Potential Breakthrough Option For Parkinson’s: LTI Partners With Allergan

Posted January 9th, 2017 in Business Development, Exits IPOs M&As, External R&D, Portfolio news | Leave a comment

Today Allergan announced a transformative deal with Lysosomal Therapeutics (LTI), an emerging biotech focused on Parkinson’s Disease through an understanding of human genetics and sphingolipid biology (here). This deal brings a new chapter for LTI as we move our lead program into the clinic in 2017.

As described in the press release, this transaction involves a creative option-based deal structure: Allergan purchased an option directly from LTI shareholders for the right to acquire LTI after Phase 1b, as well as provided an upfront R&D payment to the company to support the advancement of LTI’s programs.

This partnership fits squarely into Allergan’s “Open Science” model of external R&D. As Allergan CEO Brent Saunders described in late 2015: “Open Science defines our position in this new ecosystem – as a magnet for game-changing ideas and innovation. We bring these programs into our best-in-class product development and commercialization platform to build a sustainable R&D portfolio”. Through this strategy, Allergan has shown a significant commitment to be a leader in the neurosciences with partnerships or acquisitions with numerous companies over the past 18 months: Naurex in major depressive disorder, Chase Pharmaceuticals’ cholinergic program in Alzheimer’s, Heptares’ muscarinic agonists in Alzheimer’s, and Merck’s migraine drugs, to name a few. LTI is Allergan’s first move into Parkinson’s Disease (PD).

As part of sharing the details of the LTI story, here are four of the most salient aspects of where we are today:

Exploiting Insights From Nature’s ExperimentsElegant human genetics underpin LTI’s scientific thesis. Gaucher’s Disease (GD) is a lysosomal storage disorder caused by homozygous loss-of-function (LoF) mutations in the GBA1 gene, which encodes an enzyme called glucocerebrosidase (GCase). Complete loss or reduced levels of GCase lead to accumulation of toxic lysosomal glycosphingolipids in GD patients. Compelling clinical evidence has emerged over the past decade linking reduced GCase activity to elevated Parkinson’s risk: for example, GD patients have a 20-40x higher rate of PD, and heterozygous carriers of these GBA1 LoF mutations have a 5-8x higher rate of PD (reviewed here). These genetic data strongly validate the target and pathway in some forms of PD.

Beyond supporting GCase as a target for intervention, these genetics also confer insights into differential disease progression: PD patients with GBA mutations and reduced GCase activity exhibit faster Parkinson’s decline, more dementia, and reduced survival (here, here, here). This unfortunate differential for patients has helpful implications for clinical development (i.e., possibility of shorter, smaller studies to prove the therapy works). Very few neurology targets have both this level of validation and the ability to help select/stratify patients with accelerated disease progress. Based on these insights, LTI’s founding thesis was to make activators of the GCase enzyme as a therapeutic approach for a targetable subset of PD patients.

Inspired Drug Discovery Around Sphingolipid Biology. Making activators of enzymes is very challenging; as evidence, there are very few examples in therapeutic pharmacopeia. The complexity of GCase – its subcellular location, protein cofactors, substrate differences, required brain penetrance – further add to the drug discovery challenge. These obstacles led the LTI team to build deep know-how around a nuanced sphingolipid platform. Led by Peter Lansbury and Renato Skerlj, the R&D team identified multiple proprietary series and characterized a range of important structure-activity-relationships. After 2.5 years and nearly 2000 compounds, the team advanced LTI-291 as a potent and brain penetrant activator of GCase as a Development Candidate. LTI-291 is expected to enter the clinic later in 2017.

In addition to the chemistry effort, LTI developed an expansive platform for evaluating the flux of substrates through the sphingolipid pathway, enabling an improved understanding of the pharmacodynamics of our approach as well as potential patient selection biomarkers. The Michael J. Fox Foundation has been an important partner on this platform.  The combination of this novel biology and a very attractive lead program is what makes LTI a compelling partner for larger neuroscience players.

Strategic Optionality Preserved Multiple Paths.  Great science begets lots of options, and the key for any management team is preserving them until the optimal scenario emerges. In 2016, as our discovery program and platform were advancing, LTI was parallel processing a number of strategic options: discussions with a broad set of Series B investors about powering up the story with a large financing; several Pharma partners were interested in licensing-type collaborations; outright M&A deals were explored with several parties; and, obviously, option-to-acquire deal structures were considered. LTI co-founder and CEO Kees Been and LTI’s head of BD, Darren Braccia, led this thoughtful parallel process to its completion by the end of 2016. Although the terms of this deal have not been disclosed, it’s fair to say that in light of the other options we had, and the high relative value of a compelling genetically-validated program in neurodegeneration, Allergan put forward a proposal we couldn’t refuse.

The Right Partner Reveals Themselves Through Their Conviction. Allergan distinguished itself from other partners through its steady commitment to pursuing a partnership with LTI; this creative deal was pushed collaboratively by both LTI and Allergan deal teams since the summer and, as noted above, is a nice fit with their Open Science model. It’s worth noting, though, that Allergan was very effective at conveying their conviction about working with LTI, and this was catalytic in getting the deal done: as an example, at a critical juncture in the dialogues, Allergan CEO Brent Saunders engaged directly with Kees and myself about how to find a win-win structure for both Allergan and LTI shareholders. It’s unusual for CEOs of companies as large as Allergan to engage directly in deal discussions around early stage assets – but Brent’s engagement and his team’s commitment around LTI was certainly a key deal enabler. This isn’t new to Allergan: Brent’s direct engagement was noted around the Tobira transaction as well (covered here). It’s unsurprising in light of this approach that they’ve become one of the most active biotech deal-makers. By cutting through the layers of decision-making and governance, direct engagement from senior Pharma executives can definitely get deals done and this LTI agreement is no exception.

Thanks to the teams – on both sides – for bringing to closure the deal process and launching an exciting partnership.

Before closing out this blog, it may be of general interest to describe how investments like this come together from a venture creation perspective. Atlas was introduced to the scientific concept by Henri Termeer and Peter Wirth back in 2011. These two, and a few others, including Kees and LTI’s Chairman Bob Carpenter, were working with MGH researcher Dimitri Krainc (now at Northwestern) on starting a new company based on the science in his lab. Earlier in 2011, the Krainc lab published findings in Cell that helped reveal the possible mechanistic basis for the Gaucher’s/Parkinson’s disease correlation (here, here). As the story came together, so did the team. Later in 2013, the startup team expanded to include CSO Peter Lansbury and head of drug discovery Renato Skerlj, both adding significantly to the scientific strength and R&D experience of the story. Atlas EIR Nessan Bermingham, before he focused exclusively on the gene editing space, was instrumental in helping us drive our diligence forward. In early 2014, with an agreed path for early de-risking of the story, we committed to lead a modest $5M seed round. This closed nearly 2.5 years after we began our initial dialogue with the founding team – highlighting the lengthy time it can and often takes for venture creation around novel science. After steady progress at the company, we also led the $20M Series A round in early 2015, with a second tranche in early 2016. Our LTI co-investors included Hatteras Ventures, Lilly Ventures, Roche Ventures, Sanofi Genzyme BioVentures, and Partners Innovation Fund; while not unusual to have multiple VCs involved over the life of a deal, the size of this syndicate – especially early in the seed – was very atypical.  Despite its size, the board of LTI has been highly functional and a pleasure to work with.

To conclude, the LTI story doesn’t end here – it’s just a new chapter with Allergan as our partner. We’re focused on the seamless execution of our program into the clinic – as patients are waiting!

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Crystal Ball Gazing: Biotech Predictions for 2017

Posted January 5th, 2017 in Biotech financing, Business Development, Capital markets, Pharma industry | Leave a comment

Good riddance to 2016, and a warm embrace to 2017 – or so is the sentiment of most biotech investors as they head into the 35th annual JPM Healthcare Conference. Many have bemoaned last year as an abysmal one for biotech (here, here), and it certainly was tough for the public markets.

But while it had its challenges, 2016 was a strong year by many metrics for those of us in the biopharma venture ecosystem.

  • Biotech venture funding likely topped $7B in the US alone – a marker met only met one other time in biotech history (2015!), according to PwC MoneyTree. Approximately 500 private biotech companies successfully fundraised last year, in line with the past decade.
  • We witnessed an above-average number of biotech IPOs in 2016, including several exciting preclinical companies in the gene editing space ($NTLA, $EDIT, $CRSP). Depending on who and how you count, over two dozen young biotech completed IPOs – making it the 5th or 6th best year for number of IPOs since 1995 (here).
  • Pharma continued buying aggressively in 2016, with many significant private M&A deals closing, including Acerta, Afferent, Selexys, StemCentryx, and Tensha, among others. Atlas also had a strong year on this front, with solid deals at Nimbus with Gilead and Padlock with BMS.

But, stating the obvious, 2016 wasn’t all “puppies and rainbows” though.

  • The NASDAQ Biotech Index got hammered in 2016 – but mostly due to the market melting in January 2016. Since mid-Feb 2016, the biotech stock markets ended flat. And given the multi-year run-up, the NASDAQ Biotech Index is still up 160+% over past five years (vs 75% for S&P) – massive outperformance despite giving back 30% plus since its peak in July 2015.
  • FDA product approvals, often seen as a bellwether for sector health, were way down at just 22 new medical entities. Although well off the boom years of 2014 and 2015, we did see some innovative new medicines reach the market, such as the RNA splice corrector Spinraza (nusinersen) for SMA, Ocaliva (obeticholic acid) for liver disease, and Rubraca (rucaparib) for ovarian cancer, among others. The FDA’s John Jenkins did a farewell review of 2016 that is worth reading (here). And many of these new medicines were discovered by small and mid-sized biotech firms (here), which is good validation of the external collaborative R&D model emerging in the industry.

But enough with the rear-view mirror; it’s more fun to move on to crystal ball gazing for 2017.

Others have already shared their thoughts; Adam Feuerstein had 17 Thoughts on the subject worth reading, and Luke Timmerman put a few hot areas in his sights.

I’ve got a dozen or so biotech predictions for 2017, focused mostly on the venture side of the ecosystem. Having just come out of more than a dozen compensation committee calls, I’m going to use the SMART technique (specific, measurable, achievable, realistic, and time-based) for formulating these, so that my predictive capabilities can be held to account in January 2018.

So here’s the list:

We’ll see more than 30 life science IPOs on the NASDAQ in 2017.  Most of these will be biopharma companies, and many of them will be early stage companies whose lead programs are still pre-Proof-of-concept in the clinic. I expect a bolus of IPO activity in the winter following #JPM17, a spike in 2Q, and a strong second half after labor day driven by a wave of young companies currently advancing into the clinic. Recent filings include Jounce, Braeburn, ObsEva SA, and BeyondSpring (here), and there are a good number of prior S-1 filings in the queue. I also think it’s likely that both of biotech’s big private unicorns, Moderna and Intarcia, will go public in 2017 if positive market conditions prevail (if only just to remove the likely large liquidation preferences on top of those management teams).

The dispersion in trading performance of the 160+ IPO cohort of 2013-2016 will continue: by end of 2017, less than 40% of these offerings will be trading above their IPO prices. For context, back in September 2016, 43% were above their IPO prices (here). Over the course of 2017, I expect the challenges of drug development to take its toll on a few more of these companies and push that metric below 40%. That said, many of the winners will be significantly higher (100%+ gains), as their programs advance favorably. The underperformers will struggle to raise money, and see their stocks get clobbered. Although obvious to most readers, it’s worth mentioning that biotech post-IPO stock performance is both of function of R&D pipeline progress (which is hard, and failure is a common occurrence) and overall sentiment toward small cap companies (e.g., rising/sinking tides and fund flows). I anticipate the latter will be positive or neutral in 2017, so the former will be the big driver of performance for these recent biotech offerings.

Lastly, a number of these underperformers are now just public shells with NASDAQ stock tickers, with or without cash. Many of these will run strategic processes for merger partners. I expect at least 10 reverse mergers to occur in 2017, which will add to the number of private biotech’s that get public.

M&A will continue to drive liquidity in biotech venture with over $10B in private acquisitions (upfront and milestones) by year end. In 2015 and 2016, we saw over $10B in private M&A deal value, and I expect this heavy volume of activity to continue into 2017. Innovative early stage private companies will be able to demand a premium as big biopharma compete for these scarce assets. If the politicians in Washington move quickly and ex-US cash has a chance to be repatriated in 2017, I’d revise this prediction upwards to at least $15B in deal value for private biotech acquisitions. In addition, deal-making in general will continue aggressively, with more and more big companies seeking to emulate Celgene’s seven successful habits in setting up large and broad-based early stage external R&D collaborations.

On the public side, which is not my focus, there’s certainly plenty of speculation around which SMID-cap player is likely to get bought: Incyte, Alexion, BioMarin, Tesaro, and Clovis are on the buying list for many. Acquisition multiples for commercial-stage biotechs have gone up considerably in recent years (here), so I’d be very surprised if we didn’t see more than five public biotech M&A deals of over $5B+ in value next year.

Venture capital firms, reloaded with new funds, will lead the deployment of over $7B into US-based biotech firms in 2017. This funding rate, which is similar to 2016, is way above the historic average of ~$4.5B per annum since 2000. A reasonable share of the private biotech funding (20-30%) will continue to come from atypical sources, like public investors crossing over into venture rounds, or large non-conventional investors like Baillie Gifford and the Alaska Permanent Fund. Like last year (and most of the last decade), this capital will support roughly 500 biotech companies in 2017.

We’ll continue to see Boston and San Fran consolidate the market for both capital and talent. Biotech venture funding in these two geographies has moved from 40% of the national funding total in 2005 to north of 70% in 2015. Expect these two first-tier clusters combined to continue to receive over 70% of biotech venture funding in 2017.

The pace of new startup creation will remain modest, with 100-120 new biotech’s receiving their first venture capital financing in 2017. This pace, as tracked by PwC Moneytree, is right in line with the past five years – reflecting a stable but constrained venture creation environment in biotech (here). This will be in continued contrast to the startup glut in the technology venture world.

Although the number of startups will remain constrained, expect funding levels per startup to be ~2x higher than the historic average. We saw this increased funding in 2015-2016, where funding per first financing hit nearly $15M on average, versus the 2009-2014 historic average of $7M. This elevated funding trend will likely continue. Further, many of these startups will have lower levels of investor syndication than 5 or 10 years ago: deals with only a single investor will be increasingly common as more venture creation activity occurs within venture firms themselves (Atlas included).

The FDA will approve more than 30 new medicines. Coming off 2016’s very light year for approvals (22), I expect this macro biomarker of the industry to rebound. We’ll likely see the first gene therapy approved in the US. And the first CART product in ALL (Kite), maybe a second (Novartis). The number of approvals in 2017 will also benefit from a carry over from 2016 rejections (CRLs); several were from GMP manufacturing issues, which should get resolved in 2017 and contribute to the total of new approvals. Its unlikely to reach the heights of 2014-2015 given the projected PDUFA calendar, but a sizable uptick over 2016 is likely.

Although there’s been lots of noise about the FDA adopting lower efficacy standards (“approve drugs if they are safe”) during a Trump administration, this won’t likely happen. Rational heads will prevail, and the agency will continue to hold a high bar for new medicines – which is good for all of us. The Sarepta legacy of the FDA approving drugs without definitive benefit won’t become a precedent for bad regulatory practices in the future.

Drug R&D will remain hard: we’ll see at least 10 major clinical blow-ups that will destroy massive shareholder value.  I’ll define massive as either 50% or more of their market cap, or greater than $5B in value, on the day of the announcement. 2016 certainly had its fair share of these: from Opdivo’s 1L Lung data, to Biogen’s LINGO, to Seres’ crappy outcome, and recently to Ophthotech’s big disaster.  John Carrol at Endpoints just covered these 2016 blow-ups, setbacks, and snafus nicely.  The reality is that project attrition is a fact of life, and only a minority of Phase 2-3 programs will make it to market – so blow-ups should be expected to happen. Possible contenders in 2017 include Axovant’s Phase 3, further unexpected CART trial deaths, a gene therapy safety scare, a Merck BACE failure, or a PCSK9 blindside.

Drug pricing will continue to be a massive source of sentiment volatility, but nothing dramatic is likely to come out of Washington in 2017 on the topic. We’ll continue to see periodic tweets from Trump (and Sanders) about big-bad-drug-companies, but there will be little movement here related to the pricing of innovative new medicines. Expect more firms to openly adopt something similar to Allergan CEO Brent Saunders’ social contract with patients; those that don’t will likely get publicly challenged and chastised more, like Pfizer’s Iain Read by Regeneron’s Leonard Schleifer on a Forbes Healthcare Summit stage in December. The battle between real Innovators and price Exploiters will continue to rage in our sector both in the media and with formularies/payors. (Note: this prediction is hard to measure, so let’s say “no major legislation” passes restricting innovator drug pricing in 2017).

The immuno-oncology supernova will continue to explode with over 1000 clinical trials open or recruiting actively involving PD-1 axis antibodies by year-end. Right now, just among the three approved PD-1 axis antibodies, as well as durvalumab and avelumab, there are over 842 “open” studies, according to clinicaltrials.gov.  This is likely to increase in 2017 to over 1000 “open” studies as momentum continues around the quest to find the right combinations. That said, I expect very few of these combinations in the I/O treatment stack to truly differentiate themselves from the noise in 2017. We’ll get lots of data, but also lots of mixed enthusiasm. By extension, I think we should expect exciting, albeit modest, news at ASCO 2017 from a number of checkpoint combinations (with chemo, with other checkpoints, with other I/O agents), but with relatively few truly transformative clinical improvements over existing checkpoints alone or current standard of care. I’m hopeful for patients here, but worry about the signal-to-noise clinical challenge in this space right now.

In addition, the Pharma world is splitting between the PD1 “have’s” and “have-not’s.” Players in oncology that lack an approved or late stage PD1 will face enormous pressure to find creative solutions for accessing that part of the I/O treatment stack. I expect to see a number of creative deals between Big Pharma “haves and have-nots” along this front that facilitate new combinations, set up “privileged” relationships, and solve the access/pricing issues around future combo products.

Lastly, #JPM17 won’t be a bust, nor will the NASDAQ Biotech Index. Rain or shine, we won’t likely see a repeat the disaster of #JPM16 and the subsequent weeks in January, when the biotech markets shed 20% in a few weeks. Investor sentiment isn’t great, but it’s more positive than it’s been in a while, with a majority of investors believing the markets will improve according to the latest Evercore ISI survey.  I, too, suspect markets will settle out by end of the month modestly up, as macro uncertainty reduces and 2016 fades behind us. Beyond that, #JPM17 will be a lot like past meetings: I expect that I’ll hear nearly every one of JPM’s perennial Little White Lies – “hey buddy, let’s do something together this year” is one of my favorites.

In early January last year, I wrote a piece about “This Time is Different”, trying to put the turmoil of the biotech markets in 2H 2015 in context.  A lot of the drivers that were highlighted there remain intact today, despite the poor timing of publishing it in the worst biotech month in years. I still think we are in a very different world today versus prior cyclic periods: biotech products are advancing to patients, companies are maturing into real businesses, capital markets are deepening, and industry R&D productivity is improving.

But following last year’s surprises, like Brexit and the US election, I didn’t realize quite how different 2016 this time would actually be. Let’s hope 2017 delivers a set of much more positive surprises.

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