Ascletis Raises Mammoth $100 Million To Deploy Its US-China Hybrid Model

In the latest and most ambitious attempt to create a new global pharma with one foot in China and one in the West, Ascletis Inc. has launched with a hybrid drug development model that has attracted $100 million in committed funding. [See Deal] And in an interesting twist, the supremely well-capitalized company has, thus far, avoided working with venture capitalists entirely, with real estate billionaire Jinxing Qi leading the Series A round, via his Hangzhou Binjiang Investment Holding company. Qi, who is listed as a company co-founder, joined other unnamed private investors from China, the US, and elsewhere in the round. Ascletis has taken a first tranche worth $50 million, with the remainder due upon reaching specific development milestones.

The total dollar value makes Ascletis' introductory round one of the largest Series A fundings ever for a biopharma, especially one backed purely by angels. A large venture syndicate supplied Clovis Oncology Inc. of Boulder, CO, with a $145 million first round in 2009 to in-license discovery-stage cancer assets. [See Deal] Going further back, Swedish start-up Biovitrum AB (now named Swedish Orphan Biovitrum AB) was spun out of Pharmacia Corp. (now a division of Pfizer Inc.) with $130 million in 2001. [See Deal]

Ascletis' model is twofold. The company plans to in-license and develop clinical-stage assets developed elsewhere with a goal of commercializing them in China, while discovering new drugs and bringing them through mid-stage trials before striking revenue-generating global partnerships. For now, the company will focus on oncology and infectious diseases. Ascletis hopes its plan will prove farsighted as it uses its cash and understanding of home country dynamics to take advantage of China's rapid industrialization and burgeoning wealth.

Moreover, the financing suggests there is still considerable interest in the hybrid model, where a company has one foot in an emerging market and another in a more established venue. ( See "China: The Asian Dragon Lures Foreign Investors," START-UP, February 2008 (Also see "China: The Asian Dragon Lures Foreign Investors" - Scrip, 1 Feb, 2008.).) A number of private start-up players have been founded on this premise, including drug development tool play ForteBio Inc., contract research organization Bridge Laboratories Inc., and LEAD Therapeutics Inc., which espoused a fast-follower approach to drug development. Indeed, LEAD's fate – the California/Shanghai start-up was sold to BioMarin Pharmaceuticals Inc. for a disappointing $18 million up-front in February 2010 – highlights some of the questions Ascletis will have to address to demonstrate the viability of the hybrid approach. [See Deal]

Ascletis CEO Jinzi Wu, PhD, says the large funding will allow the company to begin operations with a small team in the US while building a staff in China over a period of years. For now, most of its core staff of eight scientists will work out of North Carolina's Research Triangle Park. But the goal is for 80% of Ascletis' employees to be based in China by the first half of 2013."We believe we have a model that combines US and European innovation and strategic knowledge with Chinese capital efficiency," says Wu. He points to China's ascent in the information technology industry over the past decade, and suggests that similar growth in biotech is possible.

To that end, Wu and his co-founders assembled a management team and investor syndicate quickly, beginning in December 2010. A former member of GlaxoSmithKline PLC's HIV drug discovery team, Wu now leads a team with abundant Big Pharma experience. Among his compatriots are former Novartis AG drug discovery VP Emil Fu, PhD, and ex-GSK chief scientist Jun Tang, PhD. Ascletis' scientific advisors also include retired GSK research and development senior executive Allan Baxter, PhD, and Duke University oncology professor Xiao-Fan Wang, PhD.

Billionaire Qi's backing of Ascletis supplies what founder Wu calls "the first investment of such scale by a Chinese investor" in the biotech field. But when he was establishing the company, he didn't deliberately set out to eschew traditional venture financing. Instead, it was only after conversations with traditional VCs in China, the US, and Europe that the alternative – in the form of backing by Qi – emerged as the best path forward, given the financier's long investment timeline and level of trust. "VCs right now don't have patience," he says, adding that he feels the VCs who invested in one of his former employers, Montreal-based biotech Ambrilia Biopharma Inc., "micromanaged" the start-up. "They want exits within three to five years. Our investors have the same vision we have: for a successful company you need to have a pipeline from early stage to late stage. You need to have something longer than three years." That's a familiar sentiment, as many start-up teams have cited unwanted pressure from VCs as a reason to work with high-net-worth angels instead. ( See "Biotech Angels Are Going Where VCs Fear To Tread," START-UP , February 2011 (Also see "Biotech Angels Are Going Where VCs Fear To Tread " - Scrip, 1 Feb, 2011.).)

Ascletis intends to build a staff of 50 scientists within the first year and reach 100 by the two-year mark. Although only 20% of its staff will be located in the US, scientists in North Carolina are expected to perform much of the early discovery during the initial phases of the company's growth. Ascletis is also looking at potential research collaborations with universities in China, akin to the deals many Big Pharmas and biotechs have struck elsewhere in the world. ( See "Back to School: Big Pharmas Test New Models For Tapping Academia," IN VIVO , February 2011 (Also see "Back To School: Big Pharmas Test New Models For Tapping Academia " - In Vivo, 1 Feb, 2011.).)

Internal R&D being a risky endeavor, the biotech's first revenues are likely to come from an in-licensed drug candidate that will be developed and commercialized in China. Broadly, Wu says, Ascletis will aim to bring new treatments to the rising middle class, a population estimated as being between 130 and 200 million people, or roughly 15 to 20% of the country. "We are not targeting everyone in China," he says. "Some people in rural and western areas cannot afford to pay for drugs." The biotech's internal goal is to generate revenues from a drug sold in China within three to five years, Wu says. As that time approaches, the company plans to build its own sales force in China, although it could also partner with a larger sales and marketing operation if the drug in question is for a primary care indication.

Already, the start-up is in talks to acquire its first drug candidate, a Phase IIb compound in an area Wu declines to specify. "In China, there are generics, and there are very expensive drugs marketed by multinationals," says Wu. "We're looking at the space between." Of special interest are compounds that would be first-in-class drugs in China, even if they don't necessarily belong in that category elsewhere in the world. In HIV, for instance, there are no approved drugs in China, effectively making the country a tabula rasa for anti-retrovirals according to Wu. Beyond HIV, Wu pointed to cancer and infectious disease as other areas of interest. He notes that cancer has overtaken heart disease as China's leading cause of death, representing a growing market opportunity, whereas tuberculosis is "a major issue" in the country.

Ascletis' hefty financing includes a second $50 million tranche that will kick in when a project reaches the manufacturing and marketing phase. "For R&D, we do not need a second tranche," says Wu. The entire round is expected to last through 2015. By that point, Ascletis expects to line up additional sources of funding, potentially including non-dilutive agreements with strategic partners, and traditional and corporate venture deals.

– Paul Bonanos