This blog was written by Mike Gilman, CEO of Padlock Therapeutics, as part of the “From the Trenches” feature of LifeSciVC.
We all have stuff lying around our homes or offices that we have no further use for but that might be valuable to someone else, especially if they were willing to apply some TLC to get them up and running again. You know: those old iPhones, laptops, the 80,000 hockey cards in the closet (wait – I need those). Such is the case at your typical pharma company as well. Drug development projects get shelved all the time as companies responsibly sort through their R&D portfolios, culling programs that no longer fit their plans.
Programs get killed for all kinds of reasons. Sometimes, it’s just a matter of money; a company may have twelve programs competing for development dollars but room for only ten. Sometimes, it’s strategic rejiggering – I imagine the current stampede into immuno-oncology is starving many worthy non-oncology projects for oxygen in pharma portfolios around the world. Often, though, it’s just a matter of risk. Let’s face it, large companies are generally risk-averse and will walk away from programs simply because they’re hard.
Well, all the better for us in the startup world, right? Because many of these programs are really quite interesting and they have typically been executed at very high quality. Why not liberate them from the deep-freeze and let them soar on the uplifting thermals of a hot venture-backed startup?
Because large companies are generally lousy at out-licensing, that’s why. First of all, there is no glory in it for the business development organization; they earn their stripes by bringing flashy new toys in, not shipping forgotten old ones out. Second, there’s typically no budget for it; it’s challenging to rally the internal support (e.g., legal, finance, regulatory) needed to complete an out-licensing transaction. Third, it’s personally and professionally risky; no one wants to be the guy who let the big one get away (though he or she was almost certainly not the person who killed the project in the first place) and the organization doesn’t want to encumber any of its internal assets or personnel (more on this point later).
Amazingly, though, I have somehow managed to do this twice. Here’s what I’ve learned about these rare deals.
First, a bit of history. My initial venture into the wild world of biopharma in-licensing was in 2007, when Stromedix, the first company I’d started with my friends at Atlas Venture, licensed a clinical-stage monoclonal antibody to integrin αvβ6 from Biogen. Biogen had taken the antibody to IND and then parked it in a 2006 portfolio review. We got it out of there (after ten months of negotiation), raised a bunch of capital (around $38M in all), and teed up the program for a Phase 2 trial in idiopathic pulmonary fibrosis, at which point Biogen acquired the company and regained control of the program.
Undeterred by the experience – in fact, maybe a little cocky because of it – I did it again, just a couple of months ago, as my new startup, Padlock Therapeutics, licensed a whole basket of assets from GSK directed at PAD4, one of the targets we are very interested in. And by “I,” of course, I mean “we.” And by “we” I really mean Sam Truex, our chief business officer, who did all of the heavy lifting on Padlock’s behalf.
In any case, the two situations are quite different. At Stromedix, the Biogen program was basically the entire company. At Padlock, the assets we acquired from GSK augmented and accelerated a robust drug discovery program that was already rolling along nicely. And, of course, we don’t know how the second story will end. But there are themes common to both experiences that I’d like to share.
Successfully in-licensing a program from a large biopharma requires an unusual confluence of factors, many of which depend on personal knowledge and relationships. Specifically:
- You have to know the program is there
- You have to know the program is dead
- You have to know that, despite being dead, the program is worth having (this is probably the trickiest part)
- You have to know what buttons to push to get it out of there
It is said that pharma buries its dead at night. It certainly does not shout from the rooftops that it’s killed a program. You have to figure it out for yourself. In the case of the Biogen program, I had the advantage of having been there and I knew the αvβ6 program from its infancy. It was still very much alive when I left in the fall of 2005. But that was a very tough time for Biogen, which had hunkered down after withdrawing Tysabri from the market. Budgets were cut, scientists were laid off, and the R&D group was reorganized into a structure that basically orphaned the program – nobody wanted it any more. Sure enough, by the following summer it was dead.
I had been checking in regularly with folks at Biogen about the status of the drug as I assembled my shopping list of fibrosis assets for proto-Stromedix in 2006. It was certainly the target and pathway I liked best. Once I heard of its official demise, I contacted John Dunn, who was then running Biogen’s venture fund and asked if we could talk about licensing it. Over the course of about six months, we negotiated terms, finally reaching agreement in sunny Union Square at the 2007 JPMorgan confab. Then, of course, we went to contract. That took another four months. We executed the transaction in late May 2007 and Stromedix was officially off to the races. The first hires went full-time on June 1. By August, we were in front of the FDA for a pre-IND meeting (we were moving the program to a new division). In October, we filed our IND. In January 2008, the first human subject was dosed with the antibody, freshly renamed STX-100. That agreement, once it was done, afforded us a lightning-fast start, one of the great virtues of acquiring a well-turned asset from a skilled and experienced partner.
I obviously had a terrific advantage in getting STX-100 out of Biogen. I knew the program, including its history, its triumphs, and its warts. I knew the folks who worked on it, both in research and in the other functions that had touched the program by that time, such as the preclinical group and manufacturing. Importantly, I also knew folks in business development and was able to track down a former colleague who was willing to spend some time on this deal. Connecting with the right individual on the transaction side was key. He became my principal point of contact and internal advocate for the deal. He knew how to navigate through the organization to elicit official and unofficial approvals. More importantly, when the lawyers on the two sides dug in their heels on a contractual issue, my friend and I could usually get on the phone and horse-trade our way to a solution in ten minutes.
In short, the key to getting this deal done was deep knowledge of the program and strong relationships in the organization. Honestly, I’m not sure anyone else could have gotten the program out of there.
The GSK situation was very different. I hadn’t worked there and had no special insight into their PAD4 program. In this case, we found out about their program when their patent application published in January 2014, just as we were gearing up our own PAD4 high-throughput screen at Evotec. We made some of the compounds disclosed in the patent, ran them through our own assays, and, damn, they were good. So we quickly fulfilled two of the criteria I listed above. We knew it was there and we believed it was worth having. What we didn’t know was whether it was dead. And we certainly had no idea if we could get it from them.
Here, again, is where relationships really matter. A fellow Atlas-portfolio CEO, who had worked at GSK for several years, made the initial contact on our behalf at the highest levels of the R&D and BD organizations at GSK. And, happily, the program emanated from the Immuno-inflammation therapeutic area unit, where I had been on the steering board until the Stromedix acquisition in 2012. Although I was unaware of the program, I knew several of the folks in the TA, including the head of BD and the head of the unit that ran the PAD4 program. We were able to get on the phone with the team in May 2014. They told us that the program had indeed been de-prioritized – strategic reasons, they said – and that they would be happy to entertain a discussion to ship the assets to us. The GSK team was very forthcoming with us. They really liked the target and felt they’d made some outstanding inhibitors (we agree) but they viewed the program as too risky to spend their own dollars on, much better suited to a venture investment. They proposed a simple deal structure that gave us control of the assets in return for an equity position in Padlock and a board observer seat. They wanted to stay close to the program and have a shot at getting it back later. With that clear framework in mind, we finalized an agreement in May of this year, a full twelve months after our first conversation with the GSK team.
Compared to the Biogen-Stromedix deal, we had considerably less specific information about the GSK program. On the other hand, unlike at Stromedix, the GSK program was not going to be Padlock’s only asset. By the time we executed the deal with GSK, we had completed our PAD4 and PAD2 screens and had plenty of proprietary chemical equity of our own. So the risk that the GSK compounds wouldn’t pan out was not an existential one for Padlock. We’d survive even if those compounds failed. But if we could progress them, we would substantially accelerate our development timeline and our value-creation trajectory. Pretty much all upside for us.
The common theme in both deals is relationships. I had worked at Biogen and so knew people throughout the organization. Although none of us had ever worked at GSK, we had friends who had and could get the ball rolling on our behalf. And we were known to the folks responsible for the PAD4 program at GSK. They saw Padlock as a good home for their compounds.
These were not financial transactions for Biogen or GSK. Neither organization was actively shopping its program and, to my knowledge, no one else was asking for them either. Rather these were opportunistic transactions that enabled them to keep an interesting program alive and to access innovation, capital, and management focus that they were unable to lavish on the program themselves. Moreover, I’d venture that the risk of these transactions to Biogen and GSK was low. If the programs fail in our hands, well, it’s our problem not theirs. If they succeed, the parent organizations are well positioned to get them back, as Biogen did with STX-100.
A few more thoughts for those of you who may some day brave these waters.
You have zero leverage. This makes for a very interesting negotiation. Everyone may start out wildly enthusiastic about getting the deal done. But the fact is that they don’t have to do it and you do. Or maybe you don’t have to but you really, really want to. But they still don’t have to and and very few people inside the company even want to. There may well be a motivated internal champion on the other side, but there are only so many times they will walk the plank for you. The path of least resistance is to leave the dead in the ground. In any case, it makes for a very uneven balance of power. Obviously, this imbalance has rather profound ramifications. It affects terms, of course – it’s important to keep your eyes on the prize, be willing to accept risks you are quite certain they would not countenance if the license were going the other way. It affects the tenor of the negotiation as well. You simply can’t be as aggressive in terms and tone as you might want to be – or feel you have every right to be. They are basically doing this deal with you because they like you, so it’s actually quite important to keep it that way. And, or course, it affects timing. This will probably be the most important deal you are doing, whereas for them it’s likely far down their priority list – and perhaps not even an approved activity. Like the power in this relationship, the sense of urgency will also be unbalanced.
As is, where is. An outlicensing deal needs to be “set it and forget it” for the licensor. They want to ship you their stuff and be done with it. They don’t want you calling them up every couple of weeks pestering their scientists with questions or asking them to rummage through their freezers in search of a missing reagent. Nor do they want any of their internal assets encumbered. This issue has several ramifications. First of all, as I hinted in the previous paragraph, do not expect to get a long list of reps and warranties from them, certainly not like the biblical recital they would expect from you if you were licensing a program to them. Unfair? Get over it. Second, they will limit your ability to bug them after the deal is done, so pay close attention to the tech transfer language and ensure you have a detailed schedule of the materials they will transfer to you, including physical reagents, data, protocols, collaborative and material transfer agreements, etc. Third, they may want to retain a research license to the materials that they’ve licensed to you, enabling them to use “your” nifty new compounds in any of their projects. My advice: live with it.
It’s not over till it’s over. I’ll say it again: this deal is not a high priority for the other side. It will be competing for resources and mindshare with a dozen other transactions and sundry internal activities, all of which are higher profile for the internal team. It won’t take much for them to wander away from your deal, never to return. Moreover, it will still have to be extensively socialized within the organization and wend its way through the company’s governance structure. There are many potential points of failure. In the last weeks of the negotiation with Biogen, I was deathly afraid that someone over there (someone I’d knowingly or unknowingly pissed off during my tenure; I’m sure there were a few) would just say, “Hell, no, I don’t want Gilman to have this program.” And that would have been that. So: keep the ball moving, keep smiling, keep saying yes for as long as you can stand it. Get the deal done. You’ll be glad you did.
When the magic works. I don’t know if STX-100 will succeed and Padlock’s story is still largely untold. But I do know this. These programs were stone-cold dead in their respective birth places. They were going nowhere. But now they’re alive again. And if we all keep doing our jobs, patients may get powerful new medicines that they desperately need – and that I am certain they would not have gotten without these deals. Creative and patient business development: it saves lives.