As South Korea delves deeper into new drug development strategies, unexpected connections are being made. Recently, Dr. Douglas Fambrough, the former CEO of Dicerna Pharmaceuticals, reached out to Hit News. In 2021, Dr. Fambrough sold Dicerna to Novo Nordisk for $3.3 billion and then made a remarkable comeback as the head of a biotech hedge fund, bringing with him unique insights and solutions for the biotech investment market.

One of Dr. Fambrough's key recommendations for the Korean biotech investment market is to 'take Korean biotechs public on NASDAQ in the United States.' While this may seem obvious to some, it was a refreshing shock for our journalists. Why should Korean biotech firms aim for NASDAQ? What changes could this bring to our biotech market? We explored these questions in depth during a two-day local video interview with Dr. Fambrough.

Dr. Fambrough, you seemed to have disappeared after selling Dicerna in 2021. How have you been?

"At 55, I took a long vacation for the first time, reflecting on the unforgettable experience of founding a biotech company and pondering my future. It was a time to reconsider what I truly loved about the biotech industry.

I undoubtedly love the biotech industry and want to remain involved. However, I don't wish to repeat the journey with Dicerna (laughs). Honestly, the success rate in biotech is quite low. Despite facing financial struggles and seeing the stock price plummet to $2.50, we were eventually acquired by Novo Nordisk. It was a 15-year journey where I gave it my all."

So, starting another biotech company is off the table. I heard you switched to investments.

"I dabbled in biotech stock trading and, after about a year, developed a fairly effective investment strategy. This led me to create the K Cap Biotechnology Fund, a small hedge fund that trades biotech stocks."

So, you don’t invest in unlisted biotechs. Is there a reason for this?

"Investing in unlisted biotechs essentially means establishing a venture capital (VC) firm. However, new VCs find it challenging to secure good deals. This means that after raising funds, they struggle to find promising ventures due to a lack of networking. If I could go back to when I founded Dicerna, I would collaborate with a VC that has accumulated resources and experience."

What do you mean by the resources and experience of a VC?

"Firstly, the ability to find talented individuals for biotech. Secondly, the capability to handle business development (BD) tasks until a BD expert joins the biotech. Thirdly, the ability to help establish initial drug development strategies."

It sounds like you have some personal experience in this area.

"Third Rock Ventures is a good example. It was founded by executives from Millennium Pharmaceuticals, the predecessor of Takeda Oncology.

These executives leveraged their extensive experience at Millennium Pharmaceuticals to drive several successful investments. Notable examples include Rhythm Pharmaceuticals and Agios Pharmaceuticals. The team at Third Rock had already built companies and knew exactly what new ventures needed based on their own experiences.

Nowadays, new VCs in the US take a different path. Often, they are staffed by individuals who have just earned their PhDs, completed postdoctoral fellowships, or recently become licensed pharmacists or doctors. However, we must remember that the origins of VC were quite different. Up until the 1960s, most people starting VCs were former CEOs or senior executives of companies."

So, a good VC should be a good mentor for companies.

"Exactly. Not every team member of a VC needs decades of operational experience, but it’s beneficial to have at least a few people with such backgrounds."

This seems to be a global issue, not just an American one. It appears that South Korea faces similar challenges.

"Although I'm not very familiar with the Korean situation, it makes sense. There likely aren't many people in Korea who have successfully grown biotechs to a global level and then transitioned into the investment sector."

Despite this, we need to find solutions. How can VCs help biotechs grow successfully?

"Successful VCs constantly communicate with executives and R&D teams of domestic and international pharmaceutical and biotech companies. This isn't easy. It's not like you can randomly meet these people in an office building without a reason. You have to find ways to meet them and continuously check what they are thinking and doing.

For instance, you need to find out what companies like Merck (MSD) are looking for. Are they searching for next-generation immuno-oncology treatments or expanding their presence in cardiovascular diseases? By analyzing about 20 major pharmaceutical companies, you naturally learn what they are interested in.

Their interests reflect medical unmet needs. That's where your company’s strategy begins. You need to build something that aligns with their needs."

Sometimes biotechs create demand even when big pharma companies aren't aware of it. Dicerna seems to have done that.

"There are times when you need to be a bit bold. When Dicerna started developing RNA interference (RNAi) therapeutics, no one was interested in acquiring the technology. So, you sometimes have to think ahead of the market and achieve something on your own.

However, being radically different and going solo isn't necessarily a marker of success. Getting fixated on this idea can lead to misguided strategies. Instead, the likelihood of success is higher when you build on proven drug mechanisms with slightly improved technologies. In other words, in the 'technology vs. science' debate, choosing 'technology' is often a safer strategy."

What do you mean by choosing 'technology' over 'science'?

"When developing new drugs, if you delve into new science that hasn't yet become technology, you face numerous uncertainties. For example, discovering a new target that no one has studied makes it very difficult to predict whether it will produce the desired effect. More often than not, your assumptions will be wrong, increasing the development risk."

This sounds like advocating for developing 'Best in Class' drugs over 'First in Class' drugs.

"That's one way to interpret it. Developing a 'Best in Class' drug means you are less likely to fail completely because you are working with science that has already been validated and successfully turned into technology in the market."

But didn't Dicerna succeed by developing a 'First in Class' drug?

"There are always exceptions. Dicerna's choice to focus on gene therapy was a strategic decision. For conditions like immune or inflammatory diseases, the mechanisms are so complex that it’s nearly impossible to predict everything. Even if you understand all the characteristics of the contributing cells and biomolecules, it’s impossible to fully grasp how they interact.

However, genetic diseases are different. They are caused by a single faulty gene. If you target this single cause effectively, the chances of successful treatment are higher. Since you're only targeting one specific gene, you can select a more homogeneous patient group. This means that even with 'First in Class' drugs, the factors to consider are much simpler, reducing development risk."

Let's discuss funding and commercialization strategies for Korean biotech firms. They have been facing tough times in recent years. It’s hard to get listed, and even after listing, it remains challenging. Licensing deals are rare. Are there any alternatives?

"List your companies in the United States. European companies are increasingly doing this because the U.S. stock market is more receptive to innovative technologies than any other market. It doesn’t matter if the technology comes from Mongolia or New Guinea; if the technology itself is attractive, that's all that matters.

It seems that Korean companies either don’t consider listing in the U.S. as an option or are afraid of it. However, if the Korean stock market can't support the company's growth, shouldn't they look to the U.S.?

For Korean biotech firms, listing locally or licensing are almost the only means of raising funds. But the scale of the Korean stock market and licensing deals can't sustain continuous growth. If they succeed in discovery, they need to fund expensive preclinical trials. If preclinical trials are successful, even more expensive clinical trials follow. Success in early-stage clinical trials means they need even larger funds for late-stage trials.

Biotech companies need more substantial funding as they get closer to success. Without an environment that can provide this, they can't grow properly. Licensing has ultimately been a survival strategy forced upon Korean biotechs."

Could mergers and acquisitions (M&A) be another strategy? M&A is quite rare in the Korean biotech market, and there haven't been any cases where a U.S. big pharma company acquired a Korean biotech firm.

"Mergers and acquisitions are difficult to use as a strategy. There are only about 20 to 30 M&A deals annually, compared to the countless biotech companies in the industry. It's too rare an event to be considered a viable strategic option.

However, there are prerequisites for companies that do get acquired. The developing substance must be entirely their own. If it’s licensed out (L/O), it doesn’t qualify. If the new drug being developed is licensed in (L/I), it should be paying very low single-digit royalties

From the perspective of big pharma, what factors do they consider when deciding whether to license in a biotech's new drug or acquire the company outright?

"There’s an American saying, 'If you can buy the milk, you don't need to buy the cow.' This means if they can secure the new drug more cheaply through licensing, there’s no reason to spend a lot of money to acquire the biotech company."

That's an interesting expression. Could you give an example?

"Let’s simulate from the perspective of a big pharma company. Imagine they find a new drug with excellent Phase 2 clinical trial data. They propose to license the drug from the biotech company, but the biotech company asks to be acquired instead.

Now, the big pharma needs to calculate which option is cheaper. The drug has completed Phase 2, so it still needs to go through Phase 3. If they go with licensing, they would spend $100 million on Phase 3 trials and pay the biotech company $100 million for the licensing fee. So, the total cost would be $200 million.

However, if they consider buying the biotech company, they find it has a market capitalization of $500 million. With the typical M&A premium of 60%, the acquisition cost would be $800 million. Additionally, they would still need to spend $100 million on Phase 3 trials, making the total acquisition cost $900 million.

The decision is straightforward. Licensing the drug costs $200 million, whereas acquiring the company costs $900 million, all while the risk of failure in Phase 3 remains. In such a scenario, big pharma would choose licensing over acquisition."

But the situation can sometimes be more complex. Acquiring a company might not just be about the new drug but also about the experts and the platform within the company.

"That's exactly what happened when Dicerna was acquired by Novo Nordisk. They wanted not only our key pipeline but also our technology platform. Let me tell you about that day.

Dicerna was already in a significant collaboration with Novo Nordisk. One day, without any prior notice, the CEO of Novo Nordisk called me directly. He suggested expanding our collaboration significantly and proposed licensing our new drug and platform, offering $500 million as the upfront payment.

At that moment, I instinctively understood his thoughts. The fact that the CEO himself called, instead of using the usual business development channels, indicated that they were genuinely impressed with our candidates and platform. Mentioning a specific amount meant he had already discussed it with his board. If I said 'no,' his only remaining option would be to acquire us since they were determined to get our candidates and platform.

Recognizing his intent to cheaply acquire our new drug and platform through licensing, I immediately responded with 'no.' Shortly after, we received the acquisition proposal, and that's how I sold Dicerna to Novo Nordisk."

Novo Nordisk had another reason for acquiring Dicerna, didn’t they? They lacked specialists in RNAi technology, so acquiring Dicerna also meant bringing in a team already proficient in this technology.

"Exactly. Big pharma often struggles between building internal expertise (build) and acquiring external expertise (buy). Novo Nordisk wasn't the only company interested in Dicerna; Eli Lilly was also interested. However, while Novo Nordisk chose the buy strategy, Eli Lilly adopted the build strategy from the start. They established the RNA Center of Excellence in Boston and invested hundreds of millions of dollars in developing their internal team."

Lastly, I'm curious about the strategy you would have adopted if you were developing new drugs in the Korean investment environment. If you had $30 million (about 40 billion won) and a few candidate substances, what development strategy would you pursue?

"As I mentioned earlier, I would choose 'technology' over 'science.' This doesn't necessarily mean developing only Best in Class drugs. The key is to ensure that the mechanism and modality of the drug I'm developing are sufficiently technologized in the market. So, if I had $30 million, I would likely focus on developing bispecific antibodies, trispecific antibodies, ADCs, or antibodies applicable to ADCs."