Immuno-Oncology Startup CoStim Pharmaceuticals Acquired By Novartis

Posted in Atlas Venture, Exits IPOs M&As, Portfolio news, VC-backed Biotech Returns

Today Novartis announced its acquisition of CoStim Pharmaceuticals, a young biotech company focused on next generation approaches in the exciting immuno-oncology field (here).  Their oncology capabilities and commitment to anti-cancer immune mechanisms made them an ideal partner for us at CoStim.

As was noted in their press release, CoStim brings a set of novel immune-directed programs that could act as standalone agents or be combined with Novartis’ CART technology.  All of CoStim’s programs work by interrupting the “immune-blocking signals from cancer”, such as those addressing PD-1, and are in “late discovery stage”.  As Mark Fishman (President of NIBR) highlights in the release, “immunotherapy agents provide additional arrows in our quiver” for combining cancer agents in a rationale manner.

As more background on the deal, after the early solid tumor PD-1 data was presented by BMS at ASCO 2010 (here), the field of immune checkpoint biology started to heat up.  At the ASCO 2011 meeting, PD-1 was the belle of the ball with numerous reports of exciting anti-tumor responses. CoStim was founded in 2012 to capitalize on that growing enthusiasm to go after PD-1 and next generation targets in these pathways, aiming for unique monotherapy and combination products, around the work of scientific founders Vijay Kuchroo and Arlene Sharpe, of Harvard Medical School, and Gordon Freeman of Dana-Farber Cancer Institute.

MPM Capital’s Luke Evnin and Robert Millman helped found the company and led the initial seed round, and Millman served as its initial President and COO.  They brought together the intellectual property and founding academic licenses, and oversaw a small team doing the initial laboratory work. In mid-2013, immunologist Dan Hicklin, a former VP of Oncology at Merck, joined as President and Chief Scientific Officer.

Like other early stage VCs, Atlas has had a keen interest in immuno-oncology for several years, both with regard to checkpoint blockade and CAR-T technologies.  In the spring of 2012, we actually met with Vijay Kuchroo about his TIM-3 work, which he also presented that summer at the Nature “SciCafe” that we helped create up in Boston. We were well primed to move quickly when MPM reached out in October 2012 and presented the seed-stage story to Atlas partner Jean-Francois Formela; a few months later, we co-led the $10M Series A round. Jean-Francois and Atlas venture partner Josh Resnick both joined the Board of CoStim as part of the financing. J&J’s venture fund (JJDC) and Partners Innovation Fund also joined the Series A round.

Although financial terms were not disclosed, this will provide a significant, above-top-decile return. As a general rule, startups in “red hot” areas like immune-oncology don’t get bought early unless the returns are very attractive. If the contingent milestones are paid, this deal will return a significant portion of the entire Life Science allocation in Atlas Fund VIII.

There are at least three takeaways for me from this deal:

  1. Back great science and good things happen.  The transformational role of immune-oncology has long been talked about (30 years?), but it’s increasingly clear that the field has reached a tipping point.  Checkpoint blockade with CTLA-4 and PD-1 are two compelling examples where this strategy has delivered exciting data in the clinic.  Engineered T-cells are another great example; version 3.0 of CAR-T, over 25+ years in the making, is now in early clinical studies. Predicting which fields will become “red hot” is hard to do, but astute and observant oncology experts at ASCO 2010 certainly saw PD-1 and checkpoint blockade emerging as the next hot area in solid tumor biology. This is where teaming up with key thought leaders in a field, like Kuchroo, Sharpe, and Freeman in immuno-oncology, is such an important part of the strategy.  As early stage VCs, staying close to both the emerging science and leading scientists is critical.
  2. Getting in early is the only way to participate in really hot biotech stories.  CoStim got acquired within 12 months of its Series A financing on only $10M of invested capital. The seed-led approach embraced here, where a venture firm plays an active role in shaping the early life of a company, can work quite well to create innovative biotechs, and is central to our strategy at Atlas.  Because of the early nature of this acquisition, there was no opportunity for others to “wait and see” or lead a Series B round. Especially in a world with an attractive IPO market, Pharma will likely be reaching upstream to acquire innovative new startups earlier or risk losing them to competitors – and CoStim is a great example of this.  This provides further validation of the merits of a seed-led investment model around potentially transformative medicines.
  3. Going “long” requires digging into deep pockets, or at least the potential capacity to do so. The syndicate we joined and co-led last year was designed to be strong enough to take these programs into the clinic ourselves, but Novartis pre-emptively moved forward with a discovery-stage deal.  The credible “threat” of going longer alone as an early stage company was an important element of the deal dialogue. In the end, leveraging the resources of a big partner like Novartis will enable more work to be done in parallel on these programs than even a well-funded venture-backed startup could have explored. Further, by sparing existing CoStim shareholders the expected dilution required to take these forward on our own, CoStim’s return profile, should these programs progress, is incredibly attractive based on this uniquely favorable “equity capital efficiency”.

Congrats to Novartis for securing an exciting set of assets, to our friends at MPM Capital, to my partner Jean-Francois Formela on another great exit, and to Josh Resnick for helping drive the deal for Atlas.

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