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EF: Earlier this month, you attended the 36th Annual J.P. Morgan Healthcare Conference in San Francisco, which has grown from a small affair that was essentially “the birth of biotech” to a venue where people are looking to hear about the next multi-billion-dollar merger, cannabis drugs, or what Amazon will do next in healthcare. What were you keeping an eye on there, and what were your most interesting takeaways?
GS: JP Morgan has multiple benefits because it has grown so much and has really become a pharmaceutical and biotechnical conference. We set up board meetings with the startups we have invested in during the week previous to the conference, since all our board members are there already, and this allows us to very effectively conduct our board meetings without having to travel all over the world. Secondly, it continues to be a great place to assemble because there are key decision-makers from many strategic areas, which are very important to present the projects in the early stages—and, in the late stages, receive real potential offers that can move you forward or get you access with investors. It is a very important place where you can meet face to face as a seller and have the right people across the table from us. And finally, it is a complement to the buyers’ market, allowing us to find potentially interesting drugs at an earlier stage, pre-clinical going into clinical or first-stage clinical that we know are good potential licenses; even if it might be a little early we still want to start developing a relationship. One wants to know what their plan is and how their management works, so that further down the line one can do a license for the product.
EF: Any surprises or good outcomes that you can tell us about?
GS: Well, you win some and lose some, but it is the final score that counts. We were able to close two licenses and finalize another investment.
EF: Bill Gates wrote a recent piece in The Wall Street Journal titled "The Best Investment I've Ever Made," where he calculated that the US$10 billion he has invested in global health funds has turned into US$200 billion worth of social and economic benefits. With this incredible return in mind, why do you think there is such reluctance to invest?
GS: I think there are a couple of reasons. First, healthcare requires a particular kind of investor, one that has a longer than normal time frame and higher than normal risk acceptance. Nothing in pharma happens in a hurry. 2 to 3 years is short term, and most investments have a 5-year expectancy of return, which means that the people who go into healthcare are ones that know it well and agree with the timelines and value generation. Secondly, there is a lack of belief in Latin America, that we are unable to do the things we are actually able to do. The international money, the large funds and banks, are not opposed to investing in emerging markets, but they do want to have success stories to pursue. We are starting to see some success stories in China where now a lot of capital is pouring in, and I am hoping for a similar trajectory in Latin America to start bringing money to this region.
EF: Is it just a matter of confidence; are the Chinese more confident than Latin Americans?
GS: It is not a psychological matter, it is a matter of having the structural elements in place to get the first examples through. It is not about trusting ourselves, but of others trusting us. People believe in China because they started to see innovations coming out of the Chinese market with serious potential for worldwide registration and commercialization. In Mexico, we have very few of those examples. We need to have more of them and they need to be born from Mexican financial support. There are elements that are missing and I fear will continue to be missing. One is clear government support for the translational medicine stage. The science stage is nicely funded, but then there is a gap, this “valley of death” where the government doesn’t want to invest because it’s no longer science but business, and business doesn’t want to invest because it is too much science for them, and not far enough along to see the returns! So here you need both government and the private sector to take risks and invest in the best products. Here is where INCIDE has been working very hard with CONACYT, with the Instituto Nacional de Salud, and with UNAN to find the products furthest along in the development process and link them with companies and private money through INCIDE’s private equity fund, with the goal to incubate them and bring them to a place where they can license or register their technology in Mexico and in the US.
EF: How close are you to bridging that gap?
GS: I think this is something that happens because of the “tipping point,” so to speak. I will refer to the bio-region of Barcelona as an example, as it was a bit like Mexico, with some good pharma companies, some good researchers, and a government, all working without any coordination. Then, when they established the bio-region, they started putting all these factors together. They joined the researchers with the companies, gave government money to ensure that it happened, created an organization to foster projects—and the result is a very productive bio-region of successful international Spanish companies. I think something similar could be achieved in Mexico. We have the companies, the researchers, the great institutions; the main challenge is the lack of unity. In these last few years, a lot has happened; the creation of the Consorcio Nacional de Medicina Traslacional should be seen as a pivotal point where government, industry and academia have come together to work for these products, but there are risks in the future. The main risk is that the government might not be as interested in translational medicine as they are in basic medicine and that might result in a lack of resources. This would be myopic, because in the end, basic science provides knowledge which is fantastic but it does not provide any social benefit if it doesn’t reach the community, and the way for science to provide a benefit to the population is through its application in products, services, medical practice, etc.
EF: Do you see yourself more as a unifier in a public sense or in a private sense?
GS: I see myself as a bridge between the two. My role at INCIDE is precisely to be that bridge, to be able to give the private-sector researchers the tools, strength, experts, and money they need to be able to bridge that gap, and to give the industry the translators they need to make themselves relevant to these networks.
EF: From your place as a company owner with a strong international orientation, how much of an example do you think you provide to those other companies that may not yet have not followed this path?
GS: All the large Mexican pharmaceutical companies are doing or trying to do innovations. Every single one of them has from 2 to 5 or 7 or 11 products that are focused toward innovation, and they are already being linked with specific projects. This is something that we didn’t see before. Mexican pharma is doing this now, and it will generate the need to capitalize on the investments required for innovation. Companies will then see how much they are investing in clinical trials, how much time it is taking them, how the regulatory requirements ask to support the innovations more and more, and they will look to capitalize in more markets, generating a push for these innovative companies to bring their projects to fruition either through licenses or through their own distribution in other countries.
EF: How do you balance the risk between innovation and cutting edge in your own portfolio, for example, dermatology vs. CNS?
GS: Looking at the extremes is a good way to have perspective. In pure generics, the only real benefit is cost, because theoretically quality is standardized by regulation. To be the low-cost supplier, one needs to be the low-cost producer, and the only way to be the low-cost producer is to achieve economies of scale. The final extreme is that generics will only be manufactured by very few very large generics companies, and globally that is what is happening. Anybody else who is not PISA would be concerned that they may not have the volume required to compete! Playing the generic market is an extremely high risk, even though it feels like a lower investment in the end. Strategically I see no exit to being in that market. On the other hand, with innovation, the risk must be diversified. That can be done by having multiple different projects and products, for example in gynaecology, gastroenterology, CNS or respiratory. This allows being successful in some and failing in others while still having an innovative portfolio to push into the market in the places where one can be successful. Carnot has focused on specific niches that fall out of the strategic interest of larger companies. Antibiotics are a good example. There are huge unmet needs due to over-prescription and drug-resistant bacteria, but large pharma companies are no longer particularly interested in this market, so that opens up possibilities for medium-sized companies to develop or co-develop licenses and bring these sorts of drugs to market. Many times we pull out drugs that might not be profitable but we know they are a necessity to a population that may be too small and too limited for many multinationals to go and participate.
EF: You sit on many boards, not only in pharmaceuticals but in aviation, telecom etc. What are the most transferable learnings between the different areas you deal in?
GS: To use a cliché, ‘it is not the horse, it is the jockey’, and a good jockey can get the horse moving along very nicely, and even change horses if he isn’t on the right one! A bad jockey can kill the best horse, something we have seen happen many times. One of the takeaways would be to get the right people, the right CEO, one humble enough to surround himself with competent people. Second, having incentives aligned between investors, management, and the independent board members is critical for the company to make the right decisions in the long term. Having said that, I would add that I feel much more confident in my decisions regarding healthcare than I do with my decisions and participation regarding non-healthcare. In retrospect, I would focus more on my area of expertise and diversify less, and that’s what I have been doing more and more.
EF: What’s the best piece of advice you have ever received?
GS: The best piece of advice I have ever received was not advice, but I took it as such. It was from my brother when I was CEO of our 3rd generation family company. He is my older brother and we had this terrible idea of being joint directors, which obviously generated all the issues one would expect: information wasn’t flowing, we were both hearing half the story and not the half we wanted to hear but the half they wanted us to hear. My brother was very smart when he realized this and he came over to me and said, “You were here first, you got this.” Later the same happened when he was CEO of the company when I came back from some time off, and he had taken control of the administration of the company and I went to him and said, “You’ve got this.” The advice was that you are not as good as you think you are, and there are always different ways of doing things that you can learn from and use. It is very easy to think that your way is the right way but there are multiple ways; one just needs to open one’s mind and let the people grow and develop in their own ways. So I learned to let others grow and do their own things. Even if it is not your way, there might be a lot of value learned from their execution of activities.
EF: If we could talk to you in 2 or 3 years from now, what would you hope to tell us?
GS: Mexico has a lot of needs regarding healthcare. The system has a lot of beneficiaries, and it seems like the new government has the political willingness to address those beneficiaries. What I hope will happen in 2 years is that those beneficiaries would be addressed in an intelligent cohesive way allowing for healthcare services and healthcare products to be more available to the population and so, have safer healthcare coverage than what they have today. This should reflect itself in the following: 1. Clear priorities and guidelines from the government, so that we can focus on them. 2. Incentives to go with those priorities and guidelines, which don’t necessarily need to be cash-out, they can be incentives based on public purchase, fiscal priorities, and regulatory support.
I would expect if this happens, the national industry will align itself with these priorities and use its significant technical and financial capacity to supply the government with solutions. I see things like vaccines and biotechnological as critical points. Mexico’s vaccination and infrastructure leave much to be desired, as do its biotechnology sector. If the government would be interested in these sectors and we got the right signals as to the priorities, the national industry would gladly align itself, invest and generate solutions that could come out before the end of their 6 years in power. So I would hope to tell you in 2 years that 3, 4 or 5 projects are already realities being moved forward. And in 6 years I could put a box of Hep-B vaccine on the table and tell you it is manufactured in a new Mexican plant!
EF: In a Mexican plant owned by you, or somebody else?
GS: By myself or by some others, or by a group even, any of these would make me very happy. As the projects and the risks are so large, it would be better that it would be owned by a consortium so depending on the project, this is something that should not be done by an individual company. We are talking of large country problems and large healthcare problems with large solutions as well.
EF: Do you have any final message for our Mexican readers?
GS: My final message is not so much to the readers but to the policymakers. The industry believes that they are between a rock and a hard place, and I believe that in a sense they are. Therefore, they need to do things that are not only right by principle but right by actual practice and execution. They need to be smart in what they want—but they need to be even smarter in how they go about getting it, because that is where you can lose the battle.
