E122: Wende Hutton, General Partner at Canaan Partners – Interview

August 10, 2017


This podcast is about the future of healthcare venture capital. It’s with Wende Hutton, who has quite a background in healthcare venture capital (since 2004, 7 IPOs, 6 acquisitions).

Wende is a general partner at Canaan Partners, a venture capital firm that invests in technology firms like Lending Club and healthcare companies like Chimerix. Wende focuses on healthcare. She joined Canaan in 2004.

Wende went to Stanford for her undergraduate degree and received her MBA at Harvard, where she was a Baker Scholar.

In this podcast, we talk about the changing landscape of healthcare and some of Wende’s most recent investments. We have had a number of VCs on Flyover Labs, but I think Wende is the first who focuses on healthcare.

Some other things we talked about:

-What was the first deal that you did? Very interesting how it happened, worked out.
-At what point will you invest in a therapeutic company?
-What have you learned about selecting investments, growing them? Why are you so successful?
-Can you tell us about Glooko?
-What do you like to do outside of work?

Dave Kruse: Hey everyone. Welcome to another episode of Flyover Labs and today we are going to talk to Wende Hutton. Wende is a general partner at the Canaan Partners, a venture capital firm and investment technology firm like Lending Club [ph] and healthcare companies like Generics.

Wende focuses on healthcare and medicine. She joined Canaan in 2004 and since then her track record includes seven IPOs and six acquisitions, which is pretty ridiculous. So she went to Stanford for her undergrad and MBA at the Harvard where she was a baker scholar. So I’m excited to learn more about investing and how she is changing the landscape of healthcare and medicine and we’ve had a number of VCs on this show, but I think Wende is the first one who focuses just on healthcare, so this is great.

So Wende, thanks for joining us today.

Wende Hutton: Thank you for having me. It’s a pleasure to be here.

Dave Kruse: Well, we appreciate it. And I have a lot of questions about what you are excited about now and what you’ve learned, but can you tell us a little bit about your background before we get into that?

Wende Hutton: Sure. So I grew up with a father who was an entrepreneur, who started his own company and worked with the start up community in Silicon Valley. So I grew up here where the heart of the tech boom occurred and at the genesis of the biotech initiation as well with companies like Genentech.

I then joined a venture backed medical device company that was pioneering their technology into the operating room called POFAK symmetry. There’s now tens of millions of POFAK symmetrs across the world and I can’t exaggerate on that, because they are in every OR in every ICU bed, in every pac and that was a very pivotal five years as that company streaked to $200 million in revenue and I was in that commercial organization running a portion of the marketing and then running business development and then I was the Corporate Head at the international business unit.

I then went to a venture backed biotechnology company in the monoclonal antibodies space that was cutting edge technology in the early 90’s, and I’ve been in venture capital now for 24 years. So I embarked on my career at Mayfield Fund and was a general partner through three funds and Mayfield Fund had quite a story passed in life sciences and so that’s really where I cut my piece, on the investing end of the business.

Dave Kruse: Interesting! Wow! Some good experience. So growing up with your dad and being an entrepreneur, did you know you wanted to kind of get into this or when did you know you wanted to be in this space? So was it always like, ‘oh! I don’t want to do it. My dad’s doing it here.’ Yeah, how did it…

Wende Hutton: No, I think I was just deep in the entrepreneurial culture of it through that experience, but from the time I was in school I was always kind of strong interested in biology and my mother had been a biology major and we went out and would do a lot of field biology together when I was a kid. So I was always interested in field biology, oncology and then had this great interest in physiology and carried that through as a human biology major in school.

So I think I was always a very driven kid for new knowledge and new frontiers of technology and I think that’s one of the things that makes a hallmark of an investor. It is are you captivated by cutting edge technology and do you have that intellectual thirst there, and it is less about if you are going to work with early stage venture back companies, its less about the financial machinations that you might find for late stage investors and the LBO world in private equity.

Early stage venture capital is much more about that new technology and do you thrive in that world and so I always was learning new science. I always loved clinical medicine and I always loved learning the latest breakthrough technologies and so that kind of thread goes all the way back for me.

Dave Kruse: And is that – you know you were part of some venture backed companies and then how did you get into the investment world and why? I mean you kind of explained why, because of you know the multiple areas, but yeah.

Wende Hutton: So I became somewhat well networked with venture capital players in Silicon Valley. I always had an interest potentially in going to the venture side, so I networked with several leading firms and they also kind of had me on the start list to pull into their venture backed operating companies and so I had had a couple of discussions with the Mayfield Fund about joining one of their medical device companies back in the 80’s and that was not the right time, right place.

But one of the – a couple of the partners like got to know and when they needed some extra resource to help them incubate some real late stage companies, they called me up to have a discussion and so I joined Mayfield really to help and lend a hand for some of their very early stage incubation projects and then found I love the business and was able to identify new deals to bring forward and that kind of launched my career into venture capital.

Dave Kruse: So how did you help the Mayfield portfolio companies as the small incubating companies?

Wende Hutton: Well the first major deal that I worked on was introduced to me as a start-up team that was spending technology out of a company at that point called Physio-Control up in Seattle and they had a very junior business guy and a bunch of engineers who were rock stars in the defibrillation field. That company was called Heartstream, but they really didn’t have a business plan. They didn’t have a commercialization approach. To the companies they were pretty young players, how you organized the start up and I ended up spending the better part of half time for the six months.

Then I joined Mayfield helping them put together their first business plan and help them bring in key resources like an intellectual property lawyer who later became general council; helping them basically figure out how do you start a company, put a project together from the business side and that company went on to be quite successful. It went public after we recruited a CD of revenue without a levy. He took that company public. I sat on the board all the way through and then the company was eventually sold to Hewlett Packard when Hewlett Packard used to have a very premier medical device division, and that company pioneered a technology in automatic external defibrillators which you now see in airplanes and airports and gyms and hotels.

And so it was breakthrough technology and exciting for its field and that’s how I ended up getting a taste for what it would be like to be both on the investor side and sit on a board and help these companies grow and thrive.

Dave Kruse: Wow! That’s a good experience. How much did they sell for to HP, do you remember?

Wende Hutton: I remember it was a 7x deal to Mayfield.

Dave Kruse: That’s what’s important. That’s the number that matters.

Wende Hutton: I don’t remember the exact takeout number. You’re taxing my memory going back about 20 years.

Dave Kruse: And what was the first company – maybe that was the one that you kind of found, nurtured and said ‘hey, I’m really interested in you guys. Let’s put a deal together.’ What was…

Wende Hutton: So you know finding an opportunity is only a really – that’s a certainly a very important step. I did not find the team in Heartstream but I was there from the very start before the first funding occurred, so I – really that was my first deal that I took all the way through.

Dave Kruse: Yeah, that must have been exciting, okay. And so you were at Mayfield for how many years?

Wende Hutton: I was there through nine years and then I left Mayfield and did a small seed fund in conjunction with Johnson & Johnson and then came over to Canaan in 2004 and I would say my practice in Canaan and Mayfield are very similar in terms of having a large fund with a lot of stature and the way you could execute on taking deals all the way through.

Dave Kruse: Interesting! Okay. And so I am curious a little bit of what you’ve learned and I know it’s hard to distill into a shorter conversation like this, but so what are Madison, Wisconsin – there’s a lot of biotech companies. I know lots of investors who have lost a lot of money on different companies and you know they might invest in 30 companies and none of them worked out or very few and I know not all your companies are biotech, but you know how do you get a sense – you’ve gotten a lot of winners. How in the world have you kind of got a sense for you know de-risking a company or understanding the risks at such an early stage?

Wende Hutton: Well, I think investors come in all flavors and styles and so it’s interesting when you try to pattern match what makes an investor exceptional or what makes an investor successful, and you know I think each one of us who have been fortunate to work with great entrepreneurs and great companies pick our pattern matching as almost a case of one. So I can talk about myself, but I can’t extrapolate that necessarily because the next early stage investor who might be an M.D. Ph.D. and have a very technical approach to investing.

But I would say that there are three or four areas that you know have always been part of the mix that have produced outstanding results to me and one is the early evidence of the technology and the depth and strength of the technology, be it a medical device or a therapeutic on the biopharma side. Is that evidence really strong and is it ready for development or is it still a research project, and my template is, I am going to work on technologies that are ready for development, which means they are ready to – they are assumed to be ready into the clinic and that we’re not learning a lot of physiology on the job.

I think a lot were very enthralled by incredibly exciting science and discoveries, but that technology may have a lot of learning to do on what actually happens when you put that pill in a human body and you find out does it work or not and inherently there is always a lot of risk with new drug. But if you don’t understand the basic physiology of the disease or you’ve unlocked a new target, you’re taking on that much more risk.

So I think that first and foremost is the technology, both time and money ready to move into development. You need a strong team to do that with great experience and you need the intellectual property around that technology to be able to protect and make that, you know the investment dollars worth while, because if you don’t have protection, then you really won’t see the value on the exit.

And then lastly I think it needs to be – you need to work on things that are important, you know even if they make a difference in patient outcomes, is it an important marketplace which can be sizable. You know 500 million to 1 billion is kind of table stakes. So there is a range of issues that are very important in that early decision making and if some of those are missing and too many are missing, then you’re just stacking too many risks and you know that is where the technology itself won’t overcome small markets or too much target risks or a team that doesn’t have the drug development experience to take a product forward because they don’t know all the steps.

So it’s never one thing, but there are some key tenants which are very important to be a successful early stage investor.

Dave Kruse: Got you. And if you really like the type what you bring in, kind of like you did at the first company, bring in team members so maybe their technology is great, but the team doesn’t have a drug development experience.

Wende Hutton: So I’ll give you an example of one recent success which is a company I am really proud of, a company called Labrus and Labrus was started based on an antibody for the prevention of chronic migraine, and this antibody had been under development at Pfizer and had $30 million or $40 million already invested in it and Pfizer had shelved the drugged product. They decided they didn’t want to take it forward, but they already had clinical data. So an incredible asset, but the project has been killed by a strategic review, a commercial assessment and Pfizer decided to put it on the shelf.

One of my colleagues in the venture industry knew about this drug, was very intrigued and worked to license it. I was lucky to partner with Corey Goodman from Venbio and then two of us then committed to putting together a Series A funding sync, but we didn’t have a management team. So literally we had to build – we had a lot of assets. We had great potential IP; we had great data from this antibody; we had very significant unmet clinical need. I mean in patients who suffer from chronic migraines and are debilitated by the condition, we knew the target. It was a validated target in small molecules, but there were safety problems there, so we knew that an antibody could have a safer profile. There were an incredible number of assets around this project via the management team.

So that’s where your feelings comes in when you’ve done this a few times and we were very fortunate to bring onboard two key individuals that made that program work very well. One was the CEO, a very experience CEO Steve James, who is just in my office meeting me for lunch and that’s why I was charty; who had already had a success under his belt as CEO and then sold this prior company to Amgen and he came on and took this on and then we also got a Chief Medical Officer who had been running the headache franchise for Merck as the Medical Director and he had a passion for migraines and loved this antibody program and came onboard and ran the clinical program for us.

And so around that core you know group of executives and we were able to build out the rest of the team which we sort of hand selected for each individual slot and the company then was acquired by Teva for $825 million in development milestones and they slotted it into their clinical development pipeline and have just announced two successful Phase III clinical trials, so it looks like we’ve got a real drug on our hands and its going to help literally millions of patients in this unmet clinical need.

So really I had a critical part to play, but nothing compared to the team and the sentimental technology and you know sometimes you’re luckily enough to be at the right place at the right insight and several other VCs turned it down because they didn’t understand chronic migraine. They couldn’t see their way to doing it without a team and we were very fortunate to get these key first drivers on the executive team and the rest became history, and it became their history because they really made it happen.

So you know that’s a little bit of a great story. I wish they were all that great.

Dave Kruse: Yes, that’s pretty good.

Wende Hutton: But it is a great one and the clinical trial data just got announced in the last two weeks and was rolled out at the big National Headache Meeting and you know so we’re all so excited that now patients have a new option and its really going to help these patients. I mean they were seeing on average 50% reductions of migraines a month and these are people who have 15 to 20 migraines in a month. So they really are – you know they are really very habilitated by their condition, so…

Dave Kruse: I think that’s exciting, yeah. Interesting! How long did it take? Like when did you first put the team together until now? What year was it then? Do you remember what year?

Wende Hutton: So we put that team together in about four months in total and part of what we’re fortunate is the Chief Medical Officer and the CEO were so well connected and plugged in that they really attracted key talent. I mean we all pitched in, the syndicate and the board pitched in to help recruit the key members of the team. It was a very fast turnaround though to exit. The space really heated up around this target migraine and the Labrus antibody program was run by a terrific team and had great differentiation compared to the competitors and so actually that exit was under two years.

Dave Kruse: Oh my goodness!

Wende Hutton: So it’s now been about – since we started that company its now been about four and a half years, something like that, but yeah four and a half years would be the timeframe, but it really went very swiftly because we were building on so many key value drivers.

Dave Kruse: And so when you and Canaan were kind of – essentially were one of the founders, do you get – do you take larger equity stake when that happens? I’ve always been curious how that works. If this is too intimate, you can tell me to back down, but…

Wende Hutton: So, you know in this particular case we took our preferred shareholding and this is part of what we think we do. We lend our companies a hand, we try to work hand in glove with entrepreneurs and we want them to feel like you know our whole team is at their – is a resource to them and I think that’s the sort of way that at an early stage we see we can build the relationships with some of the best and the brightest minds.

Dave Kruse: Got you, it makes sense, okay. And one more thing that you said before about you know when you analyze the potential investment you look at the depth of technology. You know how do you – and like you don’t want to be learning physiology after you’ve given them money or kind of learning the pathways and whatever it might be. But so how do you get a good feel for it? Is it a lot of good animal studies and how do you know those animal studies are going to translate properly to a human. I am thinking especially like therapeutics.

Wende Hutton: So when it’s the therapeutics realm, we look at opportunities where is there a known target for that drug and has that target been validated. We look at repurposing known drugs that might already be a safety profile and we can run studies fairly quickly to determine efficacy.

You know pealing down the onion a bit, we do look at animal studies as an important indicator, when the animal studies tend to be predictive of success in the clinic and I would say there are some areas where its highly predictive, what happens in animals and that would be in areas like in vitro tests in animal studies and anti infectives for example, and those clinical trials tend to be very short read offs because you either have the bug and you’ve killed the bug or you still have the pathogen onboard.

And those are areas where we see the preclinical packages tend to be highly predictive of success in the clinic and early stage clinical data tends to be very predictive of downstream success. But there are always things you learn in the clinic, so you can’t avoid that entirely, it’s just how do you stack the deck in your favor.

Areas where it’s not very predictive are complicated areas in metabolic medicine. For example in neuro where you might be trying to treat schizophrenia or depression, you know they are not good animal models to really figure out behavior aspects. These are huge drug categories, but very complicated to get predictive data out of a preclinical package and very hard with early clinical data to have enough statistical significance to be able to predict, ‘Gee, are you going to be that much better than another behavior modulator or Xanax or Prozac or something like that where you really have to be demonstrably better versus some of those big drug categories and so those would be areas we would stay away from.

Dave Kruse: Okay, got you. And so how has your investment thesis kind of changed since? Well, you could go back to your Mayfield days or since joining Canaan, just in the last 10 or 15 years or has it changed?

Wende Hutton: So we’re always putting a new lens on what’s exciting and what’s important that I would say since if you just go back say a handful of the last decade and say what has really changed in healthcare and what has really been some significant hurdles is probably top of the list would be considering a reimbursement approach pricing and reimbursement strategies right out of the gate, and if there are too many reimbursement hurdles, particularly in medical devices, it’s going to be a novel therapy and that pathways looks to be an arduous pathway which will take many years.

You know those, we use to think important breakthrough technologies could carry themselves and I would say we don’t think that anymore, because you can chew up so much money trying to prove out the clinical value enough to get the reimbursement that you can kind of lose your shirt doing that. So that’s a very significant piece I think in medical devices. The clinical regulatory bar has gotten much higher, its much longer and more arduous and so that is a big factor in our investment thesis.

And then in therapeutics, I would say one of the biggest changes which is really advantaged venture backed companies and has really enhanced our ability to drive the thesis is that pharmaceutical companies have consolidated quite a bit and outsourced a lot of their research. In other words they eliminated a lot of their early stage discovery and pipeline in order to drive financial returns and so we spend a lot of time – that is probably in 2004, we didn’t put very much time at all asking pharma, ‘well, what are you interested in in your franchise areas?’

Now we spend a lot of time with Merck’s and the Pfizers and the Novartis’s and the Tevas of the world thing on what are you interested in? How important is neuro to you? What are you interested in your oncology franchise? Where are the holes in your franchise? What kind of companies are you looking to buy? And that really informs our investment thesis efficiently, because they are really good at late stage clinical development and marketing and at this point in time they are trying to sell those late stage pipelines with opportunities that are more likely than not to be venture capital backed and of late somewhere on the order of 60% or 70% of their newly approved drugs are now coming from the biotechnology, early stage biopharma community as opposed to big pharma. So that’s a real, that’s a big flip in terms of where the program started.

Dave Kruse: That’s a – those are some great answers. They are very interesting. So with the pharma when you go ask them, ‘like oh! Are you interested in neuro?’ I mean are they looking at it as a timeline for you know the next 10 years, because you know by the time let’s say okay, let’s go find some neuro companies. You know obviously it takes a little while to find them, incubate them and get them ready till eventually it may be sold. Yeah, so are they looking far out when they say they are interested in certain areas?

Wende Hutton: So I would say its two fold. One, we are looking to introduce them to our portfolio companies which we hope are a little bit narrow term. I think it’s pretty tough for them to tell us their 10 year strategic plan, but if we’re interested in accompanying for example that might be one year from the clinic and we think we can move through a Phase I and Phase II program in two or three years, well that’s more like a four year timeframe from when we’d be interested in maybe picking that data to pharma and saying, would you like to transact on this opportunity and put it into your later stage pipeline.

Dave Kruse: Got you.

Wende Hutton: So I think we take kind of a three to five year view.

Dave Kruse: That makes sense, okay, got you. All right, and so we got a little time. We are running out quickly and of course I have tons of questions. So one of them is like can you tell us about one of your portfolio companies that you are excited about and your probably excited about all of them, so you can choose one or two and you can put this disclaimer that you love all your children and you know…

Wende Hutton: I love all my children, how did you know? So one company which I think is interesting because this is a crushing problem for you know how we’re spending healthcare dollars right now and complications downstream in the system is Gluco which is really a convergence company for me in the digital health space using data from all of the variety of medical devices that diabetes companies use, diabetes patients, excuse me, I misspoke there – use to manage their daily disease, and diabetes patients are a wash in data.

The problem is they are a wash in data, that’s individual data points that they can’t understand their trends, the cant understand it against the backdrop of their disease necessarily. They are so busy managing their disease day-to-day that they maybe not seeing opportunities for with their physician for titrating drugs, for better care, for better patterns over the course of what their daily lives present to them, and by pulling data in an FDA compliant fashion from insulin pumps, from glucometers, from continuous glucose meter CGMs and integrating that into one platform. It puts in the palm of the patients hand all their data, that they can see all these patterns and they can understand when they are in compliance and when they are not in compliance.

Likewise for the physician, the physician is no longer flying fine because they can actually see the data, the patient’s data, the patient’s actual data as opposed to asking the patient how they’ve been doing, how they’ve been feeling, instead in a snapshot delivery report they can see exactly what’s been going on with the patient over the course of the prior 120 days and thereby create that appointment to help that patient manage their disease.

You know the last thing that diabetes patients want to do is spend more time managing their disease. They want data which helps them, but not forces them to engage more. They want to engage less. They want things to go better for themselves and so I think what Gluco is providing is the analytics, the algorithms, the infrastructure that has been needed because applying was all part of these and there’s a lot of insights that I feel that from Canaan’s perspective we bring to the party to work with Gluco because we know pharma well, we know the med tech space well, we know the regulated industry very well and that’s driven a lot of value for that company.

So Gluco is poised. They’ve been selected by the largest pharma franchise in Infra Novartis; it shows them as their digital health partner and they have done partnerships deals with all the leading med tech, diabetes franchise players such as LifeScan and Medtronic and Insulit [ph]and Dexcom and I think their standardized platform has real potential to bring to the healthcare system.

Somewhat what has been lacking in digital health is a very usable, interoperable system that can more patient outcomes for the better. So I am quite excited about this company. You know given its – it’s sort of the end of the day where I started the conversation as you know I want to work on things that matter. I don’t want to work on the scheduling system. I want to work on something that really changes the game. How do we move the needle for patients who struggle with this disease every day, how do we move the needle for them? How do we improve their compliance? How do we improve their drug regiments and how do we show that when they have this data at their fingertips its helps them make better decisions, it helps the physician make better decisions.

Dave Kruse: And what about the – and maybe they don’t need it, but the reimbursement strategy for something like that, is it one or is it more straight out of the pocket for something like that?

Wende Hutton: So the company has a number of different ways that they’ve constructed their business model and the providers pick health systems that are under risk for taking care of patients with diabetes meet the standard to be able to manage that patient population better, disease management companies who sell to payers or they sell to self employed employers to take care of their population of their employees that have diabetes, all of them need tools and so the company actually is being keyed for use of this data in a number of different context.

And some of our partners are in the med tech space and the pharma space where they know that they can show value of their technologies by collecting the data on a day-to-day basis and it helps them ensure that they continue to get reimbursed for important technologies, because they have the data to show outcomes. So it’s a bit of a complex answer to your question, well a bit harder on a podcast context to explain this, but there is a variety of revenue streams for a company like Gluco to be successful.

Dave Kruse: Yeah, it makes sense, okay. And we’re pretty much out of time here. My last quick question for you is, what do you like to do when you’re not helping create the future of healthcare and maybe that’s all you do, but do you like to read or do anything else out of work?

Wende Hutton: Well, I’m a pretty voracious reader. I’ve been in a book club for longer than I can mention, for about 28, 29 years.

Dave Kruse: That is awesome.

Wende Hutton: And so I love to read. I am a big outdoors person, so I love to hike and ski and sail and bike and I have brought up two kids. My youngest child is graduating from college this week, so that has been a big outside of work endeavor to…

Dave Kruse: Just that.

Wende Hutton: Yes. And then I also am involved in the community. I sit on two non-profit boards that I am very excited about. One is bringing surgical capacity for reconstructive needs of people in impovered situations overseas and for repair of burn and trauma wounds and congenital deformities and that non-profit is called Besureg [ph] and then I am also involved in the largest land trust locally called the Peninsula Open Space Trust and if you come to the bay area and you see a lot of open space on the hill side, this land trust has been responsible for creating a lot of the beautiful open space for hiking and biking and preservation of our local environment here, which we all love.

Dave Kruse: Wow! Sounds like you need more to do – just kidding. Well, that’s great. I mean that’s a good place to end. I definitely really enjoyed this and I appreciate your time. I mean just hearing your stories, but also kind of your – you know you’re really into helping people and I mean that’s kind of the beauty of venture capital and healthcare. You know most of your investments are really meaningful you know beyond you know hopefully doing okay financially, but yeah it’s good fun to hear kind of your passion behind the investments.

Wende Hutton: Yeah, well if we can have a win-win with companies, you know it’s always very exciting and I think almost all of – virtually all of my most successful investments have been when you really start to provide benefits and value to patients and you know for most of us involved in the field, that’s what gets us up and really excited about what we do. I mean its hard work being an entrepreneur to start off. So anyway, I really appreciate you Dave taking the time to talk to me today and listening to my story. It’s been very kind of you to drill down with me on some of the work that I’ve done over the years and Canaan has been privileged to be a part of it.

Dave Kruse: Definitely, and yeah we really appreciate hearing your story and we wish you good luck in your future and I appreciate everyone for listening to another episode of Flyover Labs. As always I greatly appreciate it and we’ll see you next time. Thanks everyone.