Episode 159: Venture Philanthropy in Biotech – Investing in Innovation to Fight Blindness

It's easy to envision the future when you're focused on vision. Today we're talking venture capital with the Gunn Vision Fund. You're listening to Bio from the Bayou, empowering biotech leaders with the tools, assets, and expertise to improve healthcare outcomes.

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Serving the entire Gulf South, but recorded in the heart of New Orleans. Welcome back to Bio from the Bayou. I'm your host, Dr. Elaine Hamm, and today's guest is Dr. Rusty Kelly. He is the managing director of the Gunn Vision Fund, formerly the Retinal Degeneration Fund, the venture philanthropy arm of the Foundation Fighting Blindness. Welcome to the show, Rusty.

Thank you very much, Elaine.

I'm so happy to have you on. We've known each other for many years when I had briefly dipped a very tiny toe into the retinal space. And I want to first talk a little bit about, I mean, you're a scientist by training, and I'd love to hear sort of Your journey to where you are today?

My career's taken a few turns. I was trained as a pharmacologist and then went back to North Carolina and did a postdoc at UNC Chapel Hill School of Medicine in genetics. And my PhD at LSU Health Sciences Center was largely in biochemistry, and I wanted the genetic experience, and I wanted to knock something out.

Literally.

Literally. And the lab right next to the lab that I did my postdoc in was Oliver Smithies, Nobel laureate, the late Oliver Smithies. And, and his Nobel Prize was for the ES cell cloning that led to the ability to knock out a gene.

Yeah.

And so I did a couple of knockouts, one unremarkable result, and then one very remarkable result that is tied to the bone morphogenic protein pathway, which is one of the key morphogens that's involved in tissue patterning. There's also a retina phenotype in the gene that we knocked out, which turned— we didn't know what the gene was or its function, so I helped determine that. But it was an extracellular secreted protein that regulates BMP concentrations in a patterned way. And because of that experience, a tissue engineering company called Tengion recruited me to be a senior scientist.

Yeah.

As they were trying to regenerate the bladder and the kidney, which they did do successfully. In fact, the kidney program that I brought to the table from inception out of Wake Forest through, you know, some early intellectual property is now in phase 3 registrational trials.

That's exciting. I didn't know that.

Very exciting. But once I joined the company and I sort of rose into the management ranks and started leading all of preclinical and participating in all the regulatory filings and help— helping lead, you know, a few of those sections, of course, pharmacology and toxicology and risk-benefit, the company made a few decisions that led it into bankruptcy. And so prior to bankruptcy, I decided to go take a step back in a way to then take 2 steps forward, which I'll explain. And that was going to work for the Burroughs Wellcome Fund, which was a wonderful experience.

Yeah.

But negotiated an MBA at Duke University as part of my joining the fund. And so, as I was wrapping up business school, my goal was to go into venture capital. And so, I was exploring all sorts of options. And through Burroughs Wellcome, I had met the Foundation Fighting Blindness, and they were also interested in starting a fund. And so, I started getting to know that crowd better and leadership, and then they recruited me to help launch the fund. And then a few years later, the CEO of the fund, of the foundation at the time, took on one of our portfolio companies, and then I stepped in as managing director of the fund.

Yeah.

Uh, so that was the path to venture capital, and I guess the The fulcrum there was really the going to business school and, you know, at least having the education without much transactional experience, a little bit of experience with Tengion. But now, 8 years later, I have about 76 transactions and, and a variety of transactions, and it's been a wonderful experience. So, of course, as you opened up with, I'm a scientist first, but when you pair that with the business training and, you know, the transactional experience, it does create a set of experiences that allows you to manage a fund appropriately. And of course, I have great scientists that report to me, and we have all of the great resources at the Foundation Fighting Blindness. And we can save this for a subsequent question if you'd like, Elaine, but I can tell you all about that structure and—

That was gonna actually be my next question, was really, I mean, So one of the reasons, I mean, one of the many reasons why I wanted to have you on is to also help educate our listeners who are mainly scientists as well as entrepreneurs and some biotech executives of the other opportunities in terms of funding, but also being able to tap into foundations for a variety of different resources. And so that kind of leads to the next question around the foundation, but also the fund itself. And tell me a little bit about that and what you guys do. quote unquote, envision for that. I had to have one joke in there. That was it. That was my joke.

That's great. That's great. Great pun. So the foundation and its brain trust decided to create this fund as a natural transition or bolt-on to its existing granting programs. And prior to forming the fund, the foundation had already started making smaller investments in startups. They just didn't have the structure or the organization or the right people, including a board of directors that is dedicated to the fund that has all the domain expertise that you would appreciate for venture investing. And that includes governance and investment banking. It includes the clinicians and the scientists, of course. But when you bring all of that domain expertise to the table, and we currently have 12 directors, it really does create this very powerful structure that allows us to select new opportunities, with the right people at the table asking the right questions. And the Foundation also has key resources that our companies can leverage, and that includes a very extensive scientific advisory board that— and I should back up and say that the mission of the Foundation Fighting Blindness is hyperfocused on inherited retinal diseases and dry AMD.

Mm-hmm.

And so, that scientific advisory board reflects the breadth of clinical and science and regulatory. Yeah. And the clinical trialists, of course, that can support those 2 broad fields in ophthalmology. And so, to create a fund that can help serve mission, and as you know so well, it's the companies that are going to execute on clinical. Yeah. And you need the venture capitalists, you need to syndicate, In order to afford that, and the foundation couldn't do it on its own. So, therefore, formed this entity as an independent 501 or supporting 501, where the foundation is the sole member. So, we do not have, as a traditional fund would have, any limited partners. Yeah. This is, this is a donor-led model, and all the donations come through the Foundation Fighting Blindness and Those that wish to support the fund are restricting their funds to the fund. In fact, we are in a campaign at the moment. It's a $50 million campaign where the Gund family is doing a dollar-for-dollar match up to $50 million.

Wow.

And that the Gund family has been an anchor donor along with another successful family, Paul Manning and his foundation. They have anchored this, this fund. When we started off, we were closed-ended to emulate institutional VC, so a 10-year closed fund. We got to the second fund, and in the first fund, we had all of our capital up front. We had $75 million. We get to the second fund, and the funds started coming in. Yeah, I'd like to refer to it, the old Reagan term, trickle-in economics, trickle in, trickle out. So it wasn't a bolus of cash up front. Yeah. It was coming in continuously, and therefore we were investing continuously. So we converted a few years ago the fund from a closed-end to an evergreen structure.

Okay.

And now it's a very clear message to our donor base that any return on investment is recycled back into the fund to further its mission. And that's exactly what we're proving out now. We've had 5 mergers and acquisitions. We've lost a few companies as well. That's expected with a very high failure rate in therapeutics, 90% or greater. We think that we're going to beat that probability quite well because we're hyper-focused and we have all these other resources. And the resources are not just the scientific advisory board, the people that really know what they're doing. It's— the foundation also has this very large, impressive patient registry called My Retinal Tracker that has over 40,000 patients in there that have been genotyped and phenotyped. Right. And there is effectively a source for clinical trial enrollment to understand the demographics of the patients, primarily in the U.S., although this is a global registry. And the Foundation also has this clinical consortium. So, it's a consortium of over 40 leading eye centers across the U.S., Europe, and there's one in Japan now. And that consortium is also conducting natural history studies. And so, we've done 5 or 6 of these now, and they're very expensive because they have to be comprehensive and well-coordinated, but that those natural history studies have really benefited our companies. For example, RUSH2A is one of the natural history studies that's studying the syndromic inherited retinal disease called Usher 2A. Mm-hmm. And that's now beyond 4 years, that's monitoring over 100 patients, and it's really telling the field About natural history, of course, but what does natural history serve? It allows us to understand when to intervene. It allows us to develop novel endpoints or to validate certain endpoints when measuring safety and efficacy in a clinical trial.

Yeah.

So you put all those resources together and you really present a compelling case when you go to syndicate with the Endres and Horowitzes of the world, and you get to leverage those resources to, you know, to accelerate and improve clinical trial outcomes. Yeah, it

really de-risks a lot for your co-investors. But I really, I've had foundations invest in my companies before, but you guys are really, and they've been pretty set it and forget it. If we get a return, fantastic. If not, we still try to accomplish our mission. But you guys are really involved in your companies and supporting them, not just with the resources you described, but really helping them as they progress through trials operationally, helping syndicate, which I think is a really helpful part of that model. So, tell us about that. Yeah. Give our listeners an idea, if there's any vision researchers out there, what, what types of deals are you looking for? What is your typical check size? What is it that makes you put all of those resources into a company?

Yeah, so we're naturally being an extension of the Foundation for Fighting Blindness, we're relatively early. We, you know, we leverage all their granting programs as a source for new investments. In fact, I'd say half of Our companies have come from those who were supported by the Foundation Fighting Blindness. The check sizes are typically between $2 and $5 million initially. Mm-hmm. Um, we have gone smaller, and we typically reserve 2x of our initial investment capital. And the typical investment for us is a Series C or a Series A, where we can get in relatively early. Sure. And our capital is dedicated to that clinical proof of concept.

Yeah.

Once you, once you get through, as you know well, that de-risking milestone, then, then you're confirming that obviously in a Phase 3 registrational.

Yeah.

And we're seeing the regulators move in the direction of accelerating some of our studies with proof of concept. For example, we have at Sena Therapeutics, who, one of the companies that we helped form here in Raleigh out of the University of Florida, Shannon Boye is the is the founder, they just moved the regulators into a, a new paradigm where they're not just doing a Phase 1/2, then a Phase 2a or 2b, and then a Phase 3 registrational trial. It's all one continuous trial, Phase 1, 2, 3. And that shaves millions of dollars— Sure. And years off of the development timeline. So, there's all sorts of designations now that the FDA and ex-US regulators are offering or affording orphan rare disease. And our portfolio has certainly benefited greatly. But you can imagine, to answer your earlier question about what types of investments are you investing in, it's really about diversifying your portfolio to cover the greatest swath of your constituency as possible. But I'd say it's threefold. One is, you know, because we're largely inherited, we know the cause of disease. Sure. That helps. And so the genetic medicine platforms.

Yeah.

That are in our portfolio have been quite successful. We've had 6 or 7 of them, and I think 5 of those are clinical now. Yep. And, you know, 1 is near clinical, and that's a good place to place a bet, but not everybody— there's over 400 inherited retinal diseases. Not everybody has that opportunity of having a trial or a, a candidate therapy that their family members or they— Yeah. Can be treated with. So we need gene-agnostic strategies. We need the neuroprotection, which we have several portfolio companies who are developing those technologies. And then we have the AMD portfolio, age-related macular degeneration, which is the largest cause of vision loss in the Western world, the US. So we're fortunate to have such a large market in our portfolio. But we've made 3 investments, and we're looking to further diversify the AMD portfolio as well. But it's a balance. You,

as

you said earlier, some foundations really are brutally focused on mission, as we all are, but it's making those investment decisions that give you the best chance at both. With clinical success comes financial success, and with financial success, then we can obviously sustain this model and continue rolling those returns back into the fund to further the mission.

That's such an interesting investment thesis because when you think, oh, it's a foundation, it's That's one thing. It's a foundation very specifically focused on the indication of blindness. And how are you going to get that standard financial discipline or to make, you know, this, get this successful investment fund going if you're that hyperfocused or narrow? But what you just described is the opposite of that because one, you have a little bit of de-risking, as you mentioned, a genetic-based disorder. You know the cause, which is helpful. Then you, you have on the, on top of that, it's the eye. So it's relatively contained as it were. So, so safety may not be as big of a concern if you were going after a systemic disease. But then you have the interesting high-risky areas of AMD and the larger markets. That's, I mean, that in and of itself is a nice comprehensive and cohesive and concise investment thesis all in one. And it goes along with a mission on top of that. So.

Yeah. And the holy grail is to find technologies that cross both fields. All of that. And certainly you would expect neuroprotection to do that, less so gene therapy. But we do have one company, Perceive Bio, whose founders at Utah have identified some of the risk variants in AMD. And so that is great that we can attempt to tackle that disease genetically as well, or at least a cohort of that diseased population.

Yeah.

But yeah, it's, it's an exciting time to be in vision. research and the retina. The retina has gained a lot of attention, including the ecosystem that we've helped build with over 60 syndicating co-investment firms that our companies have raised over $1.5 billion from.

Mm-hmm.

That's over 10x our invested capital. So we are creating a field of academicians that are generating new technologies through the foundation's granting programs. We're capitalizing on a few of them, at least, paired with other platforms outside of the funding programs to, you know, leverage the best technologies, but then also diversify across all those indications. And with the inherited retinal diseases,

I

mentioned there's over 400 of them.

Which I had no idea. That's a lot.

Yeah, but the investors are really only interested in the top 20 or top 25.

Yeah.

So we do have to get creative. Opus Genetics is one example. You obviously introduced us to one of the lead private investors when Opus was private, and they're doing very well now in the public market. But they are changing their paradigm of going after not the top 25, but, you know, the next tier of prevalence of IRDs, and they're doing it quite successfully. And I think the market is now rewarding success, right? It's hard to find the win. If you can present a clear win to institutional investors, they may not place all of their eggs in that basket, but they're certainly going to support a de-risked opportunity that is nearly a sure win.

Well, and you guys have had a lot of wins, but for this last question, I mean, I don't want to discount those wins, but I do want to think about what you guys are thinking about the future. Is there anything that you're looking forward to or that anything new or anything else, even though you've been successful clearly, what's next?

Yeah. So with financial success, it allows us to take more risk. And as I mentioned, we're in this fundraising campaign as well. So when you pair, if we're successful with the $100 million fundraise with what we expect to be quite significant returns near term, that capital will allow us to take more risk. And what I'm most excited about is The holy grail for this field is end-stage vision loss.

Yeah.

Once in, in the retina, once you lose your photoreceptors, it becomes very difficult to restore vision. And so, we've made an investment in a cell-based photoreceptor-based company out of Hopkins. We're very excited about that field, even though it's still relatively early. Optogenetics is another interesting class of technologies that Again, once you lose your photoreceptors, how do you make the retina light sensing? Well, we're using optogenetics to insert opsins, these light sensing molecules, in non-light sensing cells, the inner retina. And there's some early success there that's quite exciting. Wow. There's retinal prosthetics. Science Corp is a company out in California that has licensed Prima, which is this prosthetic that is implanted epiretinally, and it's helping magnify vision. They just received their CE mark in Europe. And they're coming to the US. So, these are the cutting-edge technologies that they can hopefully provide people with no options. Perhaps they are a bit more mobile with the ability to perceive light, so light perception, or to even count fingers, you know, something that allows it, it gives them greater mobility. That's what we're really excited about.

Well, and we've stolen a lot of the advances that the vision field and the hearing loss field, it's There's a lot of similarities in the 2 industries. And having been in the hearing loss field, we've taken a lot of the lessons learned that you guys have done in the vision field. And hopefully we'll do the same where we can help with the loss of hearing and helping regenerate hair cells again. And it's nice to have you guys ahead of us so that we can take those lessons. And it shows us the exciting things you can do. I mean, how often do you get to work on one of the senses? I mean, that's pretty incredible.

Yeah. To your point, Elaine, the celiopathies, the Usher syndromes are a great example where—

Oh yeah.

It affects the ear and the eye. And we're already seeing both of those fields cross over. And we have, there's strategics out there that are interested in both, of course. Larger market size, yes, but science that translates from one organ to the next.

Yeah. Exciting stuff. Well, hey, thanks so much for joining us, Rusty. We really appreciate it. Always good to chat with you.

You too, Elaine. Thanks for having us.

And it's always inspiring to hear what you guys are working on and excited to see what you guys are doing next. And we will obviously have your information, the foundation, the fund information, all of those links will be provided in our show notes as well. But thanks for joining us, Rusty.

Excellent. It's my pleasure. It's good to see you, Elaine.

You too.

Take care.

Thanks for joining us for Bio from the Bayou, and we hope you'll join us again. We'll catch you on our next episode of— Bio from the Bayou!

This podcast was edited by Resonate Recordings.