Dr. Jim Tananbaum, founder and CEO of Foresite Capital, has always had two areas of interest: mathematics and computer algorithms, biology and healthcare. With his passions in mind, he has developed and managed a venture firm with close to $3.5 billion in assets under management.
Sand Hill Road Host Scott McGrew spoke with Tananbaum to learn more about how artificial intelligence is fueling developments in healthcare and therapeutics.
If you’d like to get in touch, email us at sandhillroad@nbcuni.com or on any social media platform at @nbcbayarea.
An auto-generated transcript of this episode is below. Please excuse any typos and grammatical mistakes.
00:11
This company that you organized while in college, it sold for a billion dollars, right? It was
medical school, and yet did okay. So, you know, when I was in school, I organized a bus trip. We
had a we had a keg.
00:29
I’m Scott McGrew, welcome to Sand Hill Road.
00:44
This week. Dr Jim Tananbaum of Foresite Capital, searching for category killer therapeutics,
bringing together AI technology, of course, medicine and the money behind 10x genomics,
among others. Sir saxonov, over at 10x genomics, which you are an investor in, you know, is
talking about, and he’s not crazy about curing Alzheimer’s. Yeah, now he might not, you know,
who knows? He certainly tried. But you know the day, it’s sort of like when you say to your kids,
you have to understand at the time, dad didn’t have a cell phone, so grandpa had no idea
where dad was. Yeah, you have to set the stage for them, right? And I think there is in my
lifetime, perhaps, in which we will say you have to understand at the time cancer was fatal,
yep, yep. And let’s, let’s take Alzheimer’s. Let’s just drill down in Alzheimer’s for a second,
because I think there’s a bigger conversation be had there. So right now, the state of
Alzheimer’s is that people end up getting diagnosed with it when they have, you know, when
they’re mentally, you know, demonstrating they’re having problems. And the diagnosis is can
be slow and and, and a lot of people don’t even want to know that they have Alzheimer’s,
because there’s not very many good treatment options. All of a sudden, over the last year or
so, there have been a couple drugs that have come to market that actually do affect the
progression of Alzheimer’s. They come with some side effects, but there are next generation
drugs behind those that will get better
02:13
in parallel with that. And there’s a whole conversation to be had about sequencing and the
impact on sequencing on the world, which I think is going to be profound and enabling for AI
delivery at scale to populations but but basically,
02:32
you can pick up
you can pick up
02:34
using sequencing methods
02:38
Alzheimer’s in a person’s blood long before you see the symptoms. Now it also turns out that
people that have high degree of the DNA that tracks with Alzheimer’s doesn’t 100% develop
Alzheimer’s, but you could take the population down to one out of five, one out of four that is at
higher, higher risk for Alzheimer’s. And then you can cross that with with simple scanning, you
know, sort of technologies, retinal scanning, other, other type of scanning technologies, and the
two together give you a very accurate read of whether somebody has Alzheimer’s disease.
Now, the reason why that’s important is now with these treatments that are available, and the
ones that are coming The earlier you treat the way better the results are and and the hope is,
basically, you’ll be able to stop or possibly cure Alzheimer’s with treatments that are here today
or coming just by getting there early. So what enables that is being able to diagnose early. So
there’s a whole conversation about preventative care, about early treatment that is opened up
by sequencing, that’s delivered at scale to the population. And that’s, that’s, that’s the
technologies here for that. It hasn’t happened yet, but that’s going to be a very big driver over
the next decade, that a doctor will say, I’m going to give you a prescription for a disease you
don’t have, yeah, yeah, exactly, yeah, yeah, or that could very well in the future. Yeah, that’s
precision. Precision prevention is yes, yeah, yes, that’s That’s right. Now, a lot of patients don’t
like preventative things, right? I mean, the reason ozempic is big is because, you know, it
changes people’s behavior after the fact. You know, if we liked preventative things, we’d
probably all flaws. Well, yeah, that’s true, but here’s another way of looking at it, which is,
there’s a group of us that want to live longer,
04:36
and the whole longevity conversation is now becoming something that some percent of the
population is kind of super interested in Well, the way to live the longest, by far, of all the
different things that are around today is to understand what risks you’ve actually inherited
04:52
so and in each and every one of us, if you take the top 20 things that you die of each and every
one of us, and as in 95% of the population dies of those.
05:00
Top 20 things. So 19 out of 20 of us have inherited risk for one of those things, if not more than
one of those things. And almost all of them can be prevented or pushed off if you know that
you’ve developed it. So for example, if you’re 8% of the population that has risk of heart attack,
05:18
then just lowering your cholesterol to 40 instead of 80, which is, you know, half of what the
American Heart Association guidelines are would prevent a heart attack in that 8% the problem
is the whole 100% of the population was used to study the American Heart Association
guidelines didn’t have the techniques to find the 8% but now we can tell you what that 8% is.
So if you’re basically you know, one person you know doesn’t want to know that’s great.
Another person, hey, I want to. I want to. I want to try and live to 95 or 100. You know, what’s
my best shot at doing that? Oh, well, you’ve inherited risk for cardiovascular disease. You’re
actually likely going to get a heart attack at 80, and that’s going to take 10 years off your life.
However, you can start lowering your cholesterol now and prevent that. Same with cancer. You
know, you’re one of the 25% of the population that’s inherited increased risk and inherited
increased risk, and we can tell you what organ you’ve inherited the increased risk. And in
cancer, is a combination of inherited risk and bad luck, you know, so, but you about half of
that’s inherited risk. So you know you have colon cancer risk. You can just screen more
frequently for colon cancer. You catch it earlier. It’s a whole nother conversation. It’s not going
to kill you. So, so that’s, you know, that’s, that’s the, that’s the pitch, you know, for longevity.
And I think this longevity conversation comes back to ozempic and other places, because
ozempics a longevity drug. Why is it a longevity drug? It’s actually creates, you know,
statistically significant outcomes, you know, based cardiovascular outcomes for people. So they
live longer, yet they look better, but they also live longer and and the other part of it that’s
interesting is it has this positive impact on multiple other organs. So it it, you know, cleans your
liver up. It cleans your kidneys, you know, it just adds all these other effects. Because basically
what ends up happening is
07:03
ozempic regulates fat accumulation through making cells more sensitive to insulin. When
you’re younger, your cells are more sensitive to insulin, and as you get older, for third of the
population or half population, you don’t so anyway, it affects every cell in a body, and so it has
an anti aging effect, you know, basically for a third of the population. So I think that, I think
there’s going to be a continued interest and shift into, gee, I can, I can live to 95 I could live to
100 you know, look at the people that were doing this now, you know that are, you know, really
active 85 year olds, you know, like, I mean, it’s and you’re going to start to see that, and that’s
going to and people are going to take notice of that. What drives you, I mean, you know, the
money’s good. And I suppose the obvious answer is, well, you know, all these investments are
helping humanity live better lives. And I guess that’d be an easy enough answer. But what
makes you excited about doing this? I’ve always wanted to change the world. I, you know, I feel
like I’ve
08:07
fallen far short of being able to do that at scale. I’ve had, certainly had companies that have
had impact on, you know, segments of the healthcare economy, and that is, there’s nothing
you know more you know fulfilling than actually producing something that helps bunch of
people, but, but you put all this stuff together now, and we have the chance with sequencing
artificial intelligence, and just the way that everybody is revisiting, you know, every segment of
the economy to actually create immense change in healthcare, that that not only is about
making some of the drugs more efficient to create, but is more about changing the way that we
all think about our health, and moving, you know, sort of the world into this, you know, sort of
precision prevention kind of framework so you can live a healthier and longer life. And that’s,
that’s immense impact. That’s like, that’s like, changing the world, and that’s going to happen
over the next decade, and, and I’m just, you know, thrilled to be in, you know, having those
conversations with people, and maybe, you know, hopefully catalyzing some of that, that
change. And what made you decide to be, that you wanted to be a doctor? Well, I went to
school and was math, computer science, biology, genetics. As an undergrad, I studied a lot, and
then I was fortunate enough to get into Harvard Medical School in this Harvard MIT program
that was very technical. So I continued, you know, studying medicine, but in the context of of
technology and science and and that’s been kind of the place I’ve focused my whole career on.
And I started my first company when I was in graduate school, and we were able to create a
drug with that. And it was very cool. First applying science to solve a problem that created a
product, but also the product.
10:00
That touches, you know, a large number of people that have a specific type of disease. And it
felt to me like a much better way of scaling it. Thinks that, you know, I was interested in this,
this company that you organized while in college, it sold for a billion dollars, right? It was
medical school and, and, yeah, did okay, so, so, you know, when I was in school, I organized a
bus trip. We had a we had a keg. Yeah, that’s about all I organize. How does a young man
organize professors together to create a company that’s ultimately going to be sold for a
billion? Well, first, I should say, got very lucky, and the biggest part of the luck was just running
into the right people. And I think what you tend to find at Harvard and MIT. Well, there’s some,
you know, there’s, there’s a lot of people at Harvard and MIT and, and they’re, they’re not that
many that understand how to translate, you know, things into product. And, and I recognize
that and, and
10:58
kind of build myself as somebody that could help them do that, but, but, but, but the my
general
11:06
framework, or the thing that I basically started off doing, was I said, Look, you know, within the
Harvard and MIT community, there are all these professors that have founded companies. So
wouldn’t it be great to just interview them all, you know, like and, and, and. So I listed a course,
got listed in Harvard and MIT course course directories on entrepreneurship, academic
entrepreneurship, and then I invited in every professor I could figure out had been involved in
commercializing stuff and as guest lecturers. And that was an opportunity to meet all these
guys, and one of them connected with and his name was George Whitesides. His son, George
Whitesides Jr, just got elected to the House of Representatives for California. I’m very, very
proud. We’re almost family. But George was kind of like a dad of me, and he, after being a
guest lecturer in my class, I asked him if I could help him commercialize some things. And we,
and I basically thought I could raise maybe a million dollars to do something, that something
was create a drug. And so it kind of challenged him, like, let’s try to make a drug for less than a
million dollars. And and because that’s all we all, I thought I could raise. But when you put the
problem that way, then you start to basically take off the table, you know, lots and lots of
things. It turns out there was only one drug in my entire life that I produced for less than a
million dollars, much less, less than a than $100 million I mean, and but we found it. And we
found it by basically saying, Well, you know, when drugs get into the body, that’s when they
become expensive. So you got to make a drug that doesn’t get into the body. And you’re just
like, hold on, what about what is a drug that doesn’t get in your body? And well, it turns out, if
you eat something like plastic and it doesn’t get into your body, you poop it out. And then the
question becomes, well, can you make a plastic that’s active and does something? And what
we ultimately did was made a plastic or polymer that bound phosphate. And phosphate is the
ion that becomes
13:08
difficult for your kidneys to concentrate when you start to lose your kidney function. So that
became a product that we knew you could make, this polymer that you ate and never got into
your body. It bound phosphate and got pooped out, and it was a way of people with kidney
failure excreting phosphate. And that product became a big product, and frankly, just about
everybody that has kidney failure uses it and and we ultimately sold the company to Genzyme
Sanofi, and we had got the product working in a test tube for less than a million dollars, and
then ultimately ended up raising a bunch of venture capital and taking the company public. The
company public and then sold your medical school background. Being a physician has got to be
invaluable with what you’re investing in. There are a lot of venture capitalists who are investing
in biotech, but, I mean, it seems like you have a leg up. Well, you know, to be fair, I think that
there are the majority, if not the super majority, of investors these days that have about
technical training, either MDS or PhDs. We have close to 30 of them in our organization. And
through the years, I’ve, you know, I’ve touched a lot of people with that background and, you
know, and so I think the world of biotech company building and biotech investing is highly
technical, so you need some kind of training in order to be successful at it. And and I was an
early example of that. And when I went off and did that 30 years ago, my medical school deans
were really concerned
14:36
that I was throwing away an education. How could I do this? And I ended up talking my dean
into into the dark. I brought him over to the dark side, and
14:47
he became one of my founders. I recruited him as a founder. He was giving me the lectures. I’m
like, Alright, just like, like, humor me for a couple months here. And and so he’s a nephrologist,
and so when we started looking at at phosphate binding, he became an.
15:00
Control person to help us with that. And the other thing I’m interested in is the fact that you
studied, you know, computers and mathematics. And I think anyone listening would say, Well,
duh. I mean, of course, if you’re going to be a great biotech inventor and founder and investor,
you would be a physician who also understood computers and things, because those are so
important. But you were studying in 1985 Yeah. Did you know In 19 you could possibly have
have foreseen some of the things that have and we’re going to talk more about how important
computers are to drug research in a minute. But you couldn’t have known in 1985
15:38
Oh, absolutely. Did you Oh, big time. Yeah, I knew in 1979
15:44
I mean, I was, I was in high school, I was, I was far I was a math nerd, you know, like, so I was
far ahead of math when I was in high school, and and, and I ultimately ended up studying at at
the corona Institute, which is the NYU Graduate School of Math. And they
16:02
were doing a lot of applied math work, including making valves, artificial valves, using fluid
dynamic modeling. So in high school, I was like, doing work, work on that. And, and then I
watched Genentech, you know, sort of grow up at that point in time. And, and I just said to
myself, you know, God, this technology is just going to keep on doubling. It’s just going to keep
on, you know, on doing its thing. And just imagine, you know, what will happen over time. And
so I always believe that I felt,
16:35
that I’ve been fortunate in that that simple insight, you know, has carried my whole career,
and, and it just keeps on getting more true. And, and now I’m finally sitting at a point in time
where all these things that I thought would come together are actually coming together. And,
and it’s really like beautiful thing to watch, you know. And I would say that things have moved
in healthcare, biotech always moves slower than you expect. I think Bill Gates made the you
know, comment that that, you know, things you know, basically move a lot slower over a
couple years, you know, but over a decade, you know, they you’d be surprised at how much
change there is. And over the last three decades, I mean, it’s just crazy how much change
there’s been. Well, and give people an appreciation of how important, I mean that I can’t think
of an industry that we will look back in 10 years, especially with the advent of AI and the ability
to tailor drugs. I just, you know, and like, obviously, I don’t know what’s going to happen in the
future of, I don’t know airplane flight or telecommunications or whatnot, but it seems to me
that this is the thing that will say, look back 10 years, sort of almost like pre cell phone, right?
You know that there was this moment in which we didn’t have cell phones, and now we do, and
it completely changed our lives. Yeah, that in the next 10 years, the development of drugs and
and tailored drugs and and the the assistance of AI will will look back at this podcast and say,
oh, man, we didn’t even know. Yeah. Well, look, there’s a lot of things we’re not going to be
able to anticipate that that will come out over the next decade, but I think that one thing’s for
sure, that they’re ways of making products and drugs that have been tried and true, and
they’re not going away anytime soon. Um, there’s the possibility that artificial intelligence could
displace some of the physical nature of drug discovery. And we’re certainly heavily, you know,
sort of invested in that, you know, sort of discussion and and believe it’s going to happen over
the next five to 10 years. But frankly, if you were to ask me, I would say it’s not going to, it’s
not going to revolutionize the industry. What it’s going to do is it’s going to open up a category
of product development that lends itself to these types of methods. And it will probably be a
slice, you know, and not, and not the whole category. And you know, it’s not, you know, not,
not surprising. And you know, in a sense, if you think of any, anything that technology is
affected, especially whether it’s, you know, decades of people that have been
19:13
working on, on or using, you know, products in a category of developing products in a category,
19:19
there’s a rich history of of learning, you know, sort of how to match product ideas to people’s
needs and and that’s human expertise and a lot of
19:33
very incremental, very small innovations that stack up over, you know, many, many years to
make for something that’s best. Well, I think, I think, I think we’re used to things innovation
stacking up. Yeah, there’s an interesting relationship between interest rates and healthcare
investment. Yeah. Can you explain that to me? Well, you know, never think about how
impactful things that seem to be unrelated to healthcare investing can be, but interest rates
turn out to be the same.
20:00
The largest factor, I would say, in venture capital returns,
20:05
sorry to sort of say that. And the reason for that is that we’re long dated investments. So a
biotech product, your investment thesis is really in a decade or two decades from now, you’re
going to have a revenue stream that’s very profitable. So you have to discount that back from,
you know, 10 years, 15 years in the future. And when you have 0% interest, then, you know,
like we’ve had for, you know, a while, then there’s very little discounting that occurs. There’s
nothing better to do with this. That’s right, that’s right. And when you’re, you know, when
you’re at 5% where we are now, you know, over a 1520, year period, you have to divide by four
the value, you know, so now something that was worth $2 billion is worth a half a billion dollars,
I mean, and that’s what’s literally gone on over the last couple years. The entire market’s been
compressed by three or four fold, depending upon the duration. You know, that of the
investment. That is the way the public markets look at things that’s then pushes down the way
private markets look at things. It takes capital, a great deal of capital, out of the system,
because it’s a, you know, the better places to put your money. And so what that does to
venture capital is it produces vintage years that are at great disadvantages, you know, to
vintage years where the interest rates were, you know, were, were a lot different. So I think if
you were to look at venture capital performance, you know, sort of as an example.
21:35
2010, 11, 12, were great years for venture capital. Why they were downstream of the financial crisis, my bet is that 2223 24 are going to be great years for venture capital because the interest
rates were so high. They They everything was on sale, you know, like it was on par with what
you saw downstream of the financial crisis, as interest rates rebound. Then, you know, those
those investments will perform, but that will also raise, effectively, the cost of investing and
deploying new capital. And so then the flip side of that is at the peak of the zero interest rates,
2020, 2021,
22:15
where the markets were raging, even despite COVID. I think those are going to be the worst
performing venture years because you were deploying, you know, basically at the highest point
in the market and art. When I think about our 2020 fund, we got very lucky. And we recycle our
capital, still deploying our 2020 funds. So we were lucky in the sense that we were able to
deploy a 2020 fund over 22 and 23
22:40
because I think those funds that just deployed over 20 and 21 that were vintage 20 funds are
going to, you know, run into a tremendous amount of of headwind because they were
deploying at such a lofty time, and in terms of valuations, as you’re looking back at all that,
what was the Biggest mistake or the biggest disappointment? Honestly, I did not see the
interest rate changes coming as fast, you know, as they came. And,
23:08
you know, 10x genomics is a, you know, would be a very good example of a company that got
completely, you know, whipped by. Interest rate changes very rapidly. So in my world, I very
rarely
23:23
am asked to be a macro in, you know, to consider macro themes. And
23:30
I certainly hadn’t lived through a cycle where interest rates changed as dramatically as they
changed. And there were multiple factors that came into play all at once. The interest rate
change was probably the biggest one, but the inflation Reduction Act and the impact that that
had on a small molecule payment streams, so so that reduced this the time that Medicare can
negotiate with a pharmaceutical company, from 13 years to nine years. And
24:01
you know. So now you lose four years of cash flow. And then, in addition, you have to divide the
NPV of that cash flow by by four, because the interest rates are so much higher. So is that, like
an eight fold, you know, like, I mean, it’s crushing, you know, set of factors that that, that that
came together, I think that it just happened faster and way more aggressively than, you know,
then we would have thought, having said all that, you know, we we, because we deploy capital
steadily. And I’ve been doing this for 30 years, and I’ve seen smaller versions of this. And when
2008 nine happened, it wasn’t so clear. In fact, I was at a dinner in 2008
24:46
that that was thrown by the Yale president at Davos World Economic Forum. It was a very small
group and included one of the guys that ran one of the largest funds in the world and.
25:00
And, and the Yale president, Rick Levin, was an economist, and it’s just beginning of 2008
25:06
and. And everybody was talking about, well, how fragile is the world? And, you know, the
conversation was basically, well, it’s, you know, it’s, it’s all overblown.
25:16
And, and, and, anyway, so my my point being that
25:24
it’s very hard to see, to see these things coming and and that’s not what I’m in business to do.
I’m in business to to create change, you know, basically in healthcare and so, so we missed
I’m in business to to create change, you know, basically in healthcare and so, so we missed
that.
25:39
But the flip side of it is having seen these cycles before in other flavors. I basically said to
myself, you have to deploy funds over periods of years because you can’t see these things
coming. So outside of economics, you were alluding to Bill Gates, and I actually wrote it down,
we always overestimate the change that will occur in the next two years and underestimate the
change that will occur in the next 10 last question for you, estimate for me, the change that will
happen in the next 10 years. In your field,
26:13
I believe there will be a portion of the population that’s interacting with a
26:19
AI medical bot whose job it is to help us live the longest possible life we can.
26:28
And that bot will supplement
26:31
our, you know, sort of decisions in the same way that bots supplement decisions for all sorts of
different things.
26:41
That type of change
26:43
is not going to occur that fast. It’s going to take it’s going to take entrepreneurs that completely
redesign healthcare to develop those frameworks, and at the end of that development will be
physicians and care providers that are augmented in a way that is not frictional between the
27:09
the the day by day, interactions that a patient has potentially with them, as well as as the
automated AI that comes, You know, that comes to them,
27:21
along with that, I believe that we’ll be able to much more precisely match drugs to
27:29
patients and match them earlier to patients, which will, then, you know, help improve the life
expectancy of anybody that’s developing
27:40
disease that matching a product a patient is starting now, cancer’s, you know, basically the
place that it’s started first, but it’s nowhere near what it could be, and that will take years to
unfold.
27:55
I think that we’ll see
27:58
a narrower discrepancy of socio economic factors, and I think that will have an immense impact
on society, to be able to deliver to the lower you know, to the lowest class, health care that
enables them to live longer in the same way that the wealthiest people you know, like in the
world, get, that’s You know, that that’s, that’s what technology is going to going to do, because
technology is very cheap to deploy at scale for these types of things.
28:31
So, so my hope is that
28:35
we
28:38
see a healthcare world where the population age is longer, but then the spread of, you know,
sort of how long people live, is narrower, in
28:59
able to be developed and deployed, but will take many, many years for the world to accept.
29:07
Jim Tannenbaum, founder of foresight capital, using AI to develop category killer therapeutics
next time on Sand Hill Road, how AI is helping doctors diagnose disease? Sometimes, I say,
running a health care company from the ground up is almost like playing a role, playing video
game, where it’s like each level has a new boss. You know, you’ve got to kind of get through,
which is not to emphasize an antagonistic relationship, but just these are challenges. You’ve
got to do clinical data and the validation regulatory with the FDA. For us, there’s billing codes in
Medicare, so obviously, you know, FDA, especially for our first product. You know, very, very
excited the final boss of the game. Unfortunately, no, yeah,
29:50
That’s Josh Reicher, founder of creative ventures back startup Imvaria.
29:55
Sand Hill Road is produced and edited by Andrew Mendez. Sara Bueno manages NBC Bay
Area’s digital platforms Stephanie Adrouny is the station’s news director. If you’d like to get in
touch, , email us at sandhillroad@nbcuni.com
