LabCentral: Johannes Fruehauf
“If your founding team is smart and has integrity then they will find a way to be successful.”
Hailing from a lineage of German doctors stretching back to the 1860s, Dr. Johannes Fruehauf has not seen a patient in almost 20 years.
From his LabCentral office, located in the heart of Boston biotech, Dr. Fruehauf now practices a unique brand of medicine. His cases are complex, demanding and—especially in today’s markets—can have difficult outcomes: “I do one thing all day: help entrepreneurs,” explains Fruehauf, MD PhD.
For the struggling entrepreneur, he has multiple tools and treatments in his “Doctor’s Bag”—capital, lab space and community: “We have different channels to help entrepreneurs—a venture fund, BioLabs and a non-profit. Whatever you need, we will be able to help…or else we make connections for you,” describes the good doctor.
Yet being “the entrepreneur’s physician” is not a linear training path—there is no residency application for the eager medical student to fill. It took Fruehauf decades to create this “specialty.” After training in Germany as an OB/GYN, he conducted global health research in Africa, before coming to the U.S. for a post-doc at the Beth Israel Deaconess: “At this point, my plan was to continue on the academic track—I wanted to be a clinician and professor in Germany. I went to Harvard to write papers.”
After a splashy publication in Nature Biotechnology, Fruehauf was approached by venture capitalists with an opportunity: “we founded Cequent Pharmaceuticals—basically it was my postdoc distilled into a company with some venture funding around it…I became the chief scientist.” Paired with industry vet Peter Parker (who became the CEO of Cequent), Fruehauf fell in love with the nascent field of biotech: “It was only after being the R&D head [of Cequent], building my own team, and seeing how cool it is to work towards a product, that I got hooked.”
After Cequent was sold in 2010, Fruehauf founded ViThera: a probiotic engineering company. Raising money for ViThera in the aftermath of the financial crisis was difficult; to help pay his employees, Fruehauf started a services business offering technical help to early-stage companies and VCs: “We started by running assays for other companies—science for hire. Ultimately, we became an entity that did ‘wet lab diligence’ for VCs.”
During this time, Fruehauf identified an ailment plaguing Boston biotech and devised a new treatment: “we realized that the need for lab space was huge in Boston—specifically low threshold, rapid access...some really cool companies started with us, and then went on to do great things.” This business blossomed into BioLabs and its non-profit sister, LabCentral. In 2022 alone, LabCentral companies raised over $6B in funding (~21% total US series A), secured 56 patents and initiated 37 clinical trials.
After interacting with countless entrepreneurs and early-stage companies, Fruehauf turned his “diagnostic” acumen towards investing: “we realized that we needed a fund. We see teams up close and personal, and this is an awesome platform to invest from.” This thinking led to the formation of Mission BioCapital, where Fruehauf is a General Partner.
Medicine and business are human endeavors. Fruehauf credits his intensive medical training with giving him both technical and emotional expertise: “Business is about talking with people—negotiating, understanding pain points, and asking: ‘what do they really need?’ I think physicians often have a much better understanding of the human being.”
Surviving as an early-stage biotech is difficult: “Unfortunately I can't sugarcoat the reality. It’s hard right now. I think it is as bad as we've seen it” (Q#7). Yet one thing is certain: by visiting practitioners like Dr. Fruehauf, the companies boldly pursuing innovation stand a much better chance of leading a long and healthy life.
Below is an interview with Dr. Johannes Fruehauf (MD-PhD), co-founder and President of LabCentral, CEO of BioLabs and co-founder and GP at Mission BioCapital from May 2023:
1. What was your first taste of science and medicine? Briefly, what about this initial experience drew you in?
I grew up in two families of doctors—on my maternal and paternal sides. I actually now possess a family portrait of my maternal great great grandfather, from the 1860s, who was a physician even back then.
So, the main career I knew about as a kid was medicine—I have 18 cousins, 15 of whom went to medical school. This was the world I grew up in. From a young age, I just wanted to be a good physician—one who is great with his hands and is really good at clinical practice. This was the ideal [career path] I had in mind.
So, I went to medical school. I then started out in internal medicine, and later did my specialty training in OB GYN. I made a number of great friends and mentors in that area. I liked the hands-on and “emergency” nature of obstetrics—such as deliveries and emergency C-sections. I also spent a good amount of time training in Africa, which is an even faster learning curve with bigger emergencies. So, this was my first exposure and training in medicine.
Then in the late 90s I started working at a University Hospital and doing research—mostly in population health and preeclampsia research. I went to Africa and spent a year there as part of my PhD, doing a chemical and nutritional analysis in large populations. When I returned to Germany after this year, I also picked up some molecular biology work. This brief exposure is what made me want to do a postdoc and come to Boston. My wife and I moved to Boston in 2002 for us to both do our postdocs—she was at Tufts and I had a position at Beth Israel Deaconess [BIDMC].
At this point, my plan was to continue on the academic track--I wanted to be a clinician and professor in Germany. I went to Harvard to write papers and to get, in many ways, a credential towards this end. But it’s only through my time in Boston that I got to know this world that I'm in right now—VC, biotech, startups. At the time in Germany this ecosystem didn’t really exist. I had not even really heard about “VC” until I came to Boston.
So [at BIDMC] we did a project that got some attention in the early 2000s, and resulted in a Nature Biotechnology paper, and a lot of subsequent publications. This caught the attention of some VCs. A group of them eventually came into the lab and said: “Let's build a company around this.”
2. What made you jump into biotech?
After my post-doc work was published, we founded Cequent Pharmaceuticals—basically it was my postdoc distilled into a company with some venture funding around it. It was really cool to get this first taste of a “startup.”
I joined as the chief scientist and was paired with Peter Parker, who became the CEO. Peter is a couple of decades my senior and became an excellent mentor who taught me so much—we still work together. Even back then, he was already an accomplished VC and former scientist. He also co-founded a firm called Ampersand Ventures. It was a fun time we recruited our team, and I got the experience of what our [LabCentral] companies are out there doing right now. I got a taste of what it was like being a first-time entrepreneur. Cequent hit a rough patch in 2009, after the financial crisis. We had to let go many people, and it's something that I see happening now [in 2023] as well. We then sold the company for 50 million in 2010, which was less than what we had originally hoped.
[Describe your decision process leaving the academic track and your initial dream of being a Professor in Germany]
It was a slow transformation. Initially, when we started the company I saw it as a way to fund my work in the lab [at BIDMC]. I was not yet “conscious” of what this [biotech] world is. It was only after being the R&D head of the company, building my own team and seeing how cool it is to be able to focus work towards a product, that I got more excited about biotech.
Back then, I didn't have the benefit of being in a “biotech startup club” or anything like that. I now recommend that post-docs or students attend these clubs and get exposed to this world early on.
I jumped into Cequent, and initially just thought: “I can go back to Germany and be a professor if this doesn't work.” Then over time other things happened: we sold that company and I started a new one with an adjacent piece of technology that I had licensed in from a friend. We started fundraising for that in 2010. It was a hard time to fundraise—sort of like right now! So in order to pay rent and my employees, I started a service company. This was the origins of BioLabs.
3. I want to get into LabCentral and BioLabs in a bit. But can you speak to the benefits of your clinical training in your current career in biotech?
I use my clinical training every single day, although I haven't practiced medicine for 20 years.
I counsel kids to go into medical school if they think they have an interest, even if they don’t have a strong idea of wanting to be a clinical physician. I think medicine is such an awesome perspective. In biotech you work with a lot of biologists, chemists and others who are very deep subject experts--but many have never written a prescription, diagnosed a condition or treated the “whole patient.” Many subject experts may know the biochemistry of the cell, but it's hard to synthesize this understanding with the overall functioning of the body.
As a physician, because you've studied anatomy and physiology, you have a better way of integrating new science with human health. It's not at all a wasted effort to have gone through clinical training and to build a foundation to layer science [on top of]. This is just one aspect of why medicine is useful—another is that it teaches you a lot about people. Ultimately, what I do now is mostly business. But “business” is talking with people—negotiating, understanding pain points, asking “what do they really need?” I think physicians can often have a much better understanding of the human being. I think it does help us because we understand how different people function—what motivates or irks them.
4. What were some learnings during your transition to biotech?
I had only run small lab groups prior to Cequent. I had never overseen a group of 25 scientists. Management training is something that I had not formally received. It was something that I had to learn on the job and make some mistakes. Ultimately, I took formal mentoring lessons to learn how to become a better manager. This was very helpful--because there are many things you don't know when you are new. I oftentimes now send my own employees to these sessions. It is important to learn how to give feedback in a way where people aren't offended, and that creates long term and productive relationships with the employees.
5. Briefly, what led you to co-found BioLabs and LabCentral? How have these spaces evolved since conception? What excites you most about their current embodiments?
After Cequent, I started a new company called ViThera. The idea was to engineer probiotics for the gut that would express anti-inflammatory molecules—you could use it for inflammatory bowel disease. Now we couldn't raise money for that company, except for a small grant from J&J. So, I needed to find a real source of revenue. So, we started a service business—like a CRO. We started by running assays for other companies—science for hire. Ultimately, we became an entity that did “wet lab diligence” for VCs—this was from 2010-2014.
Before a VC would make an investment, we would try to replicate the paper, or even build some additional IP. For us, this was a side gig. At the same time, it was cool and interesting. We took on dozens of different projects, and we were unbiased about them—either they worked or they didn't.
Ultimately, we became experts in many of the assays around a Newco. So often, when the VC funded the company brought on the first employees, they would come to us for training. Sometimes, these same companies would say: “oh, you have a bench here, can I just take that and pay you some rent?” This is how we discovered the “rent sharing” model—the experience of being with other smart and allowing them to “squat” in our lab for a reasonable cost. This is how this started. And eventually, I started getting a lot of calls from people asking about lab space. Eventually, we realized that the need for lab space was huge in Boston—specifically low threshold, rapid access. Importantly it was a fully equipped lab, with all the proper permits and equipment. So we did this for a few years, and were called “Cambridge Biolabs.”
Some really cool companies started with us, and then went on to do great things. Eventually, we realized that we needed more money to build out this business. There was this program from the Mass Life Sciences Center (MLSC) in Boston, and we got some funding for a non-profit version.
This is why we have two brands—the for profit BioLabs, and also LabCentral, which was a spin out from BioLabs designed to capture that MLSC grant. So, there are two rental businesses that essentially do the same thing and are sister companies, but one of them is a nonprofit. It’s very interesting to see the business dynamics that differ between the two.
We started helping companies that were just comprised of one or two people. Now some of those groups have grown tremendously, but they still want to stay with us—this requires a very different type of space. We’ve now built what we call “graduation spaces,” for example LabCentral 610 or LabCentral 238. These spaces can accommodate companies that are 15 to 35 employees, and many have raised large amounts, up to $100 million. These folks want to stay with us because the environment is cool, fun, vibrant. It also gives them the immediate connection to the pharmaceutical industry. Geographically, between LabCentral and BioLabs, we are now in eight states and four countries, but we are growing all the time.
For LabCentral, we issue an impact report each year to show the influence on funding, economic development and other critera – such as the creation of nearly 6,000 jobs by our resident and alumni companies since we started in 2013. Or, it’s amazing that our companies now secure 20% of the national Series A funding—this is a crazy number, right? It has been this way since 2017. As a physician, I am most proud of the clinical trial numbers. There are now between 10,000 and 11,000 people who have been dosed with therapies that were invented here, right in our lab. Hopefully some of these medicines will eventually get approved and change people's lives.
6. In your exposure to hundreds of early-stage companies working in these spaces, what factors have you noticed that successful ventures have in common?
In early-stage companies, the one thing that matters most is the people and leadership: personality, credibility, honesty and character.
If your founding team has integrity, and they're smart, then they will find a way to be successful. The starting technology, in most cases, is not what the company is ultimately sold for, or IPOs with. It's a crazy fact, but it's so true. More than half of the companies here pivot along the way, because they find out that the academic work didn't replicate, or they come up with another great idea. It's really about the process. Are you a team? Are these people smart? Can they pivot? Do they have enough open mindedness to allow new ideas to come in and influence their trajectory? Will they make decisions that put them on the right path?
We call this sort the “fractal theory” of decision making, where we think we can predict the outcome of the company by looking at the early behavior patterns. How does the team respond to crises? Do they show up on weekends?
Ultimately, we realized that we needed a fund. We see teams up close and personal, and this is an awesome platform to invest from. We always think at the earliest stage the people are much more important than the actual technology. This will become different later on, once you have a molecule and clinical trials. But certainly at the early stage, when everything is wide open, the people are the main drivers of success.
7. Raising capital is difficult in 2023. What are some pieces of advice you give to companies in LabCentral or BioLabs in this current environment?
Well, unfortunately I can't sugarcoat the reality. It’s hard right now. I think it is as bad as we've seen it since 2009-2010. I do worry that it will stay constrained for a while…there are many factors that have me a little bit worried. So if you're able to raise money through grants, go for it. If you're able to raise money don’t overspend—conserve your cash runway and don’t over hire. One has to be frugal and disciplined in their spends. How can you improve your chances of getting funded? Well, build a big network of contacts, go to these networking meetings, get to know many early-stage investors personally. By doing this you can help build credibility and trust with them so that you become more investable.
8. What is the founding story of Mission BioCapital?
The fund got started in 2016 and was then called Bio Innovation capital. It goes back to Cequent—Peter Parker, Susie Harborth who was the COO [of Cequent], and Eric Linsley who was on the board. It was sort of like bringing the band back together. Eric and Susie have now left, but others have joined like Steve Tregay and Mike Taylor.
All of these people were on the board of Cequent as investors—even though I lost them some money with Cequent we stayed in close touch. It’s a really cool story of building trust, a strong network, and then doing new things together. Mission BioCapital is now investing from fund five—this is because we merged along the way with Doug Crawford, our friend on the West Coast and partner. Doug had a series of funds (I-III) called “Mission Bay Capital.” Initially we looked at deals together and helped him invest out of Mission Bay. We did some joint diligence, but we weren't formally involved. Eventually, we got closer with Mission Bay and then formally merged to make: “Mission BioCapital.” Now we invest out of a single joint fund V.
9. You wear many hats in your work with BioLabs, LabCentral and Mission BioCapital. What does a typical day look like?
I work mostly from the LabCentral office so that I can meet directly with founders, other VCs and big Pharma external innovation groups. It’s not structured as “x” amount of hours for LabCentral or BioLabs and “y” amount for Mission BioCapital—it’s really whatever comes up. People are often confused and think: “how can you split your time? How do you find time in the day?” But really, it’s all the same thing. I do one thing all day: help entrepreneurs.
I do that through multiple channels. Yes, I have different teams that all interface with entrepreneurship—some in New York, some in Boston, and others in Paris. But there's always cross fertilization and cross connection. For me, it's relatively easy and very fun. We have different tools to help entrepreneurs—a venture fund, BioLabs and a non-profit (LabCentral). Whatever you need, we will be able to help…or else we make connections for you. There's lots of exciting stuff to do every day.
10. Which areas of science/medicine are you most excited about seeing develop in the next 5-10 years?
I think this is going to be the century of biotech. We have paved the way with first the making of recombinant insulin, then enzymes and biologics. But now it's time to apply these things elsewhere—even outside of medicine. Carbon capture, energy, building materials, clothing, food, computing…all of these areas will be helped by the tools coming from biotech. In medicine, I’m currently super excited about cell therapies--the ways that we'll use them to really start curing cancer. I have a strong belief, though there's a long road ahead of us and tons of work to be done. But we have much better tools now than we had 10 years ago.
However, there are also challenges. I gave a seminar today discussing the issue that the legislative framework for biotech in the US is worsening. I empathize with the need to curb healthcare spending, but current policies have had a bad impact on the investment climate and the ability to fund innovative work. Coming from Germany, I have benefitted from 20 years of the open markets in the US and the rewards that are afforded to successful innovators, entrepreneurs and investors. The Inflation Reduction Act [IRA] is taking away many of these incentives. I think it tries to do the right thing, and we need to curb healthcare spending. But it really does impact innovation and the capital flows into our area. What has me worried is that I am not sure people understand the gravity of the situation for our industry.
11. What is a biotech (public or private) that you think serves as a paragon of an impactful company? What are the key learnings from this case study?
A company that has influenced me a lot is Alnylam. Cequent was working in RNA interference at around the same time that Alnylam was gaining momentum. We sort of worked in parallel paths for a long time. The team has really pulled it off, and a large part is due to John Maraganore’s leadership. I greatly admire John and the team that he built. He took this new modality and made several drugs. This is incredibly difficult to do. Of course, you can say a similar thing about Moderna’s successes with mRNA.
In our portfolio we have a very cool neuroscience company called QurAlis. They have several programs and are in phase I with a K+ channel [Kv7] opener, which is attractive and could be disease altering for ALS patients. It's also a great team and fun to be around.
We have a number of these bets in our portfolio. For me, investing is not about “just writing a check” and hoping for the best…we get very involved. We join boards, serve on committees, review the science and help with business development and fundraising. When I speak with young VCs I always say: “venture successes are built, not picked”. People sometimes misunderstand what we do, and think: “you just place chips on the Roulette wheel.” This is not the case.
12. What is one piece of advice for a young scientist or physician aspiring to have a career in biotech? Any advice specific to physician-scientists?
It just comes back to the “old grind.” You really have to know one thing well. For my kids, I tell them: if you become an engineer, scientist or physician, do that really well. Don't get distracted, and study really hard. Of course, get input from others and from adjacent fields, but you need to be good at one thing. If you're not good at one thing, you're not credible in anything. It is so important to have a good foundation and then build everything else on top of that.