Company Profile Considerations in A Conservative Cash Environment

Posted October 18th, 2023 by Bob Clarke, in Biotech financing, Biotech investment themes, From The Trenches

By Bob Clarke, CEO of Kinaset Therapeutics, as part of the From The Trenches feature of LifeSciVC

As we enter the final leg of 2023, navigating the investment market in biotech continues to be fraught with twists and turns. The IPO market remains tight; there have been a few notable IPOs with mixed performance, a few significant clinical and regulatory successes and even attractive M&A. Though it is never ‘easy’ to get venture investors on board, venture financings continue to happen.  However, later stage private financings (Series B & C rounds) are an uphill battle with the specter of “down rounds” overhead. Alternate financing structures (eg SPACs, reverse mergers) are far from guaranteed to provide sufficient cash to continue funding operations let alone be successful exits for investors. Reductions-in-Force (RIFs in short) once reserved for post negative readouts continue to be prominent this year as companies seek to proactively conserve capital and narrow pipeline focus to key value creating programs with the highest probability of success. There have been some spurts of M&A activity but these have been reserved to later stage companies that fit as strategic choices to big pharma acquirors. Needless to say, the biotech industry is not out of the woods just yet.

Though my company, Kinaset Therapeutics, is well capitalized through a Phase 2 readout with our Series A financing, as a venture backed biotech company, the prospect of future fund raising is perpetually in our collective thoughts. As we think about our own future with our Phase 2 ready program, we discuss internally how well we fit venture funds’ criteria today and just what is an ’ideal‘ investment profile in 2023 going into 2024?

So, what are investors looking for?

I mean it’s easy, right? One just needs to have a novel scientific approach, with a highly derisked molecule, that has demonstrated flawless target engagement with a pristine safety profile that will advance into a lead indication with limited to no competition, a validated clinical trial design with a well-established, not difficult to meet primary endpoint, and a well-trodden regulatory path that is supported by an unassailable patent estate with protection farther than we can imagine.

But of course, you don’t see a unicorn every day… that’s why there is due diligence to understand the risks and investors must weigh the risk-reward of each investment. So, what might be a promising investment profile over the next 12 months?

Novel targets remain a holy grail for biotech venture investors. The identification of the next new big idea that could push the bounds of disease treatment clearly has appeal to both pharma and to later stage private & public investors. The potential upside of being first-in-class will always catch the eye of venture investors and the allure of a biological novelty ‘the high risk, high reward’ opportunity will garner attention. However, in a world of 9-figure Series A rounds based on larger fund sizes, it’s harder to gain conviction on novel, high risk biology which shifts that risk-reward profile.

On the other side of this profile, there is the approach of seed financing a number of early-stage novel ideas with huge upside. Perhaps this is why so many of the well-known biotech venture funds have adopted some version of the company creation model within their structure. Seeding a novel idea to try and achieve target validation allows for more, smaller investments where one or more unicorns might emerge. However, the challenge here lies in the finite number of experienced leaders/drug development teams that can operate these companies and are also willing to bet on the future upside.

Where are investments going in the current market?

In a market like today, later stage, clinically validated targets are a potentially ‘safer’ place to balance portfolios. And of course, there will always be the market dynamic of the lightning strike, like Wegovy and Ozempic, that spurs an immediate reaction to find one of your own to get in on the upside of a huge market opportunity.

What this can drive are more investments in fast followers within modalities that can potentially compete in the market but need more capital to demonstrate differentiation.  This type of approach can certainly yield winners. Perhaps the clinical trial design is improved leading to patient enrollment enrichment or a more robust clinical signal in the target indication. A marketing team can position for optimized market share against standard of care. A product could be repositioned to a different indication with unmet need or leverage the alternate target as a better place to compete with an established mechanism. And there likely is a significant degree of de-risking that comes with a fast follower based on the “follow the leader” clinical development and regulatory path already being established.

Not to say that investments fitting some or all of the profile characteristics are risk free or even lower risk. The risk they offer is a different risk. Can a fast follower/me too truly demonstrate differentiation – How? When? Will the pricing profile of this type of program lead to an attractive NPV considering the developer likely has to take the program further through clinical development to reach meaningful value inflection? And in the event that the best company profile is to go through the public route, how does the public market view the value of the program versus the potential of pharma who might be more on the lookout for novelty.

What about a middle ground strategy?

And here comes the humble brag. We like to think Kinaset has a balance of novelty of a still emerging MOA that parlays the advantage of established science/products with a potentially differentiated approach in a large market with significant unmet need. (I couldn’t figure out how to fill out the full buzzword bingo here…if only we had some angle in AI).

But the point is, there are company profiles that will resonate with private investors even in a choppy market when the public markets might seem too far a reach or too high a risk.

Kinaset is developing a novel inhaled pan-JAK inhibitor, KN-002, for moderate-to-severe asthma patients. The idea is simple: maximize delivery of a therapeutic agent to the target tissue and minimize systemic exposure and therefore safety risks.  At this point, JAK inhibition is clinically validated across multiple indications and the list has continued to grow as an approach to an ever-expanding indication set including rheumatoid arthritis, myelofibrosis, ulcerative colitis, and dermatological conditions (including atopic dermatitis)…and now asthma and COPD. Of course, the profile of JAK inhibition does not come without risk and a class black box warning driven by systemic side effects of exposure is a concern for patients, physicians, drug developers, and investors.

Based on my “humble brag” description of the company above, we do think Kinaset meets a number of appealing company profile criteria. KN-002 is focused on a novel MOA that is aligned with a growing number of approved products. We like to think this supports the “reason to believe” in the science and based on our novel JAK inhibition profile, we believe we can be “best-in-class” In the case of severe asthma and other respiratory indications, leveraging the JAK mechanism of inhibition makes sense for the well-established pathways of airway inflammation. And by targeting a pan-JAK mechanism, we believe KN-002 could improve outcomes for the broad severe asthma population including eosinophilic and non-eosinophilic phenotypes which the recent approaval of Tezpire (TSLP target) has established.

Regarding the concerns about systemic exposure and safety, that is exactly the driver behind our topical approach of inhalation. By tightly controlling the aerosol profile of our inhaled dry powder, we can achieve airway delivery that will get more of the drug to the area in the lung where we want it and less into the systemic circulation such that our JAK exposure levels would are well below any meaningful threshold in the blood. And, of course, asthma and COPD patients are quite familiar with the approach of inhalation as part of their daily treatment regimen.

Thinking about the moderate-to-severe asthma market, there is further “reason to believe” in the indication based upon the successful launches of injectable biologic products that target the eosinophilic inflammation the patients have. In addition, these products have established a clinical development path that supported a drug approval that is applicable to our program. And as I stated above, the recent addition of a TSLP targeted program is the first product that also applies to the low eosinophilic severe asthma population.

As we advance to Phase 2, we will be looking to establish clinical POC in severe asthma that might then lead us to consider moving into other respiratory indications particularly COPD. We are very hopeful KN-002 will continue to show promise as a future novel addition to the treatment options for severe asthma patients and other respiratory diseases.

The good news for our company is, at the moment, we are not fundraising as we have a strong syndicate supporting our upcoming (1H ’24 start) Phase 2 trial. But as a CEO, I am always raising money and planning for the future is a critical part of the job. I’ve found the best time to raise capital is when you don’t need to raise capital.  So, introducing the company to potential Series B investors allows me to foster relationships and conversations around our company while also keeping any eye on the current tenor of the investor market.



Special thanks to Jamil M. Beg, founding investor in Kinaset’s Series A, for providing insight and thoughtful discussion around today’s market dynamics.

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