A Discussion with Nikhil Thatte, Principal at Lumira Ventures


Nikhil graduated from McGill University with a Bachelor’s Degree in Chemical Engineering in 2011. Working at the intersection of the healthcare field and business, Nikhil has transitioned from healthcare consulting, working as an Associate and Associate Consultant at ZS Associates, to healthcare private equity, working as an Analyst becoming a Director at DRI Capital, to his current role as a Principal with Lumira Ventures. Among his many responsibilities, Nikhil focuses on investment due diligence and business development, helping bring to market the next generation of life science therapeutics and medical devices to market. This interview is brought to you by our outreach lead Malak Ali and sponsorship lead Rikard Saqe.


Interview Highlights


BioTEC: How did you get to your current role as a Principal at Lumira Ventures?


Nikhil: I would say I have a fairly unconventional educational background for someone in the healthcare VC space. I graduated from McGill with a degree in Chemical Engineering, and while my peers were looking for jobs in the oil and gas field, I always had healthcare at the back of my mind given my prior summer work experience at Health Canada and Bayer. In addition, I was looking for a lifestyle in the big city so trying my hand at something in business felt like a logical step. Perhaps the discovery was a little bit late, but in my 4th year, I learned about management consulting as an interesting field and was fortunate to get a position as an Associate with ZS Associates, a firm that focused on sales and marketing consulting in the pharmaceutical industry. With them, I learned about the healthcare industry - diseases, companies and drugs - and how to tackle the various business problems pharma and biotech companies would encounter. I built my expertise in sales forecasting and analytics but touched on nearly every aspect of developing, launching and marketing pharmaceutical products. With that experience in hand, I moved on to DRI Capital, a private equity firm that specializes in acquiring royalties on pharmaceutical products. As an Analyst and later Director, I was part of the Business Development and Investment Teams, and built relationships with inventors, academics and pharma/biotech companies and worked with them to purchase their royalties. After 3 years I felt it was time for a new challenge - I had gone through the motions and accepted an offer to INSEAD’s MBA program. Ultimately, however, I felt all the reasons people choose to do an MBA - expand the network, change career trajectories, take a break from work to learn something new, etc. - didn’t quite apply to me as I was happy in healthcare on the investment side. After some reflection, I felt my experience could be useful for helping earlier stage life science companies grow. Through equal parts luck and persistence, I connected with the team at Lumira and joined as a Principal with the Investment Team in early 2019.


If you look at the types of people in healthcare VC, most have science backgrounds - lots of PhDs or folks that started as successful entrepreneurs in the life science space. Most had science knowledge first, then built their business and technical experience through their careers. I essentially did it in reverse as I had the technical experience first, learned the business side of things early in my career, then (re)learned fundamental science and biology to assess the early-stage companies we see. That said, I do think the key to having a successful VC firm is having a diversity of backgrounds, not just in education and experience, but in gender, cultural, and geographic diversity. Combining all those different points of view gives better odds that you end up with a more robust investment thesis.


BioTEC: For a lot of students that have primarily technical knowledge as you had, but not a lot of business knowledge. What are some ways they can become more competitive in the job market? (differentiate themselves)


Nikhil: I wouldn’t worry too much about having business knowledge because that is something that just comes with time on the job and experience. Ultimately it really comes down to being selective with the opportunities you choose in the early stages of your career, scrutinizing how those opportunities benefit your profile, and having the endgame in mind. It’s about being meticulous about those summer jobs and internships. Every time you agree to take a job, you should try to make sure it is going to continue giving you options in the future even if you don’t know exactly where you are going to end up. I find that some people select very specific jobs and get siloed into a specific track, which makes it harder for you to pivot and every time you do, you have to start from the bottom. It really is just being meticulous in building up your resume over time such that you’re giving yourself options into areas you’re passionate about.

Finding your passion may take some time but as you take on different roles, you’ll see what’s important to you and what isn’t.

BioTEC: That’s great to hear, especially since students often try to find their passion from the get-go and focus solely on that track, whereas it’s very important to keep your options open and be purposeful about what positions you take on. Now that we’ve gotten some advice from you, can you tell us a little bit about working at Lumira?


Nikhil: In terms of VC’s in general, what you see on Shark Tank and Dragon’s Den, is the glamorous side of things, but our first interaction with a company really is just them coming in and pitching their story in an hour. Lumira invests across the life science landscape - the majority of our target fund is in therapeutics, the minority in MedTech, and we have a small discretionary allocation for anything else on the fringe of healthcare, such as digital health and other models in the life science space. When companies come to us for the first time, they’re usually not showing us a physical product as you see on the TV shows, but instead, they have to sell us on conceptual science. Frankly, that’s not easy to communicate in an hour in that first pitch, but you really have to hook us for us to want to invest our time and effort to do more diligence. I estimate about 60% of our work is listening to new pitches and diligence new companies and the other 40% is around supporting our portfolio companies. Lumira typically takes an active role on the board in the companies we invest in. We get involved early on, especially for our Canadian companies, in providing guidance to make the right decisions. That means being involved in new hires, helping design preclinical/clinical trials, conducting market analyses for the companies, supporting subsequent fundraising processes, etc. I’d say there’s a healthy balance between actively supporting our portfolio companies and finding the next investment.


BioTEC: Going off of that, what and some positive and negative signs within the founders, business strategy, etc?


Nikhil: The very first thing you have to look at is science. That is the most important thing because if there’s no science, there’s no company. They have to be able to convince us of the scientific rationale behind why they think the therapeutic/device is going to be successful and how it will shift the treatment paradigm and improve the lives of patients if eventually approved.


The next thing we look at is the management team. Are they comprised of proven entrepreneurs? Are they talking to the leading experts in the world in the field and/or have them as advisors? Have they taken the right steps to date to bring the company where it is? The tough reality is that VC’s are extremely picky. We can find any reason to turn down a company. It’s about having as tight a story as possible. Being ready to answer any and all questions, being fully transparent, are all good ways to prepare. At a high level, having all the questions pre-answered that you foresee a VC asking. As soon as we spot a nuance, we are going to drill down deep until we get fully comfortable with making an investment.


BioTEC: As a VC, sometimes you invest knowing that 99% of the companies you invest in will fail, but that 1% that succeeds will make up for the other 99%. How do you balance those 2 aspects and how do you choose to keep investing in a company or drawing the line to cut your losses?


Nikhil: VC’s have different strategies on this. It depends on what risk you’re willing to take and defining catalysts and milestones where you’ll get in and get out. Typically in the tech space, say you invest in 10 companies, 2 of them will be slam dunks; that’s not how Lumira invests. And generally speaking top tier healthcare VCs don’t usually operate this way. If we invest in 10 companies, we believe at least 6 or 7 will ultimately be successful. If you look at our 2nd fund, the vintage year 2013, we’re now seeing the outcome of that fund and many of those companies have found success and provided us great returns on our investment. For example, Aurinia and Zymeworks were investments of that fund and as of our conversation, these are the two highest valued Canadian biotech companies with market caps over $2B. Also, we won’t usually just give a company the entire lump sum investment upfront, as we typically stage our investments on well-defined milestones in order to de-risk the investments further. For example, we might put in $5M into a company to get through their Phase I clinical trials, and once successful, it would trigger a follow-on payment of saying another $5M to support the Phase II program.


We also have a lot of experience in this market and can generally predict how valuations will change if the company meets certain milestones. We can be very calculative and diligent when it comes to making our decisions and planning our returns if the companies are successful. We might exit after Phase II data where it’s a logical point for potential acquisition or may plan to go public to support Phase III. We can then decide if we want to go long term after the company goes public. Generally speaking, we’re happy when we can achieve 3x+ multiple on a particular investment but certainly consider holding further if we believe the long term prospects (which we usually do).


BioTEC: So then where do you start your investing? Especially since biotech itself is a pretty risky field.


Nikhil: It depends. For the majority of the companies, we invest in, at the time of initial investment 70%-80% is usually already in the clinic, so Phase I or Phase II clinical trials. For some, we do get in earlier when companies are in the preclinic, but for those, we like to see that there are good animal data and that there’s opportunity for it to be a paradigm-changing platform rather than just a single therapeutic target. When it comes to pharma or biotech, there’s a well-known concept called the Valley of Death. Pretty morbid term - but this is when you have reasonable scientific rationale but are stuck without investment to get through the preclinical trials and show the proof of concept. You need to do the R&D work and hire a contract research organization to do it and pay for the manufacture of the drug. It’s not cheap and someone needs to pay for it. It’s a double-edged sword. You need early data to get investments, but you need investment to generate that early data. A lot of companies sadly die at that stage. In the Canadian ecosystem, we do tend to get involved earlier (perhaps not always from a financial standpoint, but at least providing some early guidance and feedback) because we have a responsibility to support our local ecosystem. That said, we still do have to be selective because you can’t support everything, and ultimately you need to believe that what you are investing in will be successful. That’s when you have to go beyond the science and trust the scientific founders, KOLs, and been-there-done-that entrepreneurs who back the story.


BioTEC: Looking at the future, are there some exciting things you foresee in either VC or biotech? Perhaps even some not-so-exciting things?


Nikhil: Absolutely. The innovation that is happening right now especially in Canada is very exciting. Companies are getting better and better at telling their stories and it’s becoming hard for VC’s to choose which companies to invest in. The caliber of innovation we see, especially in the Canadian ecosystem, is better than it's ever been. We have a world-renowned healthcare system, leading researchers and facilities tied to our strong education systems, leading KOLs and clinicians, and strong medical infrastructure. All this contributes to more and better innovation coming out of Canada. In 2020 already we’ve had 2 major biotech IPOs out of Canada in Fusion and Repare, whereas prior to 2014 there were virtually none. Really encouraging and for new grads in the life science field, there is so much opportunity to be part of these emerging companies.


The emergence of these Canadian companies has attracted a lot of US VC’s as well because such strong innovation is occurring here. During recessions unfortunately VC’s have a tendency to go back to their “home” countries and companies need to rely on more domestic sources of capital. I hope COVID-19 won’t cause this to happen (so far impact has been minimal) and the Canadian government and other funding entities have put in a number of programs in place to ensure the survival of early Canadian stage companies. We want to see the success be shared and continue to be shared in the Canadian innovation ecosystem. The more access to the capital you have, domestic and foreign, the more likely that will be.


Another trend I’m seeing is that if you look at the average round size, companies are getting a lot more money with each round - it has skyrocketed over the last 5 years. It’s a little worrisome that so much money can be put into some companies that have so little science to back them up, where it’s just a “sexy science” concept at that point. What I worry about here is capital inefficiency, that VCs are no longer thinking about hitting the milestone and instead are okay infusing tons of loose capital into early companies. In my personal opinion, this sets a dangerous precedence that companies do not need to be as tight with their budgets even though it is highly important for early-stage companies to have that mentality. I hope it doesn’t spiral out of hand.


Another thing that near all investors are wearily watching are the public markets. The whole concept of value investing seems to be thrown out the window as public markets have become more about sentiment than anything else (see Tesla). Biotech has actually not been impacted after rebounding from the March fall and IPOs have continued as usual. That said, many are expecting that these frothy markets might not hold too long into 2021 but if 2020 has been any indication, public markets are incredibly difficult to predict. The worry here is more about uncertainty and unpredictability than anything else. Lots of companies are coming to us saying they expect to IPO in late 2020 or 2021, but frankly, they shouldn’t be relying on that when the situation could change quickly.

In terms of areas within healthcare specifically, there are lots of areas to be excited about.

Personally I have been and continue to be very excited about gene editing, gene therapy, and cell therapy areas. 10 years ago, no one would touch these areas with a ten-foot pole because of all the safety challenges companies had faced. However, in the last 5 years new treatments have been approved (Luxturna gene therapy, Kymriah, and Yescarta cell therapy) that have caused a massive new tidal wave of innovation and renewed research in these areas. The potential applications are very broad and the expectation is that they can improve the lives of patients suffering from many diseases. Canada has some leaders in this field and these areas as a whole will only grow as the technology becomes more refined and sophisticated.


BioTEC: Having a partnership between the VC and the company is very important. How has the support you provide to your companies changed during the recession and COVID?


Nikhil: By the first week of March when the impact of the pandemic was becoming more evident, we put our pipeline opportunities on hold momentarily until we had a better understanding of what was going on. We turned our focus on our portfolio companies and prioritized getting them as much runway as possible to survive through the unknown timeline for the pandemic. We pushed them to get to bare minimum cash burn and while figuring out ways to see a limited interruption to our preclinical/clinical programs in progress. It really did become about company preservation because we frankly didn’t know what was going to happen, just like the rest of the investment community.


The market seems to have responded favorably. The public markets are now back up, and we see that clinical trials have resumed, but if there’s a second wave somewhere, that’s going to put everything on hold again. If your trial is focused on keeping an animal alive or maintained and you’re forced to put a trial on pause, that’s essentially going to be a sunk cost. There’s a lot of complex issues we’re trying to help our companies figure out. When it comes to our pipeline and companies we may invest in, one of the first questions we ask is “Has COVID impacted you?” and “How has the original plan changed since COVID?”.


COVID has actually helped some of our companies. For example, our portfolio companies Bardy Diagnostics and Endotronix provide remote patient monitoring services. Remote care services were already on the rise prior to COVID-19, but the pandemic has really accelerated this trend. We’ve also invested in Canadian company IMV, Inc. which is leveraging its cancer vaccine platform toward a vaccine for COVID-19. Some of our other portfolio companies are working to understand if their products may be effective as treatments against COVID-19. In general, there have been challenges, but plenty of opportunities that have emerged as well.


BioTEC: What should a company look for in a VC?


Nikhil: It’s mostly about alignment, network/credibility in the area and deep pockets. You sometimes hear stories about how a VC comes in pitching themselves as a long-term partner, but slowly takes control and pushes out the founders over time. Not a great look for VCs and contributes to this false perception that we are all greedy and take advantage of naive entrepreneurs. That said, sometimes you have the opposite where founders are reluctant to give up any control and are unwilling to cede anything where investors don’t have enough “skin in the game”, and enforces that founders/management are inflexible to work with their backers. The VC and the company should have a shared vision about their goals and milestones and both need “skin in the game”. It’s a good idea to talk to other companies and get a sense of how the VC works with management. When the VC says they’re involved, what does that actually mean? Will they try to control the process, or will they adopt a supportive role? It’s crucial to understand the different working styles of VC representatives. You want a VC with deep pockets and credibility. If they have a recognizable name, then you’ll have tons of followers who are willing to put in the capital alongside them. Ultimately it signals validation from smart and experienced investors in the space.


BioTEC: If there’s one thing you would have wished you’d known about in your early undergrad years, what would it be?


Nikhil: I think it comes back to being methodical and strategic and saying yes to the right opportunities. Ultimately, I was lucky that the jobs I ended up with early on were ultimately related to the career I was interested in down the line. But, the truth is, starting out in your career you really don’t know until you are knee-deep in the work. Again, if you have a general sense of the areas you are interested in, start there, but try to not silo yourself too early and allow yourself to pivot sideways or up rather than starting from the bottom each time you change. Millennials and Gen Z have a shorter attention span than prior generations (sorry if I offend anyone) and it’s more in our nature to want to pivot,

explore and try new things, but with each change, you do want to make sure you refine a little more your focus to where you want to end up.

The biggest piece of advice I’d give is that when you think you’ve stopped learning at a job, that’s when it’s time to move on. You should always feel like whatever you’re doing is the first time you’re doing it. Even if it’s a project you’ve done before, find a way to push yourself and make some component new or innovate on what you’ve done before. When you do reach the point of work feeling like a routine, it’s good to take a step back and reevaluate your credentials and resume and the logical paths you can take. Look at each path and see where that could bring for the next stage of your career. Retrospectively, for me it was more luck than anything else, I’m not sure I was methodical, but if I could go back I’d say I should have been. I followed where I had opportunities and luckily it led me to Lumira.


It may sound trivial but if you’re evaluating different positions in your 3rd or 4th year and one offer may give you maybe an extra $2k for the summer, as a student that seems like a lot and it could be more attractive. But ultimately, unless there’s a legitimate reason to, that shouldn’t be the driving factor. It should be about what will help you for your next step, essentially foregoing short term gains for better options long term.


Networking

If you enjoyed learning about the Venture Capitalism space from Nikhil and want to learn more about his work at Lumira, you can click here. If you’d like to follow Nikhil, feel free to click here.


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