J.P. Morgan Executive Roundtable, Part 3: Financing Is Difficult, But Available For Drugs That Provide Value

Plunging biopharma company stock values and declining IPO activity have contributed to a more difficult financing environment, but money is still available for public and private drug developers whose products provide value in the eyes of patients and payers.

Biopharmaceutical executives find that it has gotten more difficult to raise money than during the past few years when the market for initial public offerings was booming. As industry stock prices have fallen, investors have become more selective, but capital is available for attractive drug development programs.

Scrip’s Mandy Jackson spoke with six female biopharma executives in a roundtable discussion during the J.P. Morgan Healthcare Conference in San Francisco earlier this month about the environment for financing and dealmaking, the growing importance of proving the health care value of news drugs, the challenges of being a woman in this industry and the path forward for gender diversity. The consensus regarding capital availability was that money still is flowing into biopharma, but investors are focused on companies with innovative products that provide real value in the eyes of patients and payers.

The roundtable featured a mix of public and private companies in different stages of development, as well as a venture capital representative, for a variety of perspectives. The participants were:

The Companies

Third Rock Ventures is a venture firm with offices in Boston and San Francisco whose main focus is building and financing life science start-ups based on technology or drug candidates in-licensed from academia or biopharma companies. The VC firm’s portfolio includes the ophthalmology company Eleven Biotherapeutics Inc., where Celniker was the CEO before it merged with the cancer firm Viventia Bio Inc. (Also see "Viventia's Cancer Ambitions Go To Eleven" - Scrip, 21 Sep, 2016.)

North Brunswick, New Jersey-based Chromocell is a platform-based technology company that formulates flavors and therapeutics. In the therapeutic area, Chromocell is primarily focused on pain with an initial focus on sodium channels. The company has a therapeutics partnership with Astellas Pharma Inc. and is collaborating with several different food companies on the flavor side of its platform. (Also see "Astellas, Chromocell In Pain Pact Worth $515m-plus" - Scrip, 30 Sep, 2015.)

Curis is a Lexington, Massachusetts-based oncology company that’s become an immunotherapy company that’s developing oral small molecule checkpoint inhibitors, including the first oral molecules to target high-profile immuno-oncology targets, such as PD-L1 and TIM3. Data from ongoing Phase I studies are expected this year. (Also see "Timeline: Expected Clinical Trial Readouts For PD-1 Competitors" - Scrip, 3 Nov, 2016.) The company also has the HDAC and PI3K inhibitor CUDC-907 in Phase II for diffuse large B-cell lymphomas and earns royalties from Roche’s Genentech Inc. for the hedgehog pathway inhibitor Erivedge (vismodegib), which was approved to treat advanced basal cell carcinoma in January 2012. (Also see "Genentech goes beyond Infinity with FDA OK to sell Hedgehog inhibitor for advanced BCC" - Scrip, 31 Jan, 2012.)

Symic Bio is a San Francisco-based platform company with technology that focuses on the extracellular matrix. It has two product candidates in Phase II clinical trials – SB-061 for osteoarthritis pain and disease modification and SB-030 for critical limb ischemia associated with peripheral artery disease – with data expected in 2017. The company originally raised a $15 Series A round and extended the round by $25m a year ago, bringing the total raised since its founding in 2012 to $43m. (Also see "Biotech venture capital off to a $659m start in 2015" - Scrip, 7 Jan, 2015.)

Cerecor is developing drugs to treat diseases of the central nervous system, with lead drug candidates CERC-501 and CERC-301 in Phase II for depression and a preclinical in-licensed epilepsy drug candidate known as CERC-611. (Also see "Deal Watch: Zymeworks Adds Daiichi To List Of Partners In I-O Cross Collaboration" - Scrip, 30 Sep, 2016.) After reporting mid-stage data late last year, the company is raising money to fund future development. (Also see "Pipeline Watch: Phase III Progress With Biosimilar Adalimumab And Trastuzumab" - Scrip, 2 Dec, 2016.)

Norwood, Massachusetts-based Corbus Pharmaceuticals is developing treatments for rare or uncommon inflammatory fibrotic diseases, including lead drug candidate JBT-101, a preferential cannabinoid receptor type 2 agonist that’s being evaluated in three Phase II studies with a fourth planned to begin soon. The company reported positive Phase II results for JBT-101 in systemic sclerosis in November and plans to begin a Phase III clinical trial soon. (Also see "ACR 2016 Roundup: Remicade Copy Not So Similar; Mixed Sirukumab Results; Corbus’s Resunab Surge" - Scrip, 16 Nov, 2016.)

• Third Rock Ventures Partner Abbie Celniker
• Chromocell Corp. Vice President of Therapeutics Tina Garyantes
• Curis Inc. Senior Vice President and Chief Strategy Officer Mani Mohindru
• Symic Biomedical Inc. Chief Financial Officer Jocelyn Jackson
• Cerecor Inc. Chief Financial Officer Mariam Morris
• Corbus Pharmaceuticals Holdings Inc. Chief Medical Officer Barbara White

Scrip: Since some of you are looking for money right now, what is the financing environment like? How are investors responding? Are they receptive to biotech right now? Publicly, stocks have taken a hit, but what are you seeing in terms of the finance market?

Mariam Morris: We're public, but we went through a couple of [venture capital] tranches before we went public. We went public in October 2015 … and I would have to say over the last few years, there's been a lot of pent-up investment, but people are wondering what the government’s going to do to [under new president Donald Trump]. It's seemed to me for the longest time that the later-stage assets got the majority of the looks [from investors] so it made some of the earlier-stage assets just harder to find money for. I hope that changes.

Mani Mohindru: 2015 versus 2016 has been a dramatic change. In 2015, you could be a preclinical company and be well funded, but in 2016 the wind suddenly changes. I don't know if it was a matter of the elections, trying to understand what the government policy is going to be and what was going to come. With [US presidential candidate] Hillary [Clinton], there was more negativity, but then more predictability.

There was so much pricing pressure, and when you look at this macro environment, I think the younger companies who need more capital access, whether it's private or public, are probably the ones who get more hit.

“If you're doing a raise at the end of data, I think you'll still get rewarded,” Mohindru said.

But I also see that if you're doing a raise at the end of data, I think you'll still get rewarded. I feel that there's money out there still, whether you’re a young or more mature company, but if there's data, there's [better] money to be had. But with the new [presidential] administration, let's see what happens.

I think that the tide has become a little more positive, but hopefully there will be some M&A, if there is repatriation [of offshore cash] and other things leading to M&A. I think you need some positive catalyst, whether it's M&A, whether it's more [companies reporting] positive data, to get the momentum going on the financing side.

Jocelyn Jackson: We are just about wrapping up our Series B, so I've been out fundraising quite a bit in the fourth quarter of last year and it was interesting. I mean, if you're out fundraising you want to be an oncology company; that's pretty much the easiest thing to [finance]. But second to that, I would say being a platform company has really helped, because having multiple shots on goal and not just having a single asset was really what I think the investment community was most receptive to when we were out talking to them, and it did seem very active.

I think investors were more thoughtful this time around than maybe they were in 2014 and 2015 when we were raising money. They are definitely more strategic, but the money is there if your product, if your company, kind of fits with their investment thesis and you have a good story, and if you have some clinical data that makes it even better.

Tina Garyantes: Chromocell’s an unusual company, because we are funded organically, so we have no venture funding. We're not public. We control our investing. We're typically looking for collaborations, because that's where we get our funding and we've been quite successful in doing that. My impression is that if you have something to sell that's worthy, you're going to find money. There are quite a few people out there looking for places to put their money that they think will be profitable.

Abbie Celniker: I don’t think Wall Street’s going to be smooth [in 2017]. So, in terms of raising public money, what I would say we see with our portfolio companies at Third Rock – as well as what we've seen as public company CEOs – is that there's always going to be money; there's definitely money there, but there are so many external factors that influence it.

“There is sort of an algorithm that every company has to go through when they ask themselves about going public now,” Celniker said.

One factor is literally the time of year that you're raising and where your performance has been and what you're bringing and how binary to your platform are the [company’s] events. So, I think that there is sort of an algorithm that every company has to go through when they ask themselves about going public now, because one thing I don’t think is going to happen again for a long, long time is the 2013/2014 bubble. I just think that a lot of people learned a lot during that time, but I do think there is public money available and I do think there's reasonable crossover money available.

[At Third Rock,] we actually start companies, so we're constantly looking at the landscape of technologies and we invest in very early-stage companies. The way that we finance is to say we're going to put a fairly large amount in – $35m, $45m or $55m – to get you to an inflection point. We're going to help build that company so that we know what’s happening with that money; we're going to bring in full-time management teams; and then what we really believe is necessary is a strategic alliance that reduces the dilution in your subsequent funding, but also validates and gives you the opportunity to either cross over into a public financing or into some sort of transaction.

I think that when we think about the macro environment, and this whole focus on drug pricing, we like to flip it over and talk about value. I'm chair of the [Massachusetts Biotechnology Council (MassBio)] and we spend a lot of time helping our companies talk about value rather than price. I think that that's where the commonality between all the innovators and all the different investors really comes in: How do we describe the value? Because the government and payers are all focused on value.

Scrip: In terms of the pricing and value discussion, how do you expect that to change? Because value is a much more nuanced conversation than price, and under the incoming administration I'm not sure that nuance is well received. But do you see that conversation changing? It's taken a long time to get to this point of talking about value and trying to be more open about it and what it means, and now it could be a more difficult discussion to have, at least in the political arena where the issue has the most prominence.

Celniker: In some people’s minds – and there are a lot of think-tank groups doing a lot of work on this – they are confused about the pharma industry, which is one of the only industries where your price increases over the years, as opposed to you come in at your top price and then come down. So we increase, increase, increase until we hit our generic or biosimilar point in time and then you see the prices come down. There are ways that we can think about pricing and value intersections in the shape of that pricing curve.

But I think that the other aspect of how we do our clinical trials, for example, is that we're very, very focused on the endpoints that get us approved. And for years, at least in the United States, we've been talking about how do we talk to CMS [the Centers for Medicare and Medicaid Services] or other agencies about the endpoints that will get us priced, and CMS has increased the number of resources that they have on the medical side to actually think about the difference that these drugs are making in people’s lives.

I can't say that NICE [the UK’s National Institute for Health and Care Excellence] or some of the other agencies are doing exactly the same thing, but we've gotten used to starting dialogues with the health authorities on the approval side very early and we go for pre, pre, pre-IND meetings and we have conversations with them about how can we start the conversation on pricing and value sooner. There may be endpoints that we can engineer into some of our studies that will help give more of the softer side of things. A lot of times in pain, especially, people talk about “presenteeism” – not just, “Do you go to work?” but, “Do you go to work and are you productive?” So, I think that we have to really expand our horizons beyond the endpoints for registration to the endpoints for pricing that are showing that value.

“We have to really expand our horizons beyond the endpoints for registration to the endpoints for pricing that are showing … value,” Celinker said.

Mohindru: I think you bring up a very good point and working in a company now, I can say it is very difficult to change that mindset. I'm a big proponent of telling them, even for oncology, that quality of life endpoints are very important, not just hitting your tumor shrinkage endpoint. I think that's one thing that's absolutely needed and I think the FDA is open. [In terms of] drugs that got approved based on quality of life, rather than disease improvement – for example, for Incyte’s Jakafi (ruxolitinib), which is a JAK inhibitor for myelofibrosis, all they showed was spleen shrinkage and all that did was relieve symptoms to the patients; it really didn’t treat the disease.

So, I think that the regulators are open to it, but as a small company with pressures from your investors you are so endpoint-driven. What endpoint would get you approved faster or what SPA [special protocol assessment from FDA] can you get? That's a mindset that needs to change industry-wide.

From a pricing-versus-value perspective, there are models out there – there are pharmacoeconomic models out there – about how long can you keep a patient outside the hospital. Now there are therapies like CAR-T [chimeric antigen receptor T-cell] therapies, where they have revolutionized the way we treat the diseases, but you have to compare it versus stem cell transplant – the post-transplant complications, the cost to the health care system. There you can sort of, with the new administration, be less nuanced and more data-driven.

In Europe, there are some forms of this. NICE is another extreme. I'm not saying to go to that model, but there are clearly examples out there where they are doing it. But I think there needs to be more effort in the US to start talking about pharmacoeconomic models and show whether you can reduce hospital stays, hospital infections and even the benefit of orals versus injectables. Somehow, you have to start talking about it, because as much as we want to shy away, as drug companies, from talking about prices – especially the younger ones, like us, as we're not quite there – this has to be a sustainable solution.

White: Corbus is a tiny company and we focus a lot on creating value … and value from different people’s point of view. There's value from the patient’s point of view, value from your investor’s point of view, value from the regulator’s point of view, value from the payer’s point of view and they overlap at different places, and we have to be cognizant of all of those.

“That's our strategy,” Corbus’s White said, “we decided to focus where it's easier to define value from a patient point of view.”

In our case, when we think about value from the patient’s point of view we focus on rare uncommon diseases. There aren’t approved treatments for several of the diseases we're in – they're deadly diseases, they're serious diseases, they're life-threatening diseases. So if we have something that shows some clinical benefit, that's real value. So that's our strategy – we decided to focus where it's easier to define value from a patient point of view.

From a regulatory point of view, it's a little more difficult when you go down a path that hasn’t been trod before, because there's less certainty about what the outcomes are going to be. Again, we have to focus on: “How can we be sure about which outcomes are meaningful? How do we show that they're robust by supporting them with secondary outcomes?”

When it comes to the payers, I think pricing concerns are always there and they will rise in the rare disease areas. At the same time, if you have patients and they have a rare disease that's going to kill them and there's a new drug, they're likely to pay for it.

It's a very different approach than if you're developing a drug for asthma or diabetes or COPD [chronic obstructive pulmonary disease]. So, for us, we focus there and then the investors just pick up on each of those. If we take care of the first three, the investors will take their own look into what appeals to them.

[Editor’s note: The discussion has been lightly edited for length and clarity. The final portion of the discussion will be published in the coming days.]