Back in the summer, I got the call that no biotech venture investor wants to get. On the morning of August 8th, I received an urgent text of “can you talk now?” quickly followed with a call. I learned then of very troubling news regarding a major preclinical safety concern, a “tox signal” in industry parlance, in one of our lead programs. Fast forward three months later, and we’re in the final steps of winding down the company. R.I.P. Quartet Medicine.
Chalk up Quartet as one of biotech venture investing’s “successful failures” – with that adjective providing an essential distinction. Yes, we and our co-investors lost all of our invested capital, and that hurts. But it was “successful” because we stayed disciplined to the investment thesis and focused on revealing the scientific truth. In the end, the team determined the probability of making a new medicine on this mechanism was now too remote, and so we closed the book on the final chapter of a well-executed story.
This blog is an investor’s eulogy for Quartet’s successful failure.
Background & Founding
Aspiring to address neuropathic pain, Quartet’s founding in late 2013 arose from a convergence of two streams of scientific work: one based on human pathway genetics, and one through chemical biology.
Clifford Woolf and colleagues at the MGH described in Nature Medicine in 2006 an important role for tetrahydrobiopterin (BH4) synthesis as a key modulator of pain, both neuropathic and inflammatory pain in the periphery; further, they described a genetic linkage between the BH4 de novo synthesis pathway and various pain sensitivities. When this first came out, Atlas wanted to pull it into a new pain startup; unfortunately, the work got tied up into another pain play (Solace Pharma) and wasn’t wrestled free until 2012. Contemporaneous with that, a second stream of science emerged and catalyzed our renewed interest in BH4: Kai Johnsson’s lab at the EPFL published in Nature Chemical Biology and subsequently in Science that a key “off target” of a number of sulfa drugs was the final enzyme in the BH4 de novo synthesis pathway, called sepiapterin reductase (or SPR for short); based on this, they had conducted several library screens and identified a set of new non-sulfa hits that proved to be quality starting points for Quartet’s SPR inhibitors.
With these two insights coming together, we had increased confidence in the biological pathway through human genetics and reasonable early chemistries supporting the initiation of bona fide drug discovery efforts: this convergence of biology and chemistry often makes a good starting point for new biotech companies.
Importantly, beyond this novel scientific story, we believed it presented a novel therapeutic hypothesis which could help address the massive unmet needs of patients suffering from neuropathic pain: it’s estimated that 3-10% of the population suffers from some form of neuropathy, and only a small minority are adequately treated with current therapies. Quartet was created to tackle this enormous opportunity.
With that context, Atlas, along with co-founders Kevin Pojasek, Clifford Woolf, and Kai Johnsson, embarked on launching Quartet. Kevin wrote an excellent blog describing the launch of the startup, and a deeper view of the scientific rationale, back in October 2014.
Initially, we created a “seed-stage” plan with one major de-risking goal: leveraging early chemical probes, could we recapitulate the academic work and confirm an impact of this pathway in an animal model of pain. Within nine months of founding, the team achieved that goal, which led to the closing of a Series A round with the corporate venture arms of Novartis and Pfizer, as well as Partners Innovation Fund (PIF). We later expanded the syndicate to include Remeditex Ventures and a few other groups.
This Series A financing, tranched in three pieces, enabled the company to execute on its drug discovery campaign against SPR for the treatment of neuropathic and inflammatory pain.
Three Years Of Drug Discovery
Over the course of Quartet’s journey from the Series A, four key themes emerged as highlights of the team’s accomplishments.
Built a science-first culture. Quartet was relentlessly focused on the scientific hypotheses underpinning the story: further target validation, cell-based modeling of BH4 changes, in vivo characterization of the pathway in various pain models, role of different cell types, etc… The team, led by CEO Gerhard Koenig for the last 18 months, was a great mix of dogged drug hunters and practical operators, and had a data-driven team dynamic that fostered engagement and objectivity. All of the emerging data, even troubling results (which we had on occasion) were out in the open, often real-time as the team processed the findings; I witnessed this first-hand many times, as for much of Quartet’s existence they were co-located with us at Atlas. Quartet also had a close relationship with its scientific founders, who continued to publish positive work on the pathway and its role in pain. All of this drove a high level of scientific rigor in the program.
Created an innovative translational plan. Pain studies in the clinic are notoriously hard: high placebo response rates, lack of good biomarkers, challenging patient-reported endpoints, and heterogeneous etiologies, to name a few obstacles. To help address this, and increase our conviction prior to a big Phase 2 commitment, the team focused on building a robust translational science package. Pathway biomarkers, such as levels of BH4 and related factors, were tracked in preclinical models of pain and were correlated with pharmacodynamic effects. Quartet’s translational team, led by Steve Sweeney and Ray Hurst, validated those biomarkers in 50 healthy volunteers to show they were measurable and robust. These data were poised to help us understand the clinical PK/PD relationship. We also scoped out a pair of compelling (and inexpensive) “challenge” studies in Phase 1 to evaluate “proof of mechanism”: create a stress (blister or vaccination) whereby healthy volunteers produce a transient spike in BH4 levels through activation of the de novo synthesis pathway, which Quartet’s drug would block. All of these efforts would help bridge the preclinical and early clinical findings, and strengthen the confidence in rationale for the Phase 2 study. Quartet fully executed on this plan – they were ready to go, with CRO’s lined up, assays in place, and an IND expected this month when we sadly terminated the program a few weeks ago. I’m disappointed we didn’t get a chance to watch this translational plan in action.
Operationalized efficient and effective virtual drug discovery. This blog has opined on the “virtues of virtual” many times since 2011 (here, here, here), and, when executed well, it can be incredibly efficient. Quartet used this virtual model to very effectively tackle a challenging albeit structure-guided drug discovery effort against a completely novel target. Led by Mark Tebbe, head of drug discovery, the team had over 1500 compounds made and tested across multiple series, spending ~$16M over 2.5 years (as a company), in order to generate a bona fide Development Candidate by the end of 2016. Since then, we’ve made another 700 or so as part of backup strategies. All in, we expected to file our IND in 39 months and ~$25M from inception of the program. For a de novo drug discovery campaign out of an HTS hit, these metrics compare quite favorably to broader industry benchmarks. Part of achieving these execution metrics required keeping all the virtual trains running on time, which Darby Schmidt delivered for us. Further, in an area like pain research, Quartet had to evaluate the robustness and reproducibility of the in vivo models at a number of CROs; this vendor qualification step, led by Annika Malmberg, was hugely important in interpreting complex in vivo model data from CROs via the virtual model. It’s also a critical step many biotechs fail to evaluate.
Engaged in a high-value, risk-mitigating partnership. While we were in the midst of lead optimization, we sought a partner that could bring both capital and expertise to the effort – which eventually became an option-to-buy partnership with Merck, signed in December 2015 (announced here). This creative deal structure mitigated two concerns: financing risk (other VCs weren’t funding neuro extensively) and exit risk (fewer and fewer Pharma’s were keen on neuropathic pain as a disease area). On the former, the deal brought up to $20M in non-dilutive funding (of which $10M ended up being spent), helping to bridge the funding needs. And on the latter, we had a “high conviction” buyer in Merck, and the acquisition price agreed to in the deal compared favorably with other neuropathic pain deals like Convergence by Biogen and Spinifex by Novartis. Given the circumstances, locking in a strong partner was a smart move for the company and one that, in principle, we’d do over again.
In August, Quartet observed some concerning and unexpected neurologic effects in the last few days of treatment in the GLP 28-day toxicology study, the final piece to round out our otherwise clean and complete IND package. Unfortunately, the tox signal was likely “on target” mechanistically: while the compound would certainly be described as “peripherally-restricted” (i.e., little exposure in the brain), it wasn’t restricted enough. We knew this was a possible liability since starting the company, as described in the risk section of our 2013 investment memo: “SPR inhibition may lead to unfavorable side effects… A key target product profile parameter will be lack of BBB penetration and therefore little CNS exposure.” We thought we had addressed this issue in the profile. But the way this signal showed up made it tough to manage: Quartet never saw this adverse event in any of its 14-day studies, and it wasn’t from the drug accumulating.
The Quartet team reacted quickly, dove into deep diligence of the issue, and evaluated possible paths for backup chemistries and approaches, but came to the conclusion that the probability of technical success was now just too low to continue. Getting a drug’s brain exposure to zero isn’t technically tractable. Biology, especially around novel mechanisms, is hard.
Although we had a third tranche of capital in the Series A that could have been called, the management team recommended that the board wind down the project – a decisive and disciplined approach. CFO Joanna Bryce has managed this unfortunate process with both speed and thoroughness.
As an asset-centric investment, the project was the company: all-in, ~$16M in equity was lost, about a quarter of which was from Atlas. We’re in the final steps of shutting the doors of this successful failure.
Quartet is another reminder of the importance of truth-seekers. Early stage biotech, and drug R&D in general, is always challenging, but particularly so if there are cognitive biases in place that corrupt objective decision-making. Truth-seeking behaviors aim to reduce false positives (e.g., chasing a failed mechanism longer/farther than you should), while progression-seeking behaviors frequently reinforce them. Keeping programs alive because they keep the corporate entity going, or keep a paycheck coming, is just bad, progression-seeking bias.
Entrepreneurs and executives that are truth-seekers recognize that their time is even more scarce than an investor’s money; frankly, the time of a skilled talent is the ultimate scarce resource in our ecosystem and needs to be allocated with deliberation and thoughtfulness. In Quartet’s case, wasting another 2-3 years chasing a backup candidate with a highly improbable target product profile wasn’t a good use of either a great team’s time or investors’ money.
For sure, decisions in drug R&D are rarely black and white; the grey nuance forces us to consider the viability of further risk mitigation through targeted resource allocation. This is why discerning judgement is the distinguishing feature of great truth-seeking R&D leaders; they have the experience, competency, and constitution for making these tough decisions in an informed and balanced way. We were very fortunate to have had a great team of real truth-seekers at Quartet.
Attracting and retaining leadership teams who are committed to truth-seeking behaviors is one of the keys to success in biotech investing. One way this takes shape is through the recycling of talent across other opportunities in the portfolio; with that in mind, we’re working closely with the entire Quartet team around finding opportunities for them in our portfolio, as either Entrepreneurs-in-Residence working on future startup projects or as new team members in existing biotechs.
Truth-seeking behavior is a hallmark of great biotech entrepreneurs. But it’s easy to say you’re a truth-seeker when things are going well; it’s cases like Quartet where the true colors of a team reveal themselves. And this team stepped up to the challenge and made the right call with this successful failure.
R.I.P. Quartet Medicine.