Jim Tananbaum leveraged his unique experiences as a biopharmaceutical entrepreneur and healthcare investment firm co-founder to found Foresite Capital with a different approach. He believes that healthcare transformation requires learning systems driven by radically collaborative data science approaches. Foresite Capital has itself been built as a data-driven learning system where every investment gets the benefits of the Foresite Capital platform. The firm is designed from the ground up as a full lifecycle investor. Foresite Capital’s goal is to become a major contributor to fixing our broken healthcare system by funding innovative products that address major diseases and unmet need, but at the same time save the system money.
Prior to founding Foresite Capital, Jim co-founded two leading biopharmaceutical companies and two healthcare investment practices. While finishing Harvard University Medical and Business Schools and earning an MS from the Massachusetts Institute of Technology (MIT), he founded GelTex Pharmaceuticals (NASDAQ:GENZ), which brought two drugs to market for less than $80 million. GelTex was acquired in 1998 for $1.6 billion, when its lead drug, Renagel (Renzela) had an annual revenue run rate in excess of $200 million. Today, Renzela is estimated to produce close to $1 billion in annual revenue, 22 years after its launch. Jim also co-founded and was CEO of Theravance, Inc. which shares GSK’s respiratory franchise through a joint venture, Innoviva (NASDAQ: INVA), and completed a spin-off, Theravance Biopharma, Inc. (NASDAQ: TBPH). The two companies have a combined market capitalization of approximately $3.2 billion.
Jim’s investment experience includes being a founding partner of Prospect Venture Partners II and III, and earlier in his career, a partner at Sierra Ventures, where he helped establish its healthcare services investment practice. Jim founded Foresite Capital with the vision of marrying elements of all aspects of his career to create a novel investment platform.
Tell me about your early career.
I grew up in NYC in a super competitive environment where I was strong at math and weak in almost every other way. I learned about leaning on the strengths that I had and using them in areas that I loved. By the time I finished school, I explored about every area I could. I am most proud of my persistence and focus. I was probably in the bottom half of most schools I attended (not an exaggeration) but always, somehow managed to get into the next. After graduating Yale, I went to Harvard and MIT and studied medicine (Harvard MD), computer algorithms (MIT MS), and business (Harvard MBA).
While in school, I started searching for people within the Harvard and MIT system that had insights that were major breakthroughs and were applicable to making a product or a service. It was really hard. I met as many people as I could who had successfully created products that either formed companies or licensed products. Many of them weren’t real and I struggled with understanding whether I was being too conservative or simply wasn’t smart enough. Over time, I learned that there were few academics and entrepreneurs that were actually in search of the commercial truth. Many wanted to get others to take financial risk advancing their ideas.
I met Professor George Whitesides at Harvard in 1989. He helped me develop a process to think through startup concepts from idea all the way through to market adoption. Then we would test the hypothesis in a simple fashion which focused on eliminating everything that was likely not to work. We narrowed our focus, conceived of a dozen potential products in 1991 and eventually formed GelTex Pharmaceuticals. Over the next year, we focused on two of the potential products to practice experimentally. Those products started human clinical trials in 1994 and launched in 1996. Today Renzela still sells $1 billion.
We sold the company to Sanofi/Genzyme at the end of the ’90s for $1.6 billion. Yet in 1991, I had tried to sell the vision of creating real products with simple science that met unmet clinical need and no venture investor was interested. They were interested in big science done by major academics. How could a recent graduate figure stuff out that the world had missed? No one even did the work to investigate. I was summarily turned down again and again. During this six month period, I lived out of my office rental. I spent every dime I had. After exhausting every professional investor, with the help of George, we started to focus on angels that were primarily George’s contacts. They were investing because they believed in the people and didn’t care about why we got there. I raised $1 million from angel investors. At the time, it was very rare. It returned 80x initial capital if they held until the end.
In parallel to my entrepreneurial exploration at school, I worked over the summers for Merck and Company, which was widely-viewed as the world’s finest R&D pharmaceutical company. In 1991, I was offered a full-time job in a “fast tracked” management program. Merck allowed me to form GelTex and work on it while I was working for Merck. I started in the winter, so I could get GelTex off the ground and live homeless for a while.
As a product manager at Merck, I was primarily responsible for Prilosec. At Merck, I developed tremendous networks that I still use today, especially from their R&D organization. As a product manager, I was an early innovator in using big data metrics to target high prescribing physicians and contracting with managed care organizations.
In 1992, with both GelTex growing up and Prilosec growing, I had to make a decision to do one or the other full-time. I recruited a management team into GelTex with the help of other board members. In 1994, Prilosec was transferred into a joint venture, and I was promoted to a GM position in Asia. My wife vetoed the move and helped me decide to leave Merck and move back to her home in San Francisco.
In moving out to Silicon Valley, I found a similar environment to Harvard/MIT in the biotech community and found myself asking the same critical questions about whether the biotech companies being formed had far too many unknowns and whether I was being too conservative. At the same time, I understood the managed care changes that were occurring through the healthcare reform effort of Ira Magaziner and Hillary Clinton. They lowered the barrier to entry for states to contract for managed Medicaid and also changed the system of hospital reimbursement. Starting in 1994, I led investments in several healthcare service companies downstream of these changes including Amerigroup, CareSelect, NovaMed, and Healtheon WebMD.
During my early career, I learned to follow my own instincts and not follow the crowds. I wish I had bet even harder on myself.
How do you define success?
I tend to be hard on myself and have a high standard for success.
At minimum, success is about producing a real product which solves an unmet medical need and helps a population live longer and better lives. I say this is the minimum in that much of life science private investing is about making returns through bringing together technology and people and ultimately selling a potential product to a corporate buyer or public markets.
Making a huge difference is the stretch goal. Every company we finance has to have the potential to make a huge difference.
Helping to create a new industry is a dream. I wasn’t around when the biotech industry formed, but every few decades a new industry does form in healthcare. I believe that machine learning, properly married to biology, can create a number of “huge difference” products that currently cannot be addressed.
What is the key to success?
● Thinking big
● Working with great people
● Measuring progress objectively and course-correcting
What is the greatest lesson you’ve ever learned?
To follow my own instincts and not to follow the crowd.
What are some quotes that you live by?
● “Less is more.” – Mies van der Rohe
● “Eighty percent of success is showing up.” – Woody Allen
● “The world belongs to finishers.” – Roy Vagelos
● “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” – Bill Gates
Tell me about one of the toughest days you’ve had as an entrepreneur.
I am going to answer a slightly different question. The toughest days for me have been about working with non-synergistic people – when 1+1 = .25. Smart, diligent people can be misled by overthinking or compromising on the average and missing the big opportunity right in front of us. I have a few very painful examples. The flip side is the best entrepreneurial days are when I discover that 1+1=7! The people that I am working with are helping to create much more value than any of us could have created working alone.
When faced with adversity, what pushes you to keep moving forward?
Deep-seated belief that the world is constantly changing and evolving, and that by focusing on making a difference, everything will work itself out. Society does repeatedly reward those that produce for society.
What advice would you give to young entrepreneurs?
Focus on important problems. Set large goals. Be optimistic and diligent. Think about whether the problem you are solving is really important and can truly be addressed by your team and your technical advances. Sweat the details. If you have been diligent and you are solving an unmet need, you will be successful over time.