Medical Innovations Need Science and Capital

Shaun Morgan: Welcome to the Invest by Design podcast. I’m Shaun Morgan, the Director of Education at Eventide. At Invest by Design, we use stories to pull back the curtain on how markets, industries, and economies work so that you can better understand the complicated world of investing. Our hope is that as investing becomes less of a mystery, you’ll understand how important it is to be intentional about how you invest, not only for your own financial goals, but for the wellbeing of others around you.

Blake: Yeah, so one of the interesting things during that whole process is one of the times we were actually in Ohio doing one of the follow-up meetings with the doctors and the medical service providers and Nationwide Children’s. They asked us if we would be willing to allow a private equity investor into the room during all of this trial data collection. And I said, yes, right? And the doctors were kind of shocked that we would let somebody else in the room, and I said very simply and directly, it’s like this drug wouldn’t exist without them.

Shaun Morgan: When you think of the role of a professional investor, you probably think of someone at a desk looking at stock charts and spreadsheets, studied finance in school and wears a suit to work. And if you were to guess why they got into investing, you’d probably assume it’s for the money. That’s because when we think about investing, we don’t think about the entire ecosystem of our financial markets. When you invest in a company or a professional investor, investing in a company on your behalf through a fund, your investment is enabling the company to carry out its mission. In the case of biotech companies, oftentimes they’re creating therapies that will impact some of the most vulnerable people in the world. In this episode, I interview Dr. Kyle Rasbach. He’s a Managing Director of Eventide Ventures and a Senior Research Analyst at Eventide. In his role, he seeks to understand the science behind the therapies being developed by biotech companies so that he can allocate capital where he believes the most viable opportunities are. But sometimes understanding the science requires the same level of education as a scientist or a medical practitioner. So Kyle holds a PhD in pharmaceutical and biomedical sciences and a PharmD from the Medical University of South Carolina, and he completed his postdoctoral training at the Harvard Medical School. He also has an MBA from the Citadel, and he studied biology for his undergrad. His story brings to light something we don’t often think about with investing, how the investment profession can be a helping profession.

Kyle Rasbach: When I was in school, I was intellectually curious. I had some objectives I wanted to achieve scientifically and medically, but didn’t ultimately know where my place in the world was going to be. So I chose a path that would allow me to explore that a little bit more out of school. And that was doing a fellowship where I could have one foot in academia here in Boston at the Harvard Medical School, and another foot in the industry, working in a project at the Novartis Institutes for Biomedical Research. And ultimately along that way, discovered through a friend that equity research was a career option for me. And it was one of these moments where I learned that I could use everything. I was interested in all the skills that I’d acquired academically, the scientific skills, the medical skills, the skills in business, and put them into some frameworks that could tell you if this business is good or bad and how you could allocate capital to really support the best ideas. And once I realized that that was a possibility, that seemed like the greatest option that I never knew existed.

Shaun Morgan: Now was there a general perception for people like you that leave your education and go into the investment industry as opposed to going into academia or going into practicing medicine?

Kyle Rasbach: Yeah, so it is a funny story. So it actually brings me back to a time when I’d been an investor for 10 years or so and was invited to go back to my alma mater to talk to students about alternative career paths. And during that visit, got the chance to have a private meeting with the Dean of the graduate school, and he sat me down in his office and he told me about a little book he keeps, and in the book he marked students after they graduated as either successes ultimately or his failures. And so when he opened up the book and showed me my name, he had me marked clearly as a failure. I think the idea is that if you’re not a practicing physician, you’re not a scientist. We spent all this time and money training you to do those things, to do good for the world, and you left those professions and you chose to go into finance, which is viewed very differently, I think, from a lot of people inside their ivory towers.

Shaun Morgan: At the beginning of the episode, you heard a clip from an interview I had with a man named Blake. He had no connection to Kyle at the time, but his story highlights a different view of the importance of professional investors.

Blake: Yeah, well, my wife and I had been married a few years and had our first child and it was a little boy and it was a whole bunch of fun, and he was great, and we learned kind of pretty early on that while he’s not really holding his head up very well and he was slow to gain physical movements and roll, he didn’t roll at all. We began wondering is something not right here? Our pediatrician at the time was like, well, there’s all sorts of things, and of course in this day and age, you hop on Google and you do all the research and you learn about the most horrible things that it could possibly be, and you realize that there’s a one in 10,000 chance of that, and it’s probably one of these other things. But we watched it for a few months and eventually it became clear that we needed to go in for further testing.

So we ultimately went in for some genetic testing to see if it was that most horrible thing, the one in 10,000 or whatever, which was called the SMA, Spinal Muscular Atrophy. Unfortunately, that’s what it was, which was a degenerative neuromuscular condition they gave us. At that point, I think he was about three months of age. They gave us a three to five month time horizon that he’ll live three to five months depending on how aggressive we get with our medical intervention. Through that diagnosis, we learned that there was nothing. There was nothing we could do. There was no where we could go. There were no trials, no amount of money could be spent to fix this thing. Science hadn’t gotten there yet.

Shaun Morgan: Blake’s son was born in May of 2012 and died in January of 2013. At this time, most babies born with SMA one would die within one year of their birth, and virtually none of them would live past two years of age. In 2003, the Human Genome Project revealed that they had successfully mapped the human genome, giving us a more complete understanding of how human DNA works. And importantly, it gave us an unprecedented opportunity to address the root causes of some of the most devastating diseases that have previously been untreatable. SMA one was one of those diseases. Unfortunately, the combination of scientific innovation and capital investment had not led to the development of a therapy in time to save Blake’s son in 2012, but a few years later, scientists were on the verge of a breakthrough. Kyle was an equity research analyst at an investment firm at the time, and he remembers studying the science behind the therapies that were being developed as he looked to invest his company’s capital to fuel the innovation.

Kyle Rasbach: Yeah, so SMA one stands for Spinal Muscular Atrophy type one. There’s an inability of your nerves to talk appropriately to your muscles. When you want to move a muscle, your brain tells a nerve to fire and move that individual muscle. And when you have an incomplete neuromuscular junction by not having a functional SS m A protein in layman’s terms, it used to be called floppy baby syndrome because these babies were born without the ability to have any muscle tone. You can imagine if you don’t have any muscle tone, all the things that muscles are required for not only spontaneous movement or voluntary movement, but your heart is a muscle, your diaphragm that helps you breathe is a muscle. And so ultimately these babies ended up passing away before they turn one years old.

Shaun Morgan: Tell us about when therapies started being developed for SMA and the types of companies that were developing these therapies.

Kyle Rasbach: It takes me back a couple of years, probably to 2014, 2015, you started to see people coming up with these novel gene therapy ideas. It is just an idea at the time that we could introduce some of these nonfunctional or replace these non-functional proteins with new functional proteins. And remember sitting in a room when scientists in this specific case came in, former scientists from Nationwide Children’s Hospital where they’re pioneering some of these therapies, came in and started to show some of the first preliminary data where these babies that had received a gene therapy for SMA were starting to meet some motor milestones that would’ve been unthinkable previously, and really encouraging moment when, especially you started to see babies sitting up for the first time, and that’s something that these children would never be able to do.

Shaun Morgan: In 2013, Blake and his wife had their second child, a healthy daughter, and two years later in 2015, they gave birth to another daughter.

Blake: And we come to find out that this child through in utero testing has SMA as well, but in the time between the birth of our son and the birth of our third child, our second daughter, the landscape had completely changed. Not only was there one trial to look at, there were two, there was all sorts of hope and promise and we got to meet with the doctors and the researchers and see kind of what was available and got to actually had options. It wasn’t just an option, it was multiple options that we got to research and study, and we settled in on one of the two trials, and when we call them back and say we’d love to enter the trial, they we’re so sorry the trial’s full. We just accepted our ninth patient.

Shaun Morgan: Each clinical trial requires a significant amount of money to perform. So the doctors and scientists developing the therapy often find themselves in the conference rooms of professional investors like Kyle in order to raise capital to fund another trial. It was Kyle’s educational background that enabled him to understand the science behind the therapy that the company was developing and use his judgment to decide whether to enable the company to expand the next phase of clinical trials and allow more children.

Kyle Rasbach: It was at the point in the company’s development, this is still a really very, very small company where they were not able to enroll additional patients in clinical trials till they received additional funding. So in my role as an equity analyst, I made the assessment that this is going to be something very impactful that deserved additional funding and at least a chance for these babies to experience this, to continue to experience the potential benefits of this drug. And so I led a series refinancing that ultimately helped recapitalize the company in a way that allowed them to continue to progress their clinical trials in a way that would ultimately demonstrate the ultimate benefit of the drug.

Blake: When my wife was about, I don’t know, 30 weeks pregnant until she gave birth at 40 weeks or so, but I think it was around like 36, they had decided to expand the trial and allow more babies into it, and so they took it from nine children to 15, and that allowed us to hop in, so we were absolutely thrilled about that.

Shaun Morgan: Blake’s daughter received the treatment and it worked. She’s alive today due in part to the comprehension and discernment of research analyst and the backing of investment capital.

Blake: My wife and I came to realize and to see not only the value of biomedical research and everything that’s going on in the biotech space to contribute to human flourishing, but the sort of combination of so many things have to come together from the medical research and the universities behind that and the nonprofits behind that. Then those ideas showing promise and investor capital getting behind it, and then the hospitals being willing to take the risk and the FDA granting approval and making sure things are safe. All of this has to come together or my child and many like her would not be alive. Yeah, she’s a remarkable little spunky thing at school. Doing well. She reads like seven year olds read, she plays, she’s got friends so that she can be just like any normal little girl.

Shaun Morgan: We might just be in the beginning stages of a revolution in biotechnology, spurred on by the brightest minds, developing therapies, conducting clinical trials, and judging which therapies to enable through capital investment. I hope, now when you think of professional investors, you think of the lofty role that they have in playing a part of the ecosystem that enables the innovations that have dramatic impacts on all of our lives, far from being failures that sold out to go into the financial industry investors, the professionals at investment firms and the people investing in funds through their retirement accounts can literally save lives. If you enjoyed this episode, go ahead and subscribe so that you can know when future episodes come out, and if you manage your own investments and want to know more about Eventide, visit eventideinvestments.com or if you work with the financial advisor, reach out to them and ask if investing with Eventide is right for you.