August continued to show the biotech market’s resilience in the face of the COVID pandemic with one of the biggest venture fund flows for the month ever, and a half a dozen IPOs. Kymera Therapeutics was one of those August IPOs, and as its co-founder I wanted to share a few reflections.
Some quick background first: Kymera was founded in the spring of 2016 to focus on the exciting field of Targeted Protein Degradation (TPD), as was described here when we emerged from stealth in October 2017 with our Series A financing. After raising a Series B in October 2018, and a Series C in March 2020, the company went public last month with a successful IPO led by Morgan Stanley, Bank of America, Cowen, and Guggenheim.
Kymera initially aimed to raise $125M at a $16-18/share range in our IPO, but in light of demand more than 20x of the proposed offering the company both upsized the raise to $200M and did so $2/share above the range, closing the offering at $20/share. Kymera sold roughly 22% of the company to raise this capital. Insiders, largely from the Series C crossover round of blue-chip hedge and mutual funds, anchored the IPO and took over half of the offering. The allocation book was concentrated around the large long-term investors that will help Kymera build the company over the next few years, such that the top 10 IPO buyers took roughly two-thirds of the offering.
Over the course of the abbreviated, 4-day virtual roadshow, the Kymera management team reached 120 investors, including over 30 one-on-one meetings that achieved an impressive 100% conversion rate into IPO orders. The process running up to the IPO was a sprint: it took only 94 days from the organizational meeting with the banking syndicate to the offering, certainly one of the faster IPO timelines. During that period, the company did over 60 virtual one-on-one meetings as part of the virtual Test the Waters (TTW) process. In the end, Kymera’s IPO had tremendous support and ended up jumping 66% on its first day of trading.
By all measures, it was a very successful IPO. But more importantly, the company now has nearly half-a-billion dollars on the balance sheet to deliver on its vision of bringing high impact medicines to patients based on our targeted protein degradation technology.
Stepping back from the IPO, I’d like to quickly highlight six themes important to Kymera’s story and reflect more generally about drug discovery platform startups.
- Kymera is a great example of the seed-led venture creation model. Atlas co-founded, seeded, and incubated the company, then called Project Chimera, at our offices in spring 2016, after several years of following the space. The founding team included myself, two Atlas EIRs Nello Mainolfi and Stuart Chaffee, as well as Atlas’ Steve Robinette. I had the privilege of being the founding CEO through the seed phase, as is often the case for Atlas partners with new startups. The primary initial seed goal was very simple: demonstrate the degradation of at least one novel target and show a favorable cellular phenotype. And Project Chimera did this on a $2M seed financing with a very small team of dedicated scientists. In hindsight, this small seed almost seems quaint in a world awash in huge initial rounds of capital today, but is a good reminder of the value of focused seed projects with clear “prove-stage” goals, where startups earn the right to grow into “build-stage” stories. Pouring too much capital in early isn’t smart and can create a lack of scientific discipline around proving a founding hypothesis.
- Building a science-first, gold-standard platform in the TPD space was an important goal from the outset. Rather than just take the first hits and move them forward as our lead drug programs, we spent significant early resources on enabling the broadest possible TPD toolkit, which became our Pegasus platform: understanding E3 ligases and how our ligands engage them; modeling the ternary complex of target protein, ligase, and drug; quantitative systems pharmacology; and extensive proprietary chemistry. For drug discovery engines based on new modalities like TPD, investing early in platform enablement is important. A great platform can create a robust pipeline, but a few good initial assets don’t make for a sustainable platform.
- Initial target selection and portfolio strategy is of paramount importance to platform companies, and Kymera had the good fortune to get this right from the start. As part of the early paper exercise at the start of Kymera, pathway analysis and target selection was critical. The key was identifying targets in biological pathways with high degree of validation but where key biological nodes/proteins had been un-drugged or inadequately drugged using conventional approaches. Early on, Kymera prioritized proteins and pathways with nodal scaffolding functions for key complexes. By removing the protein, degradation would render the complex non-functional. The immunokinase IRAK4 is an excellent example of this, where the catalytic function is only a small part of its broader role in both autoimmunity and cancer settings. Kymera identified the TLR/IL-1 pathway, which includes MyD88 and IRAK4, as well as JAK/STAT signaling, as two of several initial pathways to focus on back at the start in 2016, and those early decisions proved fertile for discovering and developing several novel programs. Many new discovery platforms often pick poorly differentiated or only ‘prove the technology’ targets, which can struggle to get traction as actual therapeutic programs later.
- Kymera delivered two significant strategic partnerships, which are a crucial part of success for new platform companies. Because the breadth of programs across different diseases and target classes for many new modalities is enormous, it’s nearly impossible to fund them all with only equity capital, even in today’s accommodating environment. Early stage partnerships can help expand the breadth of a platform, accessing new areas of biology and speeding up the technology learning loops, while securing less dilutive and fungible capital. Kymera established a six-target collaboration with Vertex in May 2019, expanding into diseases beyond our oncology and immunology focus. In July 2020, Kymera secured a development partnership with Sanofi to focus on IRAK4 in autoimmune diseases, as well as one other undisclosed target. Importantly, Kymera retained the right to opt-in for the US market in the Sanofi deal, giving us a path to forward integrate over time. These partnerships brought $220M in upfront payments, and could deliver up to $3B in potential future milestones if successful. Transformative partnerships like these are critical to expand and fund broader platforms for this type of biotech company.
- Equity capital efficiency, even in a world riding a tsunami of capital, is important for driving shareholder returns. As defined here previously, equity capital efficiency is that sweetspot where the most amount of value is generated per unit dollar invested. It’s that Goldilocks position between raising too much, or too little, capital to drive your business model forward (and is very dependent on the business model deployed, ranging from single asset-centric plays through to broadly deployed platforms). Further, it reflects the cost of capital: when capital is expensive, you raise less of it, and vice versa. As a broader platform story, Kymera raised a little over $200M across our four private financings (seed, A, B, and C), each increasing in size and at attractive step-ups in valuation to the prior round. The two-tranche seed was $3M and the Series A was “only” $30M, for instance. As described in the S1 filing, the price per share of the seed financing in 2016 was $1.59, and the Series A in 2017 was $3.19. As a private company, we raised approximately a 1:1 ratio of partner non-dilutive capital to equity, showing the power of collaborations to boost equity capital efficiency. At the offering price, Kymera’s fully diluted pre-money valuation at IPO was north of $750M, reflecting the value created through our efficient use of equity from our private financings. Kymera’s trajectory has certainly understood equity capital efficiency and the importance of the cost of capital.
- Saving the most important reflection for last, truly catalytic leadership is the special element that drives great teams to outsized success. Nello Mainolfi has brought that special kinetic energy to Kymera since helping co-found the company in 2016. Although he only took the helm as CEO in late 2019, he’s been the principle scientific leader and BD champion behind Kymera’s success for years, initially as CTO and then as CSO. He deserves a ton of credit for the incredible momentum of Kymera. Further, the team around Nello has been exceptional, including Jared Gollob as CMO and Bruce Jacobs as CFO. We just recently hired Richard “Ches” Chesworth as CSO, a great new addition. Team evolution, including both additions and transitions, are important for getting the right mix of expertise, experience, and energy into the C-suite.
It’s been a real privilege working with the Kymera team since its earliest moments, and watching from the gallery (and the pricing committee) as the roadshow concluded last month was incredibly rewarding. Congrats to Nello and the broader Kymera team on a very successful IPO. Looking forward to seeing Kymera bring its new medicines to patients in 2021 and beyond.
Onward and upward!