Bridging Science & Strategy: An Investor’s Eye

Pharm Exec speaks with Tim Sullivan, a former biology major,biotech investment banker, and venture capitalist, who brings that sought-after melding of business and scientificperspectives to his role as chief financial officer for Apellis, aclinical-stage company hopeful of ushering in novel proteininhibitors for autoimmune disease

Ever mindful of the critical investor relations component in moving a promising yet risky experimental drug program forward, biotechnology companies, when filling the role of chief financial officer, often look for

Tim Sullivan, chief financial officer, Apellis Pharmaceuticals

individuals who combine a strong grasp of the science with a keen understanding of the biotech investor perspective. One such example is Tim Sullivan, CFO of Apellis Pharmaceuticals-and, himself, a former banker and investor focused in the biotech sector. From those two worlds, Sullivan, before joining Apellis, closely observed the Kentucky-based startup’s evolution to a clinical-stage biopharma, one vying to address unmet treatment needs for serious and debilitating autoimmune diseases.      

Pharm Exec recently spoke with the science-educated Sullivan about the unique dynamic for biotech CFOs in steering financing strategy and drug value demonstration in often uncharted waters. Apellis’ focus is on developing complement immunotherapies through the inhibition of the complement system at the level of C3, a protein of the immune system. Apellis is the first company to advance chronic therapy with a C3 inhibitor into clinical trials, with its lead product candidate targeting geographic atrophy, wet age-related macular degeneration, life-threatening blood disorders paroxysmal nocturnal hemoglobinuria and autoimmune hemolytic anemia, and kidney disease. 

PE: You have a bachelor’s degree in biology and an MBA. How does that scientific background help you in business?

SULLIVAN: The biotechnology business model is unique. Most biotechnology companies exist for five, seven, 10 years or more with zero revenue while they develop therapeutics that have a high chance of failing and yet represent significant potential value for patients and, as a result, investors. 

My dual biology/finance background has been an advantage throughout my career, first as an investment banker focused on financing biotechs, then as a venture capitalist investing in biotechnology companies, and now in my current role as CFO of Apellis. Beyond the typical roles and responsibilities of a CFO, a significant part of my job is to interface with biotech savvy investors and our internal research and development team at Apellis. That means I need to know about what we do as a biotechnology company and how we fit into the landscape of companies focused on treating specific diseases. While my degree in biology is obsolete on its own-1993 science is very old news!-it was foundational for me and was the basis for what has since been an ongoing education in the biology centered on medicines throughout my career in life sciences.

Specifically, being a CFO of a biotech company means figuring out the optimal way to finance our long-term investment projects, mainly clinical studies. To do that, one needs to understand biotech valuation, the unique nature of its financing environment, as well as investor expectations. Just like any other business, the financial value of a biotechnology company can be understood through a discounted future cash-flows analysis, with a few nuances. Understanding the potential for those cash flows is highly specialized in biotechnology.

It is important to interpret the impact of biology, drug chemistry and pharmacokinetics, statistics, clinical research, competitive therapeutic landscape, US and global regulatory processes, intellectual property protections, and reimbursement and payment trends that may evolve several or more years in the future when your drug is potentially commercialized. 

Understanding how these and other variables fit together is crucial. When a company seeks to develop a therapy that can safely treat unmet disease need, that management team needs to convey that value proposition to investors who will pay for its risky development by articulating the value the drug represents to the end users, including patients who will receive the therapy, doctors who will prescribe it, and the payers that will support reimbursement for that therapy.

PE: Was business school and being on the financial side of science always in your career plan? Why/how did you pick the financial side of the business over the science?

SULLIVAN: There’s a part of me that would have liked to have been a doctor, but business was also of great interest-and so like anything, it came down to a life decision after college when I tried to combine my interest in medicine and business. My sister is a general surgeon and she can’t imagine doing anything else. I suppose we both believe we are following paths that will hopefully lead to making a few lives better. Our family has a history of social responsibility and interest in medicine. We grew up hearing stories about our grandfather, a physician who pioneered mobile blood banks in WWII, developing processes still used today in the theater and saving countless lives. I think we also inherited a social conscience from our mother, who was a social worker, helping some of the most challenging and heartbreaking cases of pediatric neglect in the Boston area.

PE: From November 2014 to October 2017, you were an observer on Apellis’ board of directors and a partner at AJU IB Investment, where you led the firm’s life sciences investments. What made you take the leap from that position to filling the CFO role at Apellis?

SULLIVAN: Over the three-plus years I was an investor at AJU IB Investment and board observer for Apellis, I came to know the company well from the time it was a preclinical stage company to its transition to a late-stage clinical company with the real potential of treating some very serious unaddressed conditions. Apellis has two special things going for it. It has great science underpinning a promising drug and, perhaps more importantly, it has great people. If I learned anything in venture, it is that people matter more than anything; this is a basic lesson I have relearned several times the hard way.

Apellis’ founder and CEO, Cedric Francois, is unlike anyone I’ve ever met. He’s an MD, PhD, and former

hand surgeon with a keen social conscience. He also speaks five languages, is an accomplished musician, and he likes to have fun while working hard. Working with someone that dynamic is energizing and inspiring. While I liked very much being a venture capitalist and serving in an advisory role and board member for several portfolio companies, I felt I could only get so close to a company’s core mission in this capacity.  

When the opportunity arose to become CFO for Apellis, I jumped at the chance to be part of the team.  I believe Apellis has the potential to make a difference in the lives of patients with geographic atrophy, a leading cause of blindness with no current treatment, and potentially treat several other severe conditions. And, as a former investor, I believe I can be effective in helping the team in maximizing value for Apellis and its investors. 

PE: One might think a CFO gets less attention in this business because we are usually so focused on the science. But it’s such an important role on the leadership team. What are some of the challenges for someone in this role? 

SULLIVAN: I agree completely that the role of CFO seems removed from the business of biotech. However, biotech CFOs are often highly integrated into the investor relations aspect of the business. Since raising capital is vital to the existence of biotech companies, a CFO that offers real experience in the science and investment side of biotech can be far more impactful when a company is pre-commercial, as most are. Since the role requires facility with the science and understanding of biotech investor perspective, it is not uncommon to find CFOs who are former bankers or people with MDs or PhDs. In my case, I was not only a banker but also an investor. I believe having biotech industry experience prior to becoming a CFO helps an individual be a more impactful member of management.  

I would say the first challenge is to make sure a CFO understands the unique world of biotech finance and is capable of effectively interacting with investors. Beyond that, challenges may vary depending on the stage of the company. Early companies may find it challenging to secure financing while later-stage companies are faced with managing growth. At Apellis, for example, we will significantly expand operations in 2018, commencing two distinct Phase III clinical programs while our headcount will more than double.

PE: To balance it out, what are some of the positives of the role of CFO? 

SULLIVAN: Being a CFO in biotech is intellectually interesting and tremendously rewarding. I consider myself lucky to be in a position to lead the financing strategy of a company like Apellis and to work with everyone to seek to maximize value for our shareholders. The mission of the company and the team is to develop drugs that help people live healthier and better lives. We believe we have a drug that has the potential to help people suffering from several debilitating diseases with inadequate or no approved treatment options. To work with such a great team toward that goal on operational and strategic initiatives is rewarding. I enjoy it every day.

PE: When we do talk about the role of CFO, the question of being profitable while still keeping therapies affordable always comes up. How do you balance this?

SULLIVAN: Everyone in biotech knows well just how many millions of dollars it takes to bring a new therapy to market and how the risk of failure is omnipresent. The updated and oft-cited Tufts study suggests it now costs $2.5 billion to develop a drug. This figure includes all costs, including those of failed drugs, where fewer than one in 10 that enter the costly stages of clinical testing makes it to market. Along with this financial cost, biotech companies, their employees, and the patients they hope to help run the risk of failure every day, where years of hard work can disappear overnight. 

At Apellis, we don’t yet have a marketed drug nor one where the risk/reward profile is fully elucidated through the final stages of clinical trials, so we haven’t had to fully contemplate pricing yet. However, I can tell you that Apellis is committed to pricing therapies, should they be approved, appropriately for the benefit those therapies provide.

PE: For those on the financial side of a biopharma company who aspire to be CFO one day, what  type of career advice do you give them? 

SULLIVAN: I think companies want a CFO that is a partner, a leader, and someone who is committed to the mission of the company. To me, that means developing the skills, relationships, and judgment to provide leadership at a management level. Aside from the basics of understanding the financing, accounting, and operations specific to the industry, I would learn about what makes one company more valuable than another and what factors allow for one company to have greater access to capital and talent than another.  

Raising capital is the lifeblood of most biotechnology companies and understanding how to do that well, by finding ways to move the company forward by choosing the right operational path, conveying the value proposition, and approaching the financing markets from the position of greatest strength, are crucial skills. Developing this experience and judgment requires time. Also, being a CFO in biotech is a very people-oriented job. One needs to develop relationships with people in the industry. I would make sure that is something you enjoy.

My career took root in investment banking for nearly a decade before I made the leap into a life science-focused venture profession. In both roles, I felt it was my job to help companies and their teams. My approach was to develop judgment, have an opinion about what is a quality team and quality company, and to help them in any way I could, whether as a board member, strategic advisor, investor, and now CFO.

PE: When it comes to leadership, can you give us some of your best tips? 

SULLIVAN: Beyond being invested in the mission of the company, I think leadership means being invested

in the success of the individual people in the company. Being humble, attentive, a good listener, and creating a collaborative environment where employees can enjoy working together can go a long way. I like to empower positive and collaborative people. Also, I think leadership is continuing one’s own learning and development and creating an environment where the learning of others, including occasionally being wrong, is supported.  

PE: Tell us a little about you and your background? 

SULLIVAN: I’m a father of two, married to a PR executive.  I love traveling with my family and participating in the kids’ activities, such as coaching my son’s travel soccer team. I also enjoy a range of hobbies and interests like playing platform tennis, taking hikes with my Boston Terriers, Zoe and Tony, and supporting the New England Conservatory of Music, where my daughter sings in the chamber chorus. 

I grew up in Boston with a passion for learning and I am always reading and trying to think critically and creatively about issues that matter to me. I like to express my ideas respectfully and this has always been part of how I operate as an executive and in my personal life. Sometimes it gets me into some very lively debates, but I live for that. 

Michelle Maskaly is Pharm Exec’s Senior Editor. She can be reached at michelle.maskaly@ubm.com and on Twitter at @mmaskaly