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11 December 2017

Big Deal: Cell Design acquisition shows immunotherapies sector success

Adding Cell Design and Kite Pharma to its portfolio brings Gilead to the top table in probably the hottest area for advanced therapies and follows the playbook the company has used over the past few decades to expand.

Author: James Mawson, Editor-in-chief

In venture capital, which shows persistency in returns, it pays to follow the investors as much as the latest hot technology.

David Bonderman, founding partner at TPG, might be best remembered among the wider public this year for his “inappropriate” remark at a board meeting for portfolio company Uber on reforming its culture after a whistleblower alleged sexual harassment, but the fact he was on the board of perhaps the most-valuable venture-backed private company indicates his ability to pick companies likely to do well.

Bonderman joined the board of another of his early bets, Kite Pharma, having led its $15m series A round back in 2011, and that move has also paid off. Bonderman, through his Wildcat Capital family office, reportedly received $425m from the $11.9bn sale of Kite to drugmaker Gilead Sciences in October this year, according to analysis by Bloomberg.

This week, Gilead agreed to acquire US-based, corporate venture-backed CAR-T and T cell receptor Cell Design Labs in a deal that valued the company at up to $567m, to help in the development of cancer drugs.

The transaction includes a 12.2% stake in Cell Design held by Kite Pharma. Both companies focus on chimeric antigen receptors to reprogram a patient's T cells to try and transform them into cancer-fighting agents, called CAR-T immunotherapies.

Gilead said it would make an initial upfront payment to US-based Cell Design of about $175m and additional payments of up to $322m if milestones are hit.

Cell Design’s sole funding, a $34.4m round closed in June 2016, was from a syndicate led by Kleiner Perkins Caufield and Byers that also contained Kite, Osage University Partners, Mission Bay Ventures and management including its CEO, Arie Belldegrun.

Adding Kite and Cell Design to its portfolio brings Gilead on to the top table in probably the hottest area for advanced therapies and follows the playbook the company has used over the past few decades to expand.

Gilead paid about $11bn in 2011 for Pharmasset, a company in the last stage of clinical trials for a hepatitis C drug with, like Kite at the time of purchase, no revenues or regulatory approval. Before the earlier acquisition Gilead was mainly active in the HIV treatment market, but the hepatitis drug returned Gilead's investment in less than a year, giving the firm a market capitalisation of $180bn in June 2015 compared to about $30bn beforehand.

Switzerland-listed peer Novartis became the first company to get US regulatory (FDA) approval for a CAR-T cell therapy, Kymriah, in August 2017 and has been rewarded with about $40bn being added to its market cap in the past year. In October, shortly after its own acquisition closed, Kite became the second CAR-T therapy developer to win FDA approval for a treatment. 

These treatments will make up just a tiny slice of the $107bn cancer drug market, Wired magazine stated last month. Only about 600 people a year could use Novartis’ flagship CAR-T therapy for children with advanced leukaemia, and the company has set the price for a full course of treatment at $475,000. Kite’s treatment for a form of adult (non-Hodgkin) lymphoma costs $373,000 for a single injection of the drug.

In the US in 2017, there will be an estimated 174,000 cases of leukaemia, lymphoma, non-Hodgkin lymphoma and myeloma, the major blood cancers pursued by CAR-T products.

Solid tumours are even trickier, Wired said, as they are made up of a mix of cells with different genetic profiles and so required designing T cells with antigens that can target just the ones that matter and nothing else. This is what Cell Design and peers such as Poseida are trying to do. 

For a sense of the overall immunotherapies sector’s development, Global University Venturing editor Thierry Heles’s analysis in April looks at the close ties between academia and startups and corporations. University of Pennsylvania has been seen as the institution behind most commercially leading technology platforms to date, including a partnership struck with Novartis in 2012.

However, Autolus was spun out of the lab of Martin Pule at University College London in 2015 and Juno was aided in becoming one of the best funded biotech startups ever by the nearby Fred Hutchinson Cancer Research Center.

Immuno-oncology currently dominates the advanced therapy sector, accounting for around half (more than 100) of all clinical trials last year, and almost $1bn raised in initial public offerings (IPOs) for six CAR-T companies, according to a summary of Chapter 1 of the Advanced Therapies Investment Report 2017 produced by Phacilitate & Biotech and Money under editor Oliver Ball at King’s College London. 

The six IPOs show the tight 18-month window for listings, and how even the companies that jumped through have then had widely mixed aftermarket performance, seemingly irrespective of the amount of capital raised. Three companies are valued at $26bn, the other three at less than $1.5bn.

Table: Flotation and aftermarket performance of CAR-T startups

Company         IPO ($m)         IPO date          market cap Dec 17

Bluebird Bio    101                  June 2013        $7.4bn

Kite Pharma    128                  June 2014       acquired $11.9bn

Bellicum          140                  Dec 2014         $316.7m

Juno                265                  Dec 2014         $6.7bn

Cellectis          228                  March 2015      $740.5m

Ceylad            100                  May 2015         $318.1m

Source: Adapted by GCV Analytics from Cell & Gene Therapy Insights’ table used in the Advanced Therapies Investment Report 2017. IPO value of CAR-T companies. Only includes IPOs where the company had a CAR-T focus at the time of going public. Market cap as of December 8, 2017.

As Bonderman’s success with Kite showed, clearly if the winner is picked then the returns can be as high as nearly any in venture capital, and corporations are increasingly becoming involved as are syndicates that increasingly include Asia-based investors.

Last week, as well as the Cell Design exit, were two notable deals in the antigen space. Obsidian Therapeutics raised $49.5m from Alphabet unit GV (formerly called Google Ventures), with participation from Atlas Venture, Takeda Ventures, Vertex Ventures HC, Amgen Ventures, Alexandria Venture Investments and ShangPharma Investment Group.

Meanwhile, Neon Therapeutics extended its series B round, which includes Pharmstandard International, Access Industries, Fidelity Management & Research Company, Partner Fund Management (PFM), Wellington Management, Arrowmark Partners, Nextech Invest, Hillhouse Capital Group, Third Rock Ventures, Inbio Ventures and Casdin Capital, to $106m.

In the past quarter, Immatics raised $58m from family offices Dievini Hopp Biotech (SAP co-founder Dietmar Hopp) and AT Impf (the Strüngmann family behind Hexal) and venture capital firm Wellington Partners, while UK-based Autolus added $80m from Cormorant Asset Management, Nextech Invest, Syncona, Woodford Investment Management and UK-listed Arix Bioscience.

With the aftermarket performance of the CAR-T-focused companies, more IPOs and exits could be on the way. In June this year, Shavit Capital led a $40m round for Gamida Cell alongside VMS Investment Group, Clal Biotechnology Industries (CBI), Israel HealthCare Ventures (IHCV) and Israel Biotech Fund, as well as existing investor and major shareholder Novartis.

In May 2017, Takeda announced a $100m collaboration with, and equity an investment in, GammaDelta Therapeutics, a UK-based biotech pioneering a novel type of T cell therapy.  The funding provides Takeda the exclusive right to purchase GammaDelta Therapeutics. 

GammaDelta Therapeutics was founded last year with the help of venture capital firm Abingworth and the support from Cancer Research Technology based the on research of Adrian Hayday and Oliver Nussbaumer at King’s College London and the Francis Crick Institute.

Earlier T cell technology deals were struck in the last IPO window and many have seen steady progress in their clinical trials.

Bellicum raised $55m in August 2014 from RA Capital Management, Perceptive Advisors, Jennison Associates, Sabby Capital, Ridgeback Capital Management, VenBio Select, Redmile Group, AJU IB Investment, AVG Ventures and Remeditex Ventures; Poseida’s received up to $30m from Ireland-listed Malin in late 2015; and CARsgen’s $30m round in January 2016 was co-led by Jolly Pharma’s corporate venturing unit and KTB Ventures and backed by Kaitai Capital and JIC Genesis Fountain Healthcare Ventures.

As the CAR-T trials evolve spin-off opportunities are being created. During a talk in Israel, Kite CEO Arie Belldegrun shared a story of meeting General Electric CEO John Flannery.

Belldegrun asked Flannery to build a box that, at the press of a button, could process the blood in 15 different ways and extract ready-for-use T-cells. Today, he added, those 15 processes are all performed by different systems, but such a box could allow a hospital to execute blood processing without requiring considerable costs or a sterile room.

GE has been listening. In June this year its corporate venturing arm, GE Ventures, joined Mayo Clinic’s ventures unit and VC firm DFJ ro invest $13.75m in Vineti, a US-based software platform spun out from GE to target the gene therapy sector’s supply chain.

GE Ventures also backed the creation of a Silicon Valley company in 2016, Vitruvian Networks, which is building a cloud computing system to connect hospitals to CAR-T makers.

The interest in immunotherapies comes as venture capital backing for biotech generally has soared this year. Data provider Pitchbook found funding had crossed $10bn this year for the first time.

Where Bonderman has led, the smartest investors are following.

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