Zafgen Supersizes Its Obesity-Focused IPO: An Early Investor’s Reflections

Posted June 25th, 2014 in Atlas Venture, Exits IPOs M&As, Portfolio news

Last week we priced the IPO for Zafgen – embarking on a new phase for the company (here).  Upsized at the top of the range, the offering is a testimony to the great team and exciting story at Zafgen.

In line with the typical biotech IPO during 2013-2014, it’s been a story of eight years in the making.  Instead of talking about the company’s current status, which readers can find on their website (here), I thought it worth sharing seven reflections on the investment, as I’ve done for past big outcomes in our portfolio:

  1. Zafgen started as a true seed-stage investment, and helped validate the seed-led investing model we deploy today.  Atlas wrote an $800K check in August 2006 as the “seed” tranche of the Series A round.  The purpose of that financing was to explore the efficacy and safety of two approaches to treating obesity; in early 2007, the data were convincing on one of the approaches, targeting an enzyme called metAP2, and the company has been focused on that biological pathway ever since.  During the seed and Series A, which totaled only $2M, Zafgen was incubated at Atlas with my Partner and current Zafgen Chairman Peter Barrett functioning as the acting CEO, with me as acting COO. We were introduced to the Zafgen concept by our friends at Great Point Ventures (GPV), a venture creation shop here in Boston; they deserve the credit for identifying the academic research in the winter of 2005-6.  We partnered with them to complete the original licenses and scope out the confirmatory seed phase activities.  It’s fair to say that the approach we experimented with in 2006 with Zafgen (and Stromedix, among others), of highly-tranched, seed-scale capital helping to validate an investment thesis, is now the core of our life science investing strategy at Atlas.
  2. Building and scaling an experienced versatile team over time has been instrumental, as is the case in most biotech success stories.  In 2006, we brought serial Atlas entrepreneur Jim Vath in as the founding CSO to help us complete our diligence and subsequently work with GPV’s Brian Freeman during the seed phase.  In 2008, we helped recruit Tom Hughes, a 21-year Novartis veteran, as CEO. Tom and Jim remain the anchors of the current team, complemented by a great group of clinical, financial, and commercial executives – including Dennis Kim, Patricia Allen, Alicia Secor, and a number of others.  Biotech is a team sport, and Team Zafgen has been a pleasure to work with and watch over the past eight years.  Its also worth noting that we’ve worked hard to complement Team Zafgen with a great set of independent Board members: in 2006, Kevin Starr joined the board (joined pre-Third Rock Ventures); in 2008-2009, Liam Ratcliffe from Pfizer (joined pre-New Leaf Ventures); 2010-2011, Fran Heller from Exelixis (joined pre-BMS); and more recently we’ve helped recruit John LaMattina (former Pfizer R&D head) and Frank Thomas (former Atlas portfolio CEO).  I should also add that Mitch Bloom of Goodwin Procter has been a great counsel to the company, and very much on the “team”.
  3. Great co-investor relationships are hard to find, but we were very fortunate at Zafgen; we had an exceptionally good and committed co-investor in Kevin Star at Third Rock Ventures over the past seven years. Zafgen was fortunate to be the first deal out of TRV Fund I, which led our Series B in October 2007, and we’ve had a number of active and engaged TRV team members contributing since then, including important contributions from Lou Tartaglia. More recently, we added Ed Hurwitz from Alta Partners, who’s also been great to work with.
  4. Zafgen’s early days were a great example of “follow the data” and an intuitively empirical rather than hyper-rational drug discovery approach.  The early data that showed unprecedented ‘”too good to be true” effects in rodent models of obesity with metAP2 inhibition were reproducible, real, and fully penetrant – the drugs always seem to work. But the scientific explanation at the time, which was an anti-angiogenesis approach to the shrinking vascularized adipose tissue – turned out to be wrong.  Tom and the team spent a lot of time developing the mechanistic understanding of the biology, but its fair to say the first few years were spent hand-waving around the wrong mechanism to describe the great data. Furthermore, the drug candidates we were chasing were primarily covalent-modifiers (think Avila-like), and had complex PK-PD relationships. The team worked through these issues and more clearly defined the mechanism, but its fair to say the scientific complexity of the program in its early days was of “higher than average” difficulty.
  5. Zafgen fully embraced the virtual operating model.  Outside of a brief stint in 2008, we never had our own laboratories or scientists in white coats. Jim ran the scientific plans during the seed phase from our offices, and when Tom came in he quickly decided to focus resources on collaborative CRO relationships rather than in-house infrastructure.  Over the past year, we’ve grown by 100% – from around 4-6 “in-house” folks for most of first six years or so to a dozen FTEs now.  A couple years ago the team counted over 200 different individuals and organizations that had contributed to our programs – a special thanks to Pharmaceutical Advisors contributions in particular.  Running virtually for eight years is not without its challenges, but it worked very well for a programmatically-focused new biology company like Zafgen.
  6. Sourcing innovation globally helped accelerate Zafgen’s progress.  After several years of evaluating alternative metAP2 approaches, Atlas helped the team source and secure Zafgen’s lead asset, beloranib, from a Korean partner, Chong Kun Dang Pharma (CKD), which had entered development for other indications. Bringing beloranib into the Zafgen portfolio accelerated our path to clinical development significantly, and within a year of its licensing we were running our first clinical study (ZAF-001) in Australia.  Although we and many other VCs are keenly focused on a few core biotech clusters today, sourcing innovative assets globally (and running global development programs) is obviously critical to success, and Zafgen is a clear example of that.
  7.  “Going long” on big stories can be the right answer.  In our 2006 investment memo, we thought the data here, if validated, would compel an early acquisition or partnership. We certainly sought partnerships at various points in Zafgen’s history, and got very close to a few, but the Board and management team kept on believing there was more value to be had by pushing forward.  This was especially true in a contrarian field like obesity, where cautious partners would make tentative ones – and there’s nothing tentative about the bold plans that Zafgen has.  Sticking with the obesity story when the FDA gave Orexigen the cold shoulder back in 2011 (see blog here), and when many were skeptical of the field (here), meant that we needed deep pockets and firm resolve, which this team and syndicate were able to deliver. Today we’re all glad we did – and we’re well financed to build the story through the next phase of clinical and hopefully commercial development.

Zafgen’s IPO is a great achievement for the team, and positions the company to be able to execute the next chapter – including late stage clinical trials in both orphan obesity indications and broader morbid obesity.  Congrats to Tom and the team, onward and upward.

This entry was posted in Atlas Venture, Exits IPOs M&As, Portfolio news and tagged , , . Bookmark the permalink.