michigan before doing a short postdoc at Tufts. He then crossed the chasm to industry, where he took a position in a Boston biotech company before doing a quick stint as a bench scientist at Novartis. He then moved to Rho, a clinical and regulatory contract research organization, and then a position in a life sciences consulting firm that focused on corporate strategy. Along the way, he earned an executive MBA from the University of North Carolina prior to taking his current position at NovaQuest.
At each step, Devin acquired new ways of thinking, filling knowledge gaps and improving how he evaluates risk. In academia as a PhD student and postdoc, Devin learned how to think as a scientist. He learned about scientific methodology, experimental design, and a focus on facts. This scientific foundation allows Devin to answer vital questions when presented with a potential asset. Is the science sound? Were the experiments designed properly? Do the data make sense?
But academia can only teach you so much. There are many other factors that influence the likelihood of a drug or healthcare product’s success. In academia, we’re infrequently exposed to clinical trials and rarely taught anything about regulatory pathways. Devin was able to fill these knowledge gaps during his time in industry. Working for a biotech company and for Rho gave him experience in clinical trials and the risks associated with designing products for humans. He also learned about the regulatory labyrinths that life science products have to navigate before reaching the commercial market. This knowledge allows him to review early phase clinical data and assess the likelihood of success in later phase trials. He can look at trial designs to ensure that they are statistically powered sufficiently and look at an asset’s regulatory roadmap and see the potential potholes.
Devin built upon his product development experiences by learning about corporate development and strategy. Earning his executive MBA helped give his R&D knowledge additional context. He learned how to evaluate financial and commercial risk, complementing his understanding of scientific development risk. His time at a life science strategy consulting firm taught him how products can fit into a company’s overall portfolio and gave real-world examples of things he was learning in business school.
Collectively, these experiences have given Devin a unique perspective as he evaluates and figures out how to mitigate risks of potential assets that land on his desk at his current job. As part of the diligence team at NovaQuest, he screens opportunities, identifying risks, as well as figuring out how to address them. Managing risk is a balancing act, and, in general, the company invests in assets with a low-to-moderate risk profile. This means balancing a high-risk aspect of an asset with a low risk one. Sometimes, Devin and his colleagues will review an asset that is an innovative formulation (risky) of a proven and approved drug compound (less risky). Other times, the asset may be an innovative product (risky) with a clear and well-understood regulatory pathway (less risky).
NovaQuest relies on its financial strategy and how it structures specific investments to help control its financial risk as it invests in inherently risky assets. The firm tries to balance risk within each asset, as well as across its whole portfolio. These approaches help protect the company while still providing a reasonable rate of return on its investment for its limited partners. To this end, the combination of the firm’s focus on low-to-moderate risk assets with deal structures that typically guard against downside risk while moderating upside potential reflect the risk/benefit tradeoff that the firm is comfortable with.
As part of the evaluation process, Devin and the diligence team have a series of criteria that they look for. This starts at the beginning of the evaluation when Devin looks at how an opportunity is presented to them. With his background, he’s able to identify where presenters may be overly optimistic about the product and why data was presented in a certain way. This allows him to dig deeper and turn over rocks to identify potential issues. His experience in regulatory matters allows him to compare what the pitching company is saying about its regulatory pathway versus what the regulatory bodies have actually given it the green light for. Similarly, his background in corporate strategy gives him the ability to look at the commercial potential of the asset.
For clinical stage assets, Devin and the team ask if early phase clinical data are likely to translate to later phase clinical results. They also review the clinical trial design to see if it’s a novel design (risky) or a well-established protocol that’s been used by numerous groups in the past (less risky). Since clinical trials are guided by regulatory agencies like the FDA, Devin makes sure that the clinical trial design aligns with what the FDA has required of the company, minimizing the risk of regulatory blowback at the end of the trial.
Similarly, he investigates any discussions about the potential drug label, which dictates how the drug can be used and marketed, and which must be approved by the appropriate regulatory body. During diligence, Devin believes that it’s important to ensure that the clinical trial is designed so that the results will be statistically valid for inclusion in the desired drug label and that the contents of the drug label will be approvable by the FDA and its global brethren. As he thinks about drug label matters, Devin also thinks about potential competitors and how the drug label can be used to protect (or take) market share, whether it’s by patient stratification, novel claims, or other ways to ensure commercial differentiation. In many cases, early thinking about how the drug label can be used to differentiate a marketed product can be beneficial. Such foresight can inform the design of the Phase 3 clinical trial, adding in the appropriate differentiators (patient populations, clinical endpoints, etc.) and items needed to ensure both prescribing by physicians and reimbursement by payors. By adding these items, you may be able to de-risk the Phase 3 trial, as well as the downstream commercial development of the product.
If a potential asset gets past the clinical and regulatory gateways of the diligence process, Devin and the team can focus on the commercial risk. They look at the drug label, the size of the patient population, the competitive landscape, intellectual property protection, and – perhaps most importantly – reimbursement. Will payors, such as insurance companies, pay for the drug or product? If they will, what level of discounting or rebating will be required? Knowing that reimbursement rates vary around the world, the answers to these questions dictate what can be charged for the drug and its overall market potential.
Drug development is risky, no matter if the product is a small molecule, peptide, biologic, or nucleic acid. Devin and NovaQuest use financial models and a methodical diligence process to map risks and rewards, making the appropriate adjustments for each individual product. They balance the risk with solid financial structures and other mitigation strategies. Devin’s background is clearly beneficial for this process, but importantly, the company assembled a team with different backgrounds and expertise, helping to collectively fill gaps and blind spots each individual may have. This itself can reduce the risk of relying on one point of view.
Perhaps, that’s the takeaway message. Tunnel vision is a risk, one that can be minimized by gaining new perspectives, by learning from others and filling out gaps in knowledge. At NovaQuest, individuals with different viewpoints work together to evaluate new opportunities. Individually, while Devin may not have purposefully planned his career path, he’s kept an open mind and took opportunities to learn when presented with them. His collective experiences have now positioned him to review risk from a unique perspective. His career so far has demonstrated the value of acquiring new knowledge and accumulating diverse perspectives. By learning new things, he’s avoided the risk of being pigeonholed in a career niche, while being rewarded with synergistic skill sets that have allowed him to drive his career forward. It will be interesting to see what he learns next.
Special thanks to:
Devin Rosenthal, PhD, MBA, senior associate, NovaQuest Capital Management (Devin.Rosenthal@nqcapital.com)
Qiagen and Todd Festerling, PhD for sponsoring the blog