Like all avid fly fishermen, I can recount many stories about the big ones that got away. The same goes for my experience in venture capital… as I’ve certainly missed some big ones.
With the acquisition of Juno Therapeutics by Celgene, and the recent approval of Agios’ first medicine for AML, it’s a great time to reflect on those two… because they are two giant fish that got away.
Openly talking about massive winners that you actively passed on investing in brings some risk, but an honest acknowledgement of one’s “anti-portfolio” is an important step in recovering from the trauma of totally screwing up. So here’s my inside baseball of both big misses.
Cancer Metabolism Therapeutics (Agios Pharmaceuticals)
In the spring of 2007, Vicki Sato, then an advisor with Atlas, introduced us to Michael Su, a former Vertex scientist, who was the initial entrepreneur pulling together a startup focused on cancer metabolism involving distinguished academic founders Lew Cantley (Vicki’s husband), Tak Mak, and Craig Thompson. The startup was tentatively called CMT for Cancer Metabolism Therapeutics (also amusingly Cantley-Mak-Thompson). We spent a considerable amount of time with Michael, as well as the scientific founder team, understanding the nascent field of cancer metabolism and the early areas of interest: glycolysis, fatty acid regulation,
mitochondrial dysfunction, and autophagy.
We got excited by the CMT concept, and things began heating up around the deal in early autumn. Third Rock Ventures (TRV) had formed as a hot new venture firm in town that year, and we were working with them on our early obesity startup (Zafgen), where Kevin Starr had been on the board. TRV’s Nick Leschly had been an EIR with us for a few months early in 2007, prior to joining TRV for its launch that spring. So working with them on CMT was easy.
Through the fall, TRV and Atlas conducted shared scientific diligence and got energized about the overall CMT story: great founders bringing high impact science in a burgeoning new field. The “cornerstone” initial target of CMT in the initial plan was PKM2, an oncofetal isoform implicated in glycolysis regulation in cancer. Other programs included autophagy inhibitors (hydroxychloroquine) and fatty acid enzymes (CPT1C). While interesting, these early stage programs were risky on many dimensions (e.g., biological mechanism of disease, chemical tractability, translational path), which gave us pause about putting a big Series A financing straight into the startup.
We prepared a Series A proposal for CMT that involved a tranched financing, with a seed-stage derisking tranche, and a modest valuation. We shared this concept with CMT in early November. Unfortunately for us, a competing proposal from Flagship and Arch won over the founders, and those two firms seeded the young startup shortly thereafter. So we put our pencils down.
In the weeks that followed, and continuing into the winter, a lengthy discussion was had about whether a 4-handed deal would make sense. It was going to be a “big science” story, so having more deep-pockets around the table could be helpful – or so the logic at the time went. In the end, we could (should) have raised our hands, but we balked. We were cautious on PKM2’s tractability, so had concerns on how aggressively it would get capitalized. And we’d had a less than positive experience with big Series A syndicates in the preceding few years. Beyond the math problem posed by larger numbers of investors (i.e., 4-handed deals lead to small ownership stakes), big syndicates often put too many people in the kitchen: one of our explicit “lessons learned” at that time was to avoid large syndicates in early stage deals. In the end, regretfully, we passed. And after a few months of re-negotiating the deal, TRV ended up joining Flagship and Arch and the rest is history.
With the closing of the Series A in the spring of 2008, those three investors worked closely with the founders, and by recruiting CEO David Schenkein and a great team, helped build one of the best aspirational biotechs of the last decade. In the process, they all made fantastic returns – the Series A price was $2.75 per share, and the stock has recently been trading at 30x that number. Kudos to Agios, David and the team, and its founding investors – TRV, Flagship, and Arch.
As an epilogue, PKM2 didn’t end up being the high value “cornerstone” target as articulated in the initial business plan. In fact, as I understand it, none of initial targets spelled out in the 2007 plan played through as tractable cancer programs for the company. But the team and the scientific capabilities of the company were built to go beyond those programs – so when the IDH mutation story emerged in 2009, David and the Agios team were quick to pounce on it (leading to this great Nature paper from their team late that year), which became the big value driver for the company and led to their watershed Celgene collaboration. Looking forward to more great things from Agios over the next decade.
One lesson from this missed opportunity is that knowing when to “break your own rules” is part of success in investing. We were really adamant that we wouldn’t do the “big syndicate thing”. But maybe in this case – where that truly special blend of great, inspiring people and cutting edge high impact science came together – we should have thrown caution to the wind and jumped in. Maybe. Easy to say in hindsight.
Juno & Restoration Oncology Inc: MSK’s contribution to Juno Therapeutics.
The field of chimeric antigen receptor T-cell (CART) therapy really began to take off after reports of a few compelling patient responses in 2011. One year after Carl June’s August 2011 NEJM paper, Novartis and Penn struck a landmark deal to collaborate on developing CART therapies together. It was that deal that really energized the field and brought a formerly skeptical investment community into the mix.
For Atlas, we had just started to get exposed to the CART field around that time. In spring of 2012, at the University Research & Entrepreneurship Symposium (aka URES, now restarted as Science2Startup), a CART-like startup out of Dartmouth called OnCyte presented and intrigued the team, aiming to use NKG2D ligands as an engineered T-cell therapy. Prompted in part by the halo of Novartis’ deal with Penn, we began a deep dive with OnCyte into their technology and prospects.
This effort to understand the emerging CART space led us to reach out to MSK, where we knew Isabelle Rivière, Michel Sadelain and Renier Brentjens were working on CD19 CARTs that were similar to Penn’s programs. Greg Raskin, a former colleague of mine from McKinsey, was running tech transfer at MSK and was an easy outreach. We learned MSK had licensed their CART estate in late July 2012, only a week or so before the Novartis-Penn announcement, to two executives who had founded a new startup called Restoration Oncology Inc (ROI).
We began to diligence the ROI story (and thus the MSK programs) late in 2012 and through the winter of 2013. We agreed on a path forward with the ROI founders in late March: we’d back a new CART startup and build it from scratch out of our offices in Cambridge, trying to bring together MSK’s CART pipeline with the interesting projects from OnCyte and other emerging cell therapy stories. Our proposal was to initially fund it with a modest ~$30M +/- Series A financing (in hindsight, much like Kite’s, which was announced later in the spring of 2013).
But then we faced death by a thousand cuts. Our diligence just kept unearthing more challenges and complexities. A “sleeper” patent from Zelig Eshhar’s work (one of the fathers of CART therapy), filed in the early 1990s, was surprisingly issued in 2010 with years of patent life; at that time, it appeared to us to cover a number of chimeric antigen constructs we were interested in (and was subject of subsequent legal battles). There were protein sequence issues in a key patent (which were eventually resolved). Suicide switches were deemed important for solid tumors, but we weren’t sure how a new startup would get clear freedom to operate. Novartis’ exclusive deal for the T-cell expanding Dynabeads created cell manufacturing headaches. We had clinical development questions around going after CLL vs ALL, which raised further concerns. These are just a few of the long list of things that kept tripping us up.
We tried to work and address all these concerns through the spring and summer of 2013, but to no avail. Even our good relationship with MSK’s tech transfer office wasn’t able to facilitate the favorable resolution of all of our issues and give us peace of mind around these complexities. In mid-July, in what I now regret as a dumb move, we stepped back from the deal with the delusional idea that we’d renegotiate around a better deal to start a preeminent CART company. But, as you might expect, after that point we had no leverage at all, and a hugely contentious and dynamic situation emerged with multiple parties making claims and offers. We didn’t make it out of the chaos victorious.
In the end, a startup called Juno Therapeutics struck a deal with MSK (as well as other founding institutions like the Fred Hutch) and publicly launched in December 2013. Bob Nelsen of Arch, one of Juno’s founders, later approached Atlas and kindly offered us a chance to join the $180M Series A round. But new investments in huge rounds at big valuations weren’t our thing, so we passed – a real bummer in hindsight, of course. Once the dust settled, the MSK CART programs went into Juno and have successfully advanced deep into clinical development, and OnCyte’s NKG2D CART eventually went into Celyad (Cardio3), and is progressing in the clinic. The rest is history.
As described recently, Juno was a monster win – a 22x on the Series A investment. MSK, the academic founders, the startup team led by Hans Bishop, and its investors all did very well by Juno, for which they deserve huge credit for building. By leveraging their CART assets, and their productive partnership with MSK, Juno pioneered the cellular immunotherapy space along with Kite and Novartis.
But the loss of this opportunity reinforced another key lesson for us: if the data are truly transformational (as the early CD19 CART data from MSK were in ALL), you can work through all the other details later. It’s a very rare case when early data are truly this disruptive, but for those special situations you can’t let the small stuff (e.g., patents, licenses, people, etc) distract you from the big picture of having huge patient impact – just move forward and figure it out later. Of course there are dozens of examples of patent issues blowing up biotech companies, so there’s nuanced judgement calls to be made. But you can’t be dogmatic about it.
A silver lining did emerge for us shortly after this painful experience. As a result of our deep diligence into CART field, when Dario Campana published his work on CD16-expressing CAR constructs in Cancer Research in the fall of 2013, we were ready to move. Dario’s approach, which is now called Antibody-Coupled T-cell Receptor (ACTR) cell therapy, was the foundational science behind the launch of Unum Therapeutics in 2014, which we were excited to co-lead with F-Prime Capital.
Writing this has been cathartic: big fish sometimes get away, and you need to just accept it. One always hates losing a trophy fish that you had on the line, but such is life.
And, alas, everyone misses a few. Bessemer’s anti-portfolio is a great list of “screw ups” as they call them (they may have coined the term anti-portfolio, btw).
Thankfully, we are not starving for good outcomes at Atlas, which is in part why sharing these “big fish” misses is less painful than it otherwise might be. We have been fortunate enough to get our fair share of great returns, helping build some solid companies and develop some wonderful medicines along the way.