Print BCTV: Wall Street -- Biotech CEOs on pre-IPO finance, post-IPO monies, JOBS Act transparency

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Transcript of BioCentury This Week TV Episode 185

 

GUESTS

Scott Koenig, MD, Ph.D, President, CEO and Director, MacroGenics

Tim Mayleben, President & CEO, Esperion Therapeutics

Jeff Abbey, President and CEO, Argos Therapeutics

 

PRODUCTS, COMPANIES, INSTITUTIONS AND PEOPLE MENTIONED

Raven Biotechnologies Inc.

Roger Newton, Executive Chairman and Chief Scientific Officer, Esperion Therapeutics Inc.

Pfizer Inc.

Dendreon Corp.

Kirin Brewery Co. Ltd

Kyowa Hakko Kirin Co. Ltd.

The Boeing Company

Bristol Meyers Squibb

GlaxoSmithKline

Human Genome Sciences Inc.

Securities & Exchange Commission

National Institutes of Health

Food & Drug Administration

The JOBS Act

 

HOST

Eric Pierce, BioCentury Publisher

 

SEGMENT 1

 

ERIC PIERCE: The biotech bull hits the five-year mark. CEOs now have money. What are they going to do with it? I'm Eric Pierce. Welcome to BioCentury This Week's Quarterly Financial Report.

 

NARRATOR: Connecting patients, scientists, innovators, and policymakers to the future of medicine. BioCentury This Week.

 

ERIC PIERCE: Happy birthday to the biotech bull. It's been five years since the biotech market picked itself off the floor in March of 2009. By almost any measure, the innovative life science space has refinanced itself. All told, over those five years, biotechs have raised more than $150 billion on US stock exchanges.

 

In the last two years alone, more than 80 companies have gone public in the US. But while many of these fresh IPOs are new to the average investor, many of their CEOs spent years surviving in the financing wilderness. How did they keep their companies and their innovations alive?

 

Today, we'll hear the story of three CEOs who took their companies public during the biotech bull. We'll find out what lessons they learned and what changed their fortunes with investors. And how will they create value with their new shareholder cash? And for our public policy audience, we'll ask whether the JOBS Act and the new climate at the FDA helped pave the way to Wall Street.

 

Today, I'm pleased to welcome our panel of CEOs. Tim Mayleben of Esperion Therapeutics, which is developing a new treatment for high cholesterol; Scott Koenig of MacroGenics, which has a late-stage product for gastric cancer; and Jeff Abbey of Argos Therapeutics, which is in the hot immunotherapy space with a candidate for kidney cancer.

 

Scott, I'd like to start with you. We're talking about companies that made it through the wilderness, when financing was tough, venture capitalists didn't have a lot of new money to spend. Your company, MacroGenics, was founded in 2000, and you always had the fully-integrated model which, for a long time, wasn't necessarily in vogue. How did you make it through the wilderness?

 

SCOTT KOENIG: Absolutely true. Summer of 2008 is a good story. We wanted to stick with our vision to develop innovative medicines using our next generation antibody technologies, but still maintain a fully-integrated development infrastructure.

 

We at that time wanted to acquire a company. Raven Biotechnology Companies, which had started in 1999, had developed some stem cell technologies, and they had a large portfolio of antibodies, which we thought fit very nicely with our technology platform. We saw this as a way to forward integrate and accelerate the development of our product opportunities.

 

The majority of our investors and our board were resistant were to this idea. They wanted us to focus in on our lead product candidate, which was in Phase III development, which we had acquired a few years before. I was very resistant to the idea. I did not want this company to ultimately be successful or fail by a single event.

 

So with a lot of coaxing and a lot of discussion, we came to an agreement. I could say, not uniformly.

 

ERIC PIERCE: A gentleman's agreement?

 

SCOTT KOENIG: It was a gentleman's agreement. One week after Lehman went down we were able to be successful.

 

ERIC PIERCE: Able to get it done.

 

SCOTT KOENIG: And able to get it done.

 

ERIC PIERCE: I mean, Jeff, you know, things don't always go as you plan with biotech. You actually had lost a partner to M&A. Talk a little bit about that experience and what you did to get yourself out of it.

 

JEFF ABBEY: Yeah, Argos has been around actually slightly longer than MacroGenics, so it's been a roller coaster ride. And that's a perfect example. We were lucky enough to obtain a partner in Kirin Pharmaceuticals, the subsidiary of Kirin Brewery, in 2004, and co-funded our development of most of our products together, basically a virtual joint venture.

 

Into 2009, we were in our Phase II trial in 2009, developing the kidney cancer product that we have today. And they merged with Kyowa Hakko, another Japanese company. And Kyowa Hakko management was calling the shots following the merger. And they went through the two portfolios, and the Kyowa Hakko team decided they didn't want to do personalized immunotherapy anymore. And so they pulled out in the middle of -- and this is 2009 -- and here we lose --

 

ERIC PIERCE: Not a great time to be partnerless.

 

JEFF ABBEY: Similar to when Scott was trying to raise money. And so we needed to raise money without a partner. And it was an extremely difficult time. But everything worked out in the end. But there were some tough years, for sure.

 

ERIC PIERCE: But you survived. So, Tim, you have sort of a different story with Esperion. Talk a little bit about the first version and then also where you're at right now.

 

TIM MAYLEBEN: Sure. So Esperion Therapeutics was originally founded in 1998 by my colleague Roger Newton. And he and I have adapted a tandem leadership style for Esperion, both the original Esperion and this, he on the medical and clinical side or scientific side and me on the business and operations side. So we were funded during one of the booms in biotech. And all together, we raised about $200 million together.

 

Ultimately Pfizer acquired the business in 2004. And we became part of Pfizer. But in 2006, Pfizer ran into some difficulties with their cardiovascular portfolio and decided to get out of cardiovascular R&D. And Roger saw an opportunity to get some of the assets from the original Esperion back. So in 2008, we were able to get the assets back. And with the help of some supportive venture capital investors, restarted the company, and over the last several years have raised almost the same amount of money and recently went public as well.

 

ERIC PIERCE: So Esperion 2.0 is now live and launched. And we'll come back to a little bit more of that and dig deeper into the business plans and how you guys are moving forward when we come back. Next, we'll talk about how their companies' fortunes changed. But first, let's take a look at the total biotech IPO market performance since 2013.

 

SEGMENT 2

 

NARRATOR: You're watching BioCentury This Week.

 

ERIC PIERCE: We're talking with CEOs Tim Mayleben, Scott Koenig, and Jeff Abbey about navigating their company to the public markets. So Scott and Jeff, you guys successfully tapped the public IPO markets recently. But it wasn't your first go at the IPO. Scott, I'd like to talk about your first try and what happened internally and also externally.

 

SCOTT KOENIG: Well, we actually -- this was our real first try at doing an IPO. We obviously, over the history of the company, thought of different ways of financing the company. But in fact, the market between mid-2000 to 2013 was not receptive to the concept of an IPO. I think most of the investors were trying to push for acquisitions of companies as a way of achieving liquidity.

 

ERIC PIERCE: More of an M&A route.

 

SCOTT KOENIG: More of an M&A route. So the opportunity opened up in 2013. Both the market conditions changed, as well as we had matured the company, the vision of the company we stayed with. We had developed all these technologies. We had multiple products in clinical development. We had these validating partnerships that brought in a significant amount of nondilutive capital to the company. And we are off and going. And so there was also in interest instead of just product opportunities, a strong interest in next generation platforms. And this resonated very well with the market.

 

ERIC PIERCE: So investors, for a long time, weren't funding pipeline. Sort of a change in tack for investors, moving into further funding pipeline products and moving downstream. I mean, Jeff, one of the things that's interesting is companies -- you see these IPO proceeds. It's a good chunk of money certainly. But that's not all the money that these companies raise. Scott, you mentioned the nondilutive capital. You guys have been pretty successful not only in nondilutive capital, but you also have an interesting IPO story as well.

 

JEFF ABBEY: Well, we actually did test the market in early 2012. So when our partnership with Kirin ended, we finished the Phase II. We had great data, and we wanted to move straight to Phase III, which is the last trial before FDA approval, hopefully. And you need a lot of money to run a Phase III trial, as everybody knows.

 

And so we figured the best way to do that was to try to go public. And this was going into early 2012, when was very difficult to get public, as Scott just mentioned. And especially, at a time where we hadn't started the Phase III trial yet. We were just planning it. And it's a trial in kidney cancer, as you mentioned. We were looking at survival as the endpoint.

 

So it takes a long time, and investors don't like to wait that long for major milestones. So we pulled back, and we decided to do another private financing. We actually did two private financings, raised a total of almost $75 million in those private financings, started the Phase III trial. And then when the markets became more receptive to IPOs, we then tapped the IPO market just over a month ago actually.

 

ERIC PIERCE: And also in the first go-around, there was another company, Dendreon that had maybe not a similar technology, but from a broad landscape was basically really the first immunotherapy that was approved.

 

JEFF ABBEY: Yeah, so that definitely impacted us at the time, and still does quite frankly. It's improved therapy, and it's for prostate cancer. It's really a partially personalized therapy, unlike ours that's fully personalized. But for lack of any other comparator, that's what investors certainly see as comparing to us. And as you mentioned, Dendreon was looked favorably for a time with a large market cap after they got approved. Then, of course, biotech is different in that you're valued on your potential, until you get approved. And then you're valued on revenue and profits, like everybody else.

 

ERIC PIERCE: What can you do next? And Tim, it wasn't always easy sledding for Esperion either. Talk a little bit about your B round and the challenges there, just given what the general marketplace.

 

TIM MAYLEEN: No, that's right. So in the 2011, 2012 time frame, we were still in Phase 1, starting Phase IIa studies and didn't have the Phase II validating results. And of course, the market says, as the other guys have suggested, were really tough then. Fewer investors, fewer investors making new investments. They were tending to invest in their own portfolio companies. So we had a challenge finding a new investor to lead that round. We were finally able to do that in early 2013 and then leverage that experience or that mezzanine round to really do the IPO in the middle part of the year. But I think key to the success there was the fact that -- I mentioned Roger Newton earlier -- Roger and I had worked together very successfully at the first Esperion. We were operating this huge therapeutic space, which is LDL cholesterol lowering, which analysts estimate is this $20 to $50 billion market. And we have a oral, once-daily, small molecule to lower LDL cholesterol. And it was really Phase II results that came out at the end of 2012 that really launched us into all of that.

 

ERIC PIERCE: What was the toughest decision or the scariest moment for you as a CEO, Tim?

 

TIM MAYLEBEN: Yes, so Eric, I think the scariest moment for me is always that time between when you tell people what you're going to do -- in this case, usually raising money, attracting additional funding -- and the time until you actually close the funding on the terms that you hope to be able to close it. And repeatedly, that is the scariest time because you've made commitments. You've told your colleagues this is what we're going to do. And now you've got to deliver on that. And there's always that moment of pause, hesitation.

 

ERIC PIERCE: Or have I overpromised?

 

TIM MAYLEBEN: Overpromised. Exactly. So that is a recurring theme, I think, in biotech for me.

 

ERIC PIERCE: Scott?

 

SCOTT KOENIG: Yep, for us, it was October 2010. We were opening the envelope on a Phase III study, and it didn't go the way we wanted it to go. A couple weeks later, we heard from our partner that they were giving the rights back to the molecule. As you recall, we wanted to execute on our vision to be a fully-integrated biotech company and develop the new product opportunities. And we didn't have the cash runway to move that forward.

 

And obviously it was both fear and sadness at the time, because there was a lot of expectations from the patients and their parents.

 

ERIC PIERCE: And a lot of people at the company, I'm sure, worked really hard.

 

SCOTT KOENIG: And absolutely. A lot of the people in the company put a lot of effort to get this over the finish line. At that time, we were negotiating two deals from our pipeline. And if we were successful, it didn't matter to us if we took a little longer. But we negotiated to the last minute.

 

And we were fortunate one week later to be able to announce two deals. And this was really -- people perceived this as the launch of the company again. But in fact, this was our plan all along to really develop this fully-integrated company and have these assets that we could develop at that time.

 

ERIC PIERCE: Good lesson to keep the pipeline well-stocked.

 

SCOTT KOENIG: Absolutely.

 

ERIC PIERCE: Jeff?

 

JEFF ABBEY: Yes, so a specific example related to Tim, which I think is true. We launched our Phase III trial, knowing we didn't have enough money to complete it. So promising employees that we were going to finish this trial. Patients, investigators, all of these promises that you make to run a large Phase III trial, and knowing that you have very limited cash on hand and not enough to complete it. So we were able to raise the money that we needed and keep the trial going and it all worked out in the end but it was definitely a scary moment.

ERIC PIERCE: Well, now that we have our CEO's in money, how will they create value for their Investors? More in a moment.

 

SEGMENT 3

 

NARRATOR: Now, back to BioCentury This Week.

 

ERIC PIERCE: We're talking with CEOs, Tim Mayleben, Scott Koenig, and Jeff Abbey about navigating their company to the IPO markets. So you guys have successfully tapped the IPO markets. Investors have given you capital to spend. Now the fun starts.

 

How are you going spend it, Tim?

 

TIM MAYLEBEN: We're spending it mostly on clinical trials and of course, on a very talented and experienced group of drug developers. But for us, investors expect us to say what we're going to do, make sure we're clear about that, and then deliver on that, do actually what we said we were going to do. So that's where we're spending our money and our time.

 

SCOTT KOENIG: Yeah, I agree with you. You have to deliver. And we've been sticking with our vision from the start. We told folks that we would be developing multiple products in the immune oncology space. We're advancing into Phase III. We have an ongoing Phase II study.

 

We're planning two Phase I studies this year, two next year. So by the end of 2015, we'll have six immune-oncology programs in our portfolio in the clinic.

 

ERIC PIERCE: So lots of things moving. And I know you also mentioned you have cash into 2017, which must be a luxury.

 

SCOTT KOENIG: It's a wonderful luxury to be in. What it allows us to do is to focus on execution here. It also allows us to make some decisions. For instance, we're supplementing our manufacturing facility to keep up with the productivity of our R&D pipeline.

 

ERIC PIERCE: Jeff, we were talking earlier about just how expensive it is to develop drugs. $100 million isn't going to last a long time. Where is Argos spending their money, investing capital?

 

JEFFREY ABBEY: Scott makes a good point in that maybe the best thing about being public is at least you don't wake up thinking about money every morning. But then you have to actually deliver to what you told investors that you were going to do. And for us, it's clearly the focus on our Phase III program to hopefully get to FDA approval as quickly as possible. But we do have the luxury of moving into other cancer indications using our platform technology.

 

In addition, we have non-dilutive money for HIV from the NIH funding. So that's moving HIV program along, again with the same personalized immune-therapy approach. But you have to deliver with what you told investors. Tim nailed that one.

 

ERIC PIERCE: We're in the Washington market here. Talk a little bit about how you developed that relationship with the NIH.

 

JEFFREY ABBEY: So that came out of actually our Phase I and Phase II studies. NIH was looking for an immune-based approach to address HIV. We had generated interesting data that showed that we could control viral load when all other HIV immune-therapies had failed up until then.

 

Still, I don't think there's another one that actually has shown it can control viral load. So it's actually a contract with NIH. So just like they would hire Boeing to build a jet or something, they've hired Argos to develop this HIV immune- therapy. And we would not be in HIV if it wasn't for the NIH.

 

There's absolutely no way.

 

ERIC PIERCE: So it helped you move that program forward, for sure. I want to change tacts a little bit. We're really in a global marketplace with biotech. A lot of the value in these companies doesn't necessarily sit on the balance sheets. It goes down the elevator and out the door.

 

So let's talk a little bit about human capital and how you guys are going about attracting capital. Tim?

 

TIM MAYLEBEN: For us, we're based in Ann Arbor, Michigan, which is not one of the traditional biotech hubs or one of the pharma hubs. So we've had to go national for the talent to build the company. And we've taken much more of a virtual approach. So we're 18 colleagues today, but they're all very experienced veterans of the pharmaceutical and biotech industry.

 

And we've gone, like I said, to both coasts to find these folks. And the original Esperion, we were very integrated. Everybody was at one site. With this version of Esperion, we have our main office in Ann Arbor, Michigan. But then we have colleagues that are working on both the west coast and the east coast, coming together every month to work collaboratively, but otherwise, working remotely.

 

It's worked quite well for us.

 

ERIC PIERCE: Sort of a virtual network, if you will. I'm running out of time on this segment. So we're going to dig back into that when we come back, because, Scott, I know you have some input on where you guys found your capital. And it happened to come from another biotech company.

 

Next, did Washington help our guests on their journey to the IPO market? We'll find out.

 

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SEGMENT 4

 

ERIC PIERCE: We're finishing our discussion with CEOs Tim Mayleben, Scott Koenig, and Jeff Abbey. How did Washington help you on your journey to an IPO? And before we dig into the Washington topic, let's stay with the recruitment and how you guys are competing with recruiting top talent for your team.

 

SCOTT KOENIG: We find this is a great time to recruit talent. Obviously, as the company has grown tremendously, advanced our programs, there's a huge excitement in the immune-oncology space. We've taken advantage, for instance, of consolidation that has occurred across the industry. Our new head of clinical development came from Bristol Myers Squibb.

 

He had led the charge there on their initial programs in immune oncology. And so we are seeing that talent is coming to us. And it's coming from both coasts.

 

ERIC PIERCE: And you also benefited, you mentioned earlier about the human genome science transaction with some of those people.

 

SCOTT KOENIG: Being a local company in the Maryland, Washington area, we took advantage of the fact that the GSK acquired HGS. They were working in the immune therapeutics antibody space. And so there was a natural evolution and movement of these folks, which are literally a mile away, didn't have to move, and they were coming here to help us build our company.

 

ERIC PIERCE: Didn't have to move very far. So I want to change tacts a little bit. Part of the mechanisms that the regulatory engine put in place that's gaining capital access to Wall Street is the JOBS Act. You guys all recently completed IPOs. Jeff, how integral was the JOBS Act?

 

JEFFREY ABBEY: It was quite helpful. So I think the biggest improvement is the, test the waters, ability to talk to investors without being publicly on file with the SEC. And so you're able to get good investor feedback. I'm not sure how you guys found it, but I found it to be quite helpful. You could identify investors who are interested, you identify investors who maybe aren't interested, and you actually get good feedback.

 

But I'd be interested here what you guys.

 

TIM MAYLEBEN: My experience was similar, that we were on the earlier stages of the recent IPO wave and weren't really sure how the market was going to turn out. And so getting that early feedback from public investors, both generalists and sort of the core biotech IPO investors was very helpful and constructive input, as you were saying, that what they like about the story, what they don't like, challenges in terms of communicating our story, we were able to polish up before we actually did see the live IPO road show.

 

ERIC PIERCE: We've got about one minute left. Scott, what's your take?

 

SCOTT KOENIG: It was not only get feedback we got, but because we had such a complex story, we had multiple platforms, multiple product opportunities that gave us a chance to go back to these investors several times and tell the story so that they could really learn what we were going to execute on and how we were going to do it. And that made a big difference. We wouldn't be able to do this in the normal non-JOBS Act environment.

 

ERIC PIERCE: So Jeff, to your point, you mentioned earlier that investors in the first go around were confusing you with Dendreon. Did the JOBS Act help?

 

JEFFREY ABBEY: I think Scott nailed it, which is that especially if you have something where you're trying to distinguish it from other approaches or if it's a bit complicated story, which ours is clearly, having multiple shots with investors to allow them to dig in and spend more time is invaluable.

 

ERIC PIERCE: And that's this week's show. I'd like to thank my guests, Tim Mayleben, Scott Koenig, Jeff Abbey. Remember to share your thoughts about today's show on Twitter. Join the conversation using the hashtag #BioCenturyTV. I'm Eric Pierce. Thanks for watching.

 

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