Biogen just announced its acquisition of Stromedix for up to $562M.
Another solid M&A exit in biotech emphasizing how innovation matters. With a very different model than Avila Therapeutics, an exit we announced in January, Stromedix is a biology-focused, asset-centric company dedicated to fibrosis translational medicine, predominantly around a single antibody against integrin avb6, called STX-100. We’re going to be dosing our first patients in our Phase 2a Idiopathic Pulmonary Fibrosis study this year.
Stromedix began life as an entrepreneur-driven, Atlas-incubated startup: in January 2006, Mike Gilman joined us as an Entrepreneur-in-Residence after leaving Biogen Idec with the aim of starting a fibrosis company, working closely with my partner Peter Barrett and former colleague Scott Silverman. The two-part thesis was that (a) fibrosis was a huge unmet medical need that was being lost inside big Pharma’s therapeutic area organizations because it cuts across lots of diseases; and (b) by using creative translational medicine biomarker strategies, an efficacy signal in Phase 2a could be detected earlier than the years required to see changes to “harder” clinical endpoints. Mike Gallatin, founder of Calistoga and venture partner at Frazier Healthcare, was also a co-founder. Looking back, it’s clear this general thesis was right: over the past year or so, fibrosis has become one of the hottest sectors in biotech with the acquisitions of Arresto by Gilead, Amira by BMS, and Excaliard by Pfizer, to name of few.
By late 2006, after reviewing dozens of other fibrosis assets, Mike focused in on the Biogen avb6 antibody that became known as STX-100. Around that asset, we raised the Series A in early 2007 between Atlas and Frazier Healthcare. We recruited Dan Lynch as Executive Chair to work with Mike, and hired two critical members of the Stromedix team: Shelia Violette (head of research) and Brad Maroni (CMO). Shelia and Brad have been instrumental in getting us to this great outcome. In the Series B, while Frazier stepped back (as they were moving away from early-stage biotech), we were pleased to bring New Leaf, Bessemer, and Red Abbey Ventures into the syndicate.
STX-100 has progressed with the typical non-linear fashion of most development programs since 2007. Our IND was accepted in Nov 2007 and almost exactly four years ago in early 2008 we dosed our first subject in Phase 1. About a year later, we had completed our five cohort Phase 1 study and were ready for Phase 2a. We’d initially prioritized kidney transplant as the first indication for the relative ease of obtaining tissue from these patients for biomarker analysis. We were about to start our trial in mid-2009 when the FDA expressed concern that STX-100 could be potentially immunostimulative in transplant patients, who are dependent for survival on potent immunosuppression. Curveballs happen in this business. We did more work and came to the conclusion the FDA could be right – they deserve kudos for their science-driven cautionary stance on this one. In parallel, and through 2010, we crafted an IPF plan, leveraged the biomarker kidney work to develop a novel biomarker strategy in the lung, got sites up and running by late 2011, and are now ready to dose patients.
Stromedix is, as far as I know, one of the rare success stories of a big company externalizing R&D and then recapturing its value. Biogen out-licensed the program because it lacked the financial resources to advance it in 2006 due in part to Tysabri’s challenges, as well as a shifting TA strategy. But they put the asset into the hands of a focused, incentivized, experienced team (including Mike, their former head of research), accessed our venture creation experience and risk capital, and now are able to recapture the value of the program (and repatriate the team). Importantly, they did this without any hard-wired buyback rights. They just stayed close, followed the progress, and acted when the time was right.
The company has also been a poster child of virtual drug development. They were a tight team of six committed and experienced folks. Even without a lab, they were able to do cutting edge science on an unprecedented target. While CROs have been critical, they also set up a number of great academic collaborations, like that with Phil Halloran at the University of Alberta in Edmonton around fibrotic gene signatures.
From an investment viewpoint, Stromedix is a very good deal for us. It raised only $38M in equity capital over its five-year life. The $75M upfront secures a positive return prior to the Phase 2 IPF trial that the syndicate was committed to funding, but preserves upside potential should this study succeed. Over the next several years, through the start of Phase 3, the milestones could put this deal into the top decile of venture returns, with longer term upside beyond that of up to 12x+. Because we’re the largest shareholder, and own nearly a third of the company, this is a very significant outcome for Atlas.
So in short – while a very different business and operating model than Avila, the same themes are evident for what makes an early stage biotech a great investment: venture creation around innovative cutting-edge science; efficient use of equity capital; flexibility to adapt quickly around different options; and a super team.
It’s been a pleasure for me to work with Stromedix as both a Board Director/Observer over the past five years. Beyond being a great CEO, Mike is also widely known as the Jedi of the Twittersphere (@Michael_Gilman), and has introduced many of us to its merits. Upon his return to Biogen, hopefully he’ll keep sending out his prolific and often engaging tweets.
Thanks Mike, Dan, Shelia, Brad, Dina, Tim, and Cindy, and congrats to my partner Peter for leading the deal for us.
