For our most recent MBG lunch series we had the privilege to host Dr. David Sable. Dr. Sable currently directs healthcare investing at Special Situations Funds, teaches entrepreneurship at Columbia University, and writes a blog for Forbes (as featured on our news sources roundup). Before entering investing, Dr. Sable co-founded the Institute for Reproductive Medicine and Science at Saint Barnabas Medical Center in New Jersey and Assisted Reproductive Medical Technologies, which was acquired in 1999.
Dr. Sable fielded questions from students on everything from the entrepreneurial process, investing strategies, and drug pricing models. Here are some highlights from the discussion.
Jump right in, but do it thoughtfully
There’s no recipe to entrepreneurship, you have to just take the plunge. Being successful in an academic setting means calculated risk mitigation, its predictable. In entrepreneurship those rules don’t apply. That comes as a shock if you’re a serial succeeder with a brand name resume. But it’s a lot of fun. It’s a real way to be creative, because you’re solving problems that no one has addressed yet.
You have to learn entrepreneurship by doing it. First, come up with a name. Otherwise, you don’t have a company, you have a hobby. Then come up with a 5-7 word description, e.g. “standardize and automate the IVF lab.” With a name and a brief description of your vision, you’ll be able to immediately separate the world into people who care about your company, and everyone else. You should constantly be on the lookout for people who can give you advice, mentor you, buy your product, invest in your company, etc. Once you start talking to people, you’ll build confidence and stress test your assumptions.
Arm yourself with the facts
Every time you present your business, you need to defend every number you come up with. You have to be harsh on yourself, and your business plan may or may not fly based on your ability to convince people.
For example, take a company that is developing a direct intracranial injection of medication to treat Alzheimer’s disease. This treatment may require surgery every 6 months. Are there enough patients with chronic intracranial problems to allow for assumptions regarding serial intracranial surgery? What are number of operating rooms, number of neurosurgeons, aggregate cost for doing all that surgery even if it prolongs lives? You have to test your assumptions yourself, and then try convincing others.
A bad plan is better than no plan
Writing a business plan isn’t for other people, it’s for yourself. In a biotech startup, you need to think very carefully about funding, IP strategy, and proof of concept.
First, how are you going to fund your company? In biotech, you schedule the value inflection points. How do you prove to each level of check writer that you’re worth investing in?
Next, what’s the IP strategy? Is it composition of matter or a use patent? Who else owns patents in that area?
Third, what’s the proof of concept? How are you going to show that it works? This is usually a reasonably straightforward set of experiments that moves from the petri dish, to mice, other animals, and finally in humans.
Biotech investing can be as much about trading as it is about investment
In biotech, you can’t mistake market price for intrinsic value. There’s a huge dissociation between the fundamentals of the company and the performance of the stock. Often, people will be taught a set of discounted cash flow equations that input expectations for future profits; that works great only for predictable cash flows — for deciding lottery payouts of a lump sum or $1000/week per life for example. Biotech companies have very different optionality timelines with uncertain competition and time tables. It’s impossible to plug that into a set of equations and come up with anything more than a guess. Analysts will come up absurdly precise price targets, but the price is really whatever the market says it is.
You eventually realize that there are structural things about the way a market works, and if you don’t understand them you’re going to be roadkill. Having been a doctor can be an advantage for investing in healthcare, but only if coupled with an in-depth knowledge of how the stock markets themselves work.
If you have more questions for Dr. Sable, you can find him on twitter at @dbsable!