Nektar: Robert Chess
"Entrepreneurs should embrace the fact that they're starting at a tough time and view it as a long-term advantage."
Singapore, Kenya, South Africa, New Zealand, China. With each new country stamped into his passport, a young Robert Chess came one step closer to completing his trip around the globe.
Always eager for new experiences – a 26-year-old Chess had already graduated from business school, worked at Intel and at a tech startup, before he decided to embark on a 4.5-month “budget” backpacking trip. In many ways, his travels formed a throughline that would describe a long and winding entrepreneurial career: with each new endeavor Chess would have to “learn the language” (#2), make new friends and, of course, go far on a tight budget.
Chess is currently a Stanford Graduate School of Business (GSB) Lecturer, and a serial entrepreneur. He is the lead director at Twist Biosciences and the Chairman of the Board of Nektar Therapeutics, where he was previously CEO. He is a co-founder and former Chairman of Biota, a member of the founding team and Chairman of BIO Ventures for Global Health, a former Chairman of the Emerging Companies Section of BIO, Associate Director of Economic and Domestic Policy in the George H. W. Bush administration, and co-founder and ex-president of Penederm. Chess’s storied career in biotech does not include formal training in the life sciences; he was an undergraduate engineer at Caltech and earned an MBA at Harvard. His career began at Intel when it was under the leadership of Andy Grove and Gordon Moore; Chess cites that early work experience as the richest part of his education: “Everything I learned about management I learned from [Intel] or has been a variant of what I learned there.”
When asked about his zig-zagging career path in tech and the life sciences, he responds: “If you look at all the things I've done in life, none of them really fit together. My joke is that I stick to things I know nothing about, because if you know a lot about something then you know all the reasons why it won't work.” This naive enthusiasm, as he calls it, has led to a series of successful entrepreneurial biotech endeavors. Beyond his high school biology class, his education has largely come from a process of deep exposure and expert advice – a set of activities he has codified over the years and repeatedly used when looking to innovate (#2).
Chess pairs a deep passion for entrepreneurship with the macro perspective of a policymaker. One of his Stanford classes is a survey course on the US healthcare system; hearing his perspective on this system’s strengths and weaknesses (#4) made us think we should have set aside an extra hour for our discussion. In our interview, Chess also touches on work-life balance as a new parent, some deciding factors when evaluating entrepreneurial opportunities, and the delicate act of transitioning leadership responsibilities to a protege (#5). Lastly, as any great teacher would, when asked for one book recommendation, he gave us three (#10).
Engineer, Intel-employee, biotech CEO, White House staff member, global health leader, father of triplets, and suspected spy while backpacking in 1980s China (#1), Chess has quite literally been around the world and back. In our interview he sums up his career philosophy with the common-sense of a former Caltech engineer: “I've always tried to figure out my path on my own, and just decide what makes the most sense at the time.”
Below is an interview with Robert Chess, from December 2022:
1. What was your first exposure to science and biotech?
I fell into this field by luck and circumstance. My last biology class was in the ninth grade of high school. When I was in high school, biology didn't even really seem like a science. There was no molecular biology taught at the time - biology ]was more about dissecting frogs, and I had very little interest in it. It seemed like people were coming up with explanations for what was going on post fact because they didn't understand what was happening at a fundamental level.
I was more interested in physics and chemistry, and frankly, history and economics. I was a computer science major as an undergrad, back in the punch card era. I then went to business school straight out of undergrad, which was unusual at the time.
When I graduated, I went to work in the tech industry. I was at Intel back when Intel's goal was to get to a billion in sales - it was a much smaller company at the time - and I then was par of computer startup… I was maybe employee number nine. I left the startup after two years to take a trip around the world, which I challenge anybody to do for $15,000 including airfare, even inflation adjusted, for four and a half months.
When I came back, I was looking for a business to join or start, because I always knew I wanted to be an entrepreneur – that was a constant. I was considering several business opportunities in the tech area. By circumstance, my dad's golf partner was the head of dermatology at UC Irvine, and my dad, who was a chemist, had done a little bit of advisory work for him. Together they'd come up with this chemical that supposedly got drugs to go through the skin and into the blood system. He told me a bit about it, and I got interested, so I talked to some VCs that I knew about the idea. It became the classic “If you want advice, ask for money, and if you want money, ask for advice.” I asked them for advice, and they said, “well, this sounds like something interesting to start a company around – you should do that.” I ended up starting a company that I thought would focus on getting drugs to go into the bloodstream. The chemical didn’t turn out to do what we thought it was going to do, but it did get drugs to go into the top layers of the skin. So, I started a dermatology company instead. That's how I got into the biotech field originally, doing something I never would have envisioned doing.
[You mentioned a trip around the world – what inspired you to do it, and what did you learn?]
What inspired me travel was that I was in my 20s, I wasn't married at the time, and I had no responsibilities. I figured I was never going to get a chance to do it later. I convinced a friend of mine to quit his job at the same time, and we traveled around the world. We went through Europe, Africa…went to China back in 1985… Singapore, Kenya, South Africa, New Zealand. A tip for anyone who's traveling with a backpack: look at where it is going to be 70 degrees at any given time… it makes it much easier to pack.
One observation about the trip in retrospect is that you have a more authentic travel experience when you're poor than when you have some money, because you get to see places that are more representative of how people live. When you travel with more money, you generally are just in the “nice spots for tourists.”
When we were in China, we were supposed to go from Guangzhou to Hangzhou, but we got on the wrong plane because nothing was in English. So, we ended up in Shanghai instead. Back then, you couldn't travel around independently in China. So, when we get off the plane, the military met us because they didn't know why we were there. As they escorted us through the airport, my friend started taking pictures of all these MIG fighter plans that were parked at the airport. As a result, the officers thought we were spies, and we ended up getting interrogated for several hours in Chinese, though we didn’t understand a single word. Despite it being a poor and relatively underdeveloped country at the time, you could clearly see that China had the potential to become an economic powerhouse if the government loosened up their economic reigns, which as we all know now they did…If I had been more interested in China and perhaps more money motivated, I would have moved.
I would heartily recommend traveling widely when you are young. Coming out of the trip, I developed a lifelong interest in Africa, which led me, later in life, to be part of forming BIO Ventures for Global Health. The organization initially focused on applying biotechnology for developing world diseases and is now focused on getting cancer drugs to Africa. That trip was the genesis of my interest in this effort.
[Can you tell us a little bit more about the founding of that organization?]
The original idea for BVGH came from Carl Feldbaum. Carl, at the time, was the President of BIO. Carl thought that BIO needed to have a foreign policy arm. He thought it important that the fruits of the biotech industry’s labors not be just for wealthy countries. He said at a board meeting, “let's see if we can get biotech companies to work on the diseases of the developing world.” I went up to him afterwards and said, “I'd like to be involved with this.” I was the initial Chairman of BVGH starting in 2004, and we originally were funded by the Gates Foundation and the Rockefeller Foundation, in combination with little seeding from BIO. I was Chairman for the first five or six years and still stayed on as a board member.
2. Are there mentors or teachers who were particularly impactful or influential in what you decided to study or the work you ultimately did?
I'm going to give you a disappointing answer. The answer is no. I've never been somebody who's cultivated mentors or advisors. What I have tried to do is to study and learn from almost everybody I work with. I've always tried to look at bosses and coworkers to understand: “what is this person good at? Why are they good at this? And what can I learn from that?”
In terms of charting my path, it's really been self-focused. If you look at all the things I've done in life, none of them really fit together. My joke is that I stick to things I know nothing about, because if you know a lot about something then you know all the reasons why it won't work. If you don't know much about it, there is a naive enthusiasm you can get for it.
[At Penederm – the first company you founded – was there ever a mentor at that early stage?]
No, not really. When we started, there were four co-founders: there was my dad, two professors at UC Irvine, and me. I was the only person who was doing it full-time. The professors stayed professors, and my dad was just an advisor. This dynamic forced me to learn how to learn—in this case about a field that I knew nothing about. I think this is a great skill. My [undergad] education at Caltech was good for developing this skill, because everybody was much better at most of the sciences than I was. I had to figure out how to learn things that were hard for me. Penederm was like that, too. I developed a methodology for myself for learning new fields, which consisted of a several things: first, I would read the key trade publication religiously in order to learn “the speak.” I also would find people who were recently retired who could serve as advisors - not people who'd been retired for a while, but people who still had a lot of currency. I sought out people who could advise me in all different parts of the business: how the business model would work, how marketing would work, how to run an R&D organization and hire R&D people, and so on. I would look for people who were expert in each area, and who were current. Lastly, I would go to the conferences and get to know the players and use their talks to learn about what was going on. That was my process for starting to get a feel and an intuition for a new field.
3. What is particularly hard about transitioning to a new industry?
One challenge is learning an entirely different terminology. It's like trying to learn French wines from scratch - what are all the different wineries? What are the different regions? I have found that learning all the terms and what those terms mean is 70% of the battle in getting comfortable in a new field. I had to put a lot of investment into that [learning the scientific language/lingo].
I also had to learn that clinicians are not necessarily great scientists. There's a difference. I worked with a number of clinicians, and oftentimes they would approach the world through individual observations and generalize, rather than having a structured, deductive way of coming to conclusions. Those inputs and observations themselves are useful, but that doesn't mean you can narrow down possible options using them alone. Coming from an engineering background, this was an interesting learning for me.
Another challenge [in transition to healthcare / life sciences] is not knowing what you don't know. That's the greatest danger, because in healthcare, the science is very complicated, the clinical development is very complicated, the regulatory is very complicated, and then once you get out to market, it is the land of misaligned incentives. One of the things I've learned from teaching my class [Innovation and Management in Health Care] is just how misaligned all of the incentives are on a micro basis. You need \ ground truth level knowledge to understand what is going on in this field. This is even true for developing medicines: take the KOLs, for example - what are their incentives during the clinical development process? For these key opinion leaders, a lot of their currency comes from how they're perceived by their peers. Similarly, it is important to understand that scientists are oftentimes motivated very differently than engineers. That became very clear to me going from the tech industry to a science-based industry.
4. You mentioned the GSB course you teach on US healthcare system – what would you most like to see improved in the current system in the next 5-10 years? What are the gaps that you see us being able to address?
You can take that question 50 different ways. I teach a few classes at the GSB, but the one that is relevant for this topic is a one quarter class that covers the entire US healthcare system in nine session and then one session on the entire rest of the world. In essence, as I joke with the students, we must cover $430 billion per class session because it's about a 4.3 trillion-dollar industry in the US.
As you probably know, the US spends far more than any other country does per person on health care. We spend over 18%of GDP, and the next highest - maybe Switzerland - is around 12%. these days. So, we spend about 50% more than everybody else does, and our outcomes, on average, are no better or worse, though, not that I hope either of you ever get these, the US is a great place to get cancer, it's good place to have a stroke, and a pretty good place to have a heart attack. We are good at treating conditions that require high-cost high-tech solutions.
However, the blocking and tackling required to provide good quality health care to many people – that is where we are not as good as other countries. There are lot of reasons for that. Part of it goes back to our incentives being so misaligned: what's economically good for a payer isn't necessarily economically good for a physician and often isn’t clinically good for a patient. Additionally, what's good for innovators isn’t necessarily good for those in the other parts of the system. We don't have good system alignment, which leads us to spend money in the wrong places and adds a lot of overhead and friction to the system.
With this in mind, what I would like to see improved in the next 5-10 years is better alignment of incentives. There's good work in that direction being done around capitation and value-based care. There are a lot of new and interesting models focused on devolving health care from the most expensive point of care to the least expensive point of care where you can still provide the same quality of service. Which things that are done in hospitals can you do in ambulatory surgery centers, which things that are done in surgery centers can you do a doctor's offices, which things in doctors can you do at home or via telemedicine? That devolution helps reduce costs a lot.
The other thing that we must do is improve access to care quite a bit. I would say that our healthcare system is pretty good for 50-60% of the population, and not so good for 40% of the population. A lot of the reason for this is that Medicaid payment rates are typically 60-70% of Medicare for the same service.. In California, something like 39% of the people are on Medicaid. If you are in that group, your access to doctors and quality of care is going to be much lower than it would be if you were going to Kaiser, which is a capitated system.
More broadly,- if you said, “what is one thing you could do with a magic wand to fix all that?” it would be to get rid of all our different ways that we pay for health care. We have Medicaid, Medicare, private insurance, and self-pay. All of these pay different amounts for the same thing. If Medicare is at $1, Medicaid payments are 60-70% of that, and private insurance payments that are $1.30 to $2.50 for the same thing. How can you run a hospital that way? If we could go to a system of standardized payment, that would be my fantasy. The Netherlands has a system like that where you have multiple choices of insurers, the government mostly pays, and you have greater consistency of provision of care and quality of care.
Another big issue is what we have seen with physician burnout. Where does that come from? Spending time in the EMR, worrying about payment systems, preauthorization forms, etc. and not practicing medicine.
5. Why did you initially get involved with Nektar? What led you to stay?
At the time, I was working on the White House staff. The venture capitalist who funded Inhale [later renamed Nektar] approached me and said, “I have this interesting company I want to fund; they want to do protein delivery through the lungs…systemic delivery is a big problem. Would you be interested?” I said no. I was already picking out my job in the second [HW] Bush administration, but of course there never was a second Bush administration. This was back in 1990-91. But the VC told me “Well, the founders coming to Washington… why don't you meet them?” So I met with the two founders, John Patton and Bob Platz. I was immediately captivated for several reasons. I really liked them, and for me, it always starts with the people. Two, they were trying to solve a really big problem - the delivery of proteins in some way other than injection - that had never been solved. Three, it was a venture capitalist who I had worked with before, so I was comfortable with thats. Four, and quite mistakenly, I thought that this was an engineering problem rather than a science or biology problem. And engineering problems are almost always solvable; you just have to put enough time and money into them. With science problems, you never really know. I liked the fact that I thought it was an engineering problem.
When I thought about all those things together - people I wanted to work with, a big problem, a good investor, and an engineering type of solution - I thought that was a once-every-10-year type of opportunity. It seemed worth it to take a leap, although I knew that I was never going to work in Washington again (and I had really enjoyed it there). That was back in 1991, and I ended up staying with the company. We took it public in 1994, only having taken eleven and a half million dollars of venture money. We were efficient with our funding.
I stayed on as CEO through ’99. I would have stayed much longer but we had triplets, and having young triplets was not compatible with being CEO of a public company. I was traveling 40% of the time and working all the time. You think you have control over your time as CEO, but you don’t. It just wasn't working with my home life, so I went to my Board and said, “I love my company and I love what we do, but I can't do this anymore.” I worked out something with them where, over a period, I would transition to Chairman of the company.
[What was that transition like to being Chairman, after having been CEO?]
The person who succeeded me had been my number two and our Chief Operating Officer. So, we had worked together before, and we actually did a one-year transition period of being co-CEOs. We worked out everything during that year. The co-CEO structure is an interesting one: you must have some division of labor and you must learn to never disagree in public. You should disagree in private a lot, but it never helps to do it in public; it's like having your parents arguein front of you - never a good idea.
I was then Executive Chairman for seven years after that transition. In some ways, it felt like a continuation of the division of labor we had worked out during our time as co-CEO but with less time on my end. The role went from being 80% of my time to eventually being a third of my time. But seven years in, our CEO left, and I had to go back in and be interim CEO for a year. This was terrible: it was like the worst of all worlds… we had 800 people in the company, I was teaching at the GSB, and I had three kids at home. I would get home from work at seven, would do dad stuff until nine or 10pm, and then I'd answer emails from students until midnight.
I felt like I was getting a D in every aspect of my life at that point. And then I hired a CEO – a very experienced CEO -- and went to a more traditional Chairman role. The key there was to not second guess his decisions and to properly stand back, as it's hard for a CEO to have the former CEO there as Chairman. I had to learn how to do that properly.
6. We talked about your class earlier, but we’d love to hear about what drew you into teaching and what brought you to the GSB.
What drew me into it was that when I went to business school I really loved going to class. I loved learning about all new areas and all these new companies. I found it really stimulating, and I very much liked the case method. At the time, I was looking to do something intellectually interesting where I would have some control over my time.
I had to work my way into my teaching role at the GSB. I wasn't some famous person who just shows up like Andy Grove where they just say “Sure we'll find you something to do.” Instead, I had to pay my duesover the course of a few years. I wrote a note on the Biotech industry, I was a guest lecturer, and I was a judge [on a student competition]. And then luckily enough a position opened, and I was able to move in
I've found it to be a terrific experience. When I started teaching my health care course I frankly didn't have a very broad view of how the rest of the healthcare industry worked: I didn't know how the insurance industry worked, how hospitals work, how provider systems work, or about EMRs and all that. I had to learnabout the all the areas I wasn’t familiar with, which was great. Teaching gave me a much broader and integrated view that I never would have had. Plus, I have to stay current, because I need to refresh the class all the time.
At the GSB, you have a lot of smart and on-top-of-it students. Many of them know a lot more than I do about aspects of healthcare - what do I know about a hospital? What do I know about how insurers work? Some of the students worked in roles, sometimes Chief of Staff role, at various hospitals or insurers or things like that. I continue to learn a lot from them. And lastly, the performance aspect of teaching is fun. When you're a CEO, you get to do a lot of conferences and do a lot of company meetings. For me, teaching was somewhat of a replacement for that.
7. Looking ahead, are there areas of innovation that you are really excited about, either at the high level or specific smaller companies that you are involved with?
I don't look, like a VC does, across the landscape at say 5000 things to figure out what is the most interesting. I get exposed to things and decide - does this seem like something I really want to get involved in or not? With that in mind, I’ll give you a few areas that are just personally interesting to me.
I'll give you one that's kind of not healthcare related, but it's from a company that I'm involved in called Twist Biosciences. I'm the Lead Director at Twist. It's a fabulous company. Basically, we can make genes and DNA in very high volume and for very low cost based on a silicon-well technology. One of the areas that ability has allowed us to get into and help pioneer is using DNA as a storage medium. This was something that I had read about but never thought could possibly be practical. But when you have low-cost DNA and you have an organizing mechanism for it, it is going to be possible to replace, over time, long term storage devices. The existing facilities use huge amounts of electricity in football field size rooms, and the data degrades over a period of five to seven years. The opportunity here is to replace current methods with DNA, which does not degrade and uses virtually no energy. That is one of the most interesting things I've come across lately. It's not healthcare related, but it is Life Sciences related.
I've also gotten enamored with learning about the liquid biopsy field, and the related technologies. Right now, those technologies are mostly used for cancer detection. I think it's interesting from a health care population management perspective, but it also highlights the problems in our healthcare system. Let's say I'm an insurer, and I use the Grail Gallerie test to detect that this person has early-stage cancer. I'm now on the hook for paying for a bunch of testing and methods that, if I didn't know about (as the payer), I would never have had to pay for. We have this problem where the incentive system is misaligned.
The ethical problems are interesting too: what do you do with information when you detect disease, and you have no way of treating it? What happens if you have detected an early-stage colon cancer or pancreatic cancer, but there's been no protocolregarding what to do to treat that cancer at that early early stage? Similarly, we're getting an understanding of how to test for Alzheimer's, and which markers indicate super early onset of Alzheimer's, but we don't yet have the drugs to intervene. What do you do with that information? Is it good or bad for people to know that?
I find this this nexus of science, ethics, and economics fascinating and complex. Are there grounds for discrimination? Could insurance discriminate? Even job discrimination… if I knew your genome, and I knew that you had predilection for certain conditions, would I want to hire you?
8. Changing gears – what advice do you have for young entrepreneurs?
I’m going to give you a few things, kind of scattered. For somebody who is a young scientist or engineer and wants to go into healthcare but doesn't necessarily have a company they want to start yet, I would advise them to go figure out what area they're most interested in and find the best run company in that area. Go work there for a few years. I think there's a huge amount you learn in terms of how to manage and work with people, how to do experiments, and how to think ahead and plan properly. When you see how really good companies run well, it will give you a mental model of what works and what doesn't. It won’t necessarily be what you'll want to do long term, but it will give you a framework of how things work that you can then modify to develop how you want to do things yourself.
The best management education I ever got was when I worked at Intel for my first few years out of Business School. And they paid me to do it, which was even better. The learnings were richer than they were in Business School, to be honest, because at that time Intel was run by Andy Grove and Gordon Moore and was an amazingly well managed company. Everything I learned about management I learned from there or has been a variant of what I learned there. For a first job, working someplace very well run, if you can find it, is worth doing. It doesn't have to be a large company. It can be a smaller company with great people running it.
Another piece of advice for young scientists and engineers is develop an appreciation for all the other parts of business that aren't science and engineering. Develop an appreciation for what the other functions of the of in a business do, and what it is that they need to do to operate well. Also, make sure you have a good understanding of whether the problems you're trying to solve are highly valuable onesand valued by the people who would be buying your product or service. A lot of times, it might be an important problem, but it may not be one that your potential customers care that much about getting solved.
Lastly, and it's an obvious one, but you should surround yourself with great people. The quality of the other people you work with has more to do with dictating success than anything else.
9. There is a lot of uncertainty in the current climate, particularly as it pertains to biotech capital markets and the downturn – what advice would you give to people starting biotech businesses?
Starting a business in a recessionary or downturn, in the long term, is the best time to start a business. You can see this if you look at when a lot of the great businesses were started: I think Disney and United Airlines were both started in 1929. The 1970s – when I grew up and a terrible economic time – was when Microsoft, Oracle, and Apple began. A lot of it is because in down times, there aren't as many other companies being started. You will have fewer competitors. Also, because funds aren't free, essentially, it forces you to focus.
There's an old saying by David Packard that I think has a lot of truth to it: “more companies die of indigestion than starvation.” Having too much money really can be a curse. The first piece of advice is that young entrepreneurs should embrace the fact that they're starting at a tough time and view it as a long-term advantage not a disadvantage. Second, if they're able to get funding, the quality of your funders matters more in this time. To the extent you have a choice, choose quality not valuation. I think that one of the smartest things Twist did in its Series B was choosing, of seven competing term sheets, the third highest.
[what led Twist to choose that term sheet?]
The quality of the people and their track record. Frankly, if you are getting venture funding, I think it is important to have one of the very senior people involved in your company. The senior venture people are the people who are running the partnership. They're focused on the long-term return on your business. They're not focused on how to look good to their partners and how to get included in the next fund at a higher percentage of carry. That sounds very crass, and there are exceptions, but I’ve found it vastly better to have the senior people involved in your company. You have to understand the person's incentive structures. And at the end, if you have a junior or mid-level person involved, their incentive is their career more than your company.
10. Do you have stories or anecdotes about what some good investors have provided to your companies?
I'll give you an example. One of the investors in Penederm was Brook Byers. He recruited a person who I never would have found to be our head of R&D. He had been the head of R&D for the third largest dermatology company, the Westwood division of Bristol Myers. We never would have gotten that person without Brook both identifying and helping to recruit them. There's a lot of recruiting and connecting that good investors do. They can bring advisors in, and oftentimes know people at partner companies. A good VC is a force multiplier, in terms of bringing resources in for your company.
Another quality of good investors is understanding what's important and what's not important. I think people who are top-tier experienced investors have a good sense of the important things you need to get done. They worry about what they should worry about. They don't worry about what they shouldn't worry about. The bad investors or the inexperienced people worry about things they shouldn't worry about and don't worry about the things that they really should worry about.
11. Is there a book that influenced the way that you think that you could recommend to folks?
I'm going to give you a few, because I am a “have multiple inputs and synthesize yourself” kind of person. The first is Andy Grove’s High Output Management. It is the first book that he wrote, and it is a fabulous guide on how to manage a company in a measured and quantitative way… from talent, to goals, to performance. The second is from Michael Porter, who was my strategy teacher in business school. His Competitive Strategy book, to this day, is fabulous. It doesn't get old. For scientists, having the kind of mental frameworks he covers is great. Third, there is an execution book that I read a few years ago that I thought was on-target- Ben Horowitz’s The Hard Thing About Hard Things. It is a great overview of the issues and difficulties of running a startup.
12. If you were an undergrad again, what is one course you personally would like to take?
The best class that I took in college, and I would take it again, was the history of the Supreme Court. That's may seem like an odd one, but it was a totally fascinating and enthralling course. It gave me a feel for the history of our country as seen through Supreme Court cases. There was also a course that my son took in college that I would have loved to take on pseudoscience. How do you tell real science from fake science? How do you tell what's legit from what isn't?
Lastly, everybody should take a class on statistics. I imagine that all your readers have or will. Statistical literacy is vastly underrated. It is amazing to me that anyone who's thinking of going into sciences or engineering has to take calculus in high school, but no one is required to take statistics. Being able to think statistically and probabilistically is an incredibly important basic life skill that most people are missing.
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