In this episode I had the opportunity to chat with Alex Zanghellini, exploring his journey from AI/computer science to enzymes, and the co-founding of Arzeda with Nobel Laureate David Baker.

Alex chose to bypass finance and found proteins as wonderful machines and became motivated by solving problems and finding products for market applications. Alex reflected on how discovery shows that something is possible, but that it is a small part of the journey to a commercial product, and that journey is the fun! We immediately reflected on the role of hope and the roles of hopium and OPM (being other people’s money).

The early steps at Arzeda were taken through a fee-for-service model, with no venture backing. Alex reflected on how this impacted profitability and the opportunity this created to experiment and ascertain how ready the technology was. Identifying gaps allowed Arzeda to build on the technology licensed from the University of Washington and identify unmet market needs. This early phase of project-based revenue allowed the team to learn what technologies were needed to complement the translation of leads to products.

We reflected on the balancing between internal and external capabilities and the shift towards a partnering business model. The limitations of this model were discussed, including an inherent dependence on other parties for future license revenues, the lack of a clear valuation playbook for this sector, and no direct line of sight on manufacturing. We touched on some of the wisdom of Ganesh Kishore from Spruce Capital Partners around the need to have products in-house to capture value alongside external partnering. Further to these insights emerged the challenge of incumbency. This brought me back to the discussion we had with Ray Miller in Episode 3 around the Sorona journey to market, and more recent discussions with Roger Wyse in Episode 45 around the challenges of competing against fully depreciated assets.

Alex then shared his thoughts on how to find pockets of opportunity, given the breadth of product choices that industrial biotechnology has as product targets. Alex noted that while there are advisors and the business team, at the end of the day business development needs effort (elbow grease) and time; ‘Never stop talking to industry and be ruthless in the assessment of opportunity.’ We then reflected on time, and how to stay patient in business and market development and that tech transfer cannot be sped up. We discussed translation and the challenge of time was discussed (way back) in Episode 2 with Oleg Werbitzky from Alpha Lyncis and the realities of taking short cuts through this phase with Catherine Livingstone in Episode 50. The need to be transparent with investors around these factors and not getting ’over your skis’ is critical in managing cashflow risk.

We spent a little time talking about ‘pivoting’ and discovered our mutual discomfort with the use of this phrase. We agreed that it means different things to different people, but Alex saw this as a need to add skills and competencies, not a change in business model. We touched on whether this might be an easy excuse for not learning from history? And on learning from history, we found ourselves discussing the broader challenges of due diligence. Alex noted that it’s difficult to do this in industrial biotech as it’s a multifaceted challenge and there is a need to find very experienced people to know what questions to ask – which may be challenging in such a young industry? Perhaps it is not appreciating the complexity of due diligence which makes so challenging?

We closed out our wide-ranging discussion by circling back on the venture financing story, when and why venture investment was sought, and the benefits of having optionality on when they sought venture finance. Alex then remarked that enzymes and biocatalysts are a revolution in the way we make things.

This conversation really covered some ground, and it was good for me to reflect on some of our very early and more recent conversations on the podcast and how things tied together through the experiences and journey of Arzeda. I was delighted to get a chance to unpack my issues with the term ‘pivoting’ but it also got me thinking more deeply around due diligence, why it may be harder that it looks, and some new ways to look at this important part of the new venture journey.

I hope you all get something from this insightful discussion with the CEO of a world-leading innovator.