Adimab Grows Up, Looks to Pay Off the VCs In Unusual Way

2/22/13Follow @xconomy

Adimab has raised a shade under $40 million in venture capital since it was founded in 2007. If things break the way co-founder and CEO Tillman Gerngross expects, this could be the year the VCs get their money bank without him going through the trouble of an IPO, or selling out to some Big Pharma company.

“This is an industry obsessed with liquidity events,” Gerngross says. “What we are doing is building a long-term, sustainable, private biotech company that is profitable.”

Adimab, the Lebanon, NH-based antibody drug discovery shop, has been laying the groundwork for the past six years to get itself in this position, to live life on independent terms the way few biotech companies ever do. Gerngross did the more traditional biotech thing at his last company, GlycoFi, a yeast-based protein production platform. That Lebanon, NH-based company raised traditional venture capital, and delivered windfall returns when it was sold to Merck for $400 million. It was the kind of experience that made it much easier for Gerngross to start another entrepreneurial venture like Adimab.

Antibody drugs, which can specifically home in on precise biological targets, have become a massive part of the biotech industry. Hit drugs like Genentech’s trastuzumab (Herceptin) and rituximab (Rituxan) and Abbott Laboratories’ adalimumab (Humira) have established new standards of care for patients in need, and they make up a drug category that’s worth more than $30 billion a year. As large, complex Y-shaped molecules, they are also far tougher for generic companies to copy, meaning they should have longer commercial lifespans than traditional oral pills like Pfizer’s atorvastatin (Lipitor).

Naturally, lots of companies want a piece of the antibody action, and are looking to small biotechs with capability to discover lots of potential product candidates.

Tillman Gerngross, co-founder and CEO of Adimab

Adimab, co-founded by K. Dane Wittrup and Errik Anderson, looked at this landscape and crafted an unusual plan from the start. What if instead of building an operation with one big future payday in mind, they could build a company that broadly disseminated antibody drug discovery technology across the industry to get multiple paydays? Adimab, from the start, was supposed to endure, not become a shiny new toy for some acquirer, and then end up suffocating and dying inside the colossus when priorities changed.

“We wanted to know how we could monetize without selling the company,” Gerngross says. “Based on our unique features, unique antibody libraries, we thought we could sell this essentially at least a couple of times. If it were true, we could create one of the very, very few privately held, highly profitable biotech companies.”

The idea seemed realistic the first few years, as a who’s who of pharma beat a path to New Hampshire to essentially do test drives with Adimab, to see if it could make exciting new antibody drug candidates against certain biological targets. Roche, Novartis, Merck, Eli Lilly, Pfizer, Gilead Sciences, and Biogen Idec were among those who signed up. On the basis of those deals alone, Adimab was able to grow to 70 employees, and even record a few profitable quarters here and there, Gerngross says.

Successful as it has been, Adimab still hasn’t recorded a full-year profit yet, Gerngross says. None of the massive technology transfer deals that Adimab envisions have materialized just yet. But two of Adimab’s early partners, Merck and Lilly, agreed to expand their partnerships with Adimab earlier this year. Those nibbles have convinced Gerngross that the company needs to be prepared when the big fish are ready to bite.

That’s why Gerngross and Anderson laid some key corporate structure for it to happen last year, when they converted the company from a traditional C-corporation into an LLC. The traditional structure makes a startup attractive for acquisition, but it has tax penalties for companies that intend to distribute profits to their shareholders. Adimab switched to the LLC structure because that was the one that would enable it to distribute profits to shareholders via a dividend, Gerngross says.

While Adimab doesn’t know how big such a dividend will be, Gerngross is predicting that the company will strike deals this year that will make the company profitable enough to pay back the $40 million that the VCs have sunk into the company in a one massive round of dividend checks. Once that happens, the venture capitalists—Orbimed Advisors, Google Ventures, Polaris Venture Partners, and SV Life Sciences among them—will essentially be able to keep playing with the house’s money. They’ll have gotten a return on their original investment, and they’ll retain their ownership stake in Adimab, which would enable them to get repeated returns every year when it’s time to collect the annual dividend, Gerngross says.

Like any drug discovery company, it will take years for Adimab to truly prove itself. The early years were about proving the technology can yield a large number of promising drug candidates against various targets the partners chose. It needed to show it could deliver the antibodies quickly, and that they had the right binding characteristics to give them a shot in clinical trials. But partners will only remain interested as long as some of those candidates get validated by successful clinical trials.

Adimab is still too early in this game to show that kind of proof to its partners, although one partner is approaching that stage this year. Cambridge, MA-based Merrimack Pharmaceuticals (NASDAQ: MACK) used the Adimab discovery platform to come up with three distinct antibodies that bind with different regions, known as epitopes, found on the EGFR receptor. Cancer researchers know that target well, because of Eli Lilly’s success with cetuximab (Erbitux), as a treatment for colorectal cancer. Merrimack’s notion is that three antibodies in a mixture called MM-151 could provide a more comprehensive blockade of the target, more effectively stopping the cancer’s ability to resist the existing antibody drug.

Antibody technology has been racing ahead the last few years, and Adimab has sought to keep itself in the mix for discovering variations on the theme, Gerngross says. While some in the industry want to make mixtures of antibodies like Merrimack, others are hotter for “bispecific” antibodies in which a single genetically engineered protein can bind with two different molecular targets instead of just one. Many other companies are keen to develop souped-up antibodies, known as antibody-drug conjugates, so Adimab formed a collaboration with Cambridge, MA-based Mersana Therapeutics to help it link antibodies to potent toxins. Although Seattle Genetics (NASDAQ: SGEN) and Waltham, MA-based ImmunoGen (NASDAQ: IMGN) are the established leaders in antibody-drug conjugate technology, with long lists of licensing partners, Gerngross insists Adimab can hold its own in the discovery of all different kinds of antibodies.

“If you want something antibody or antibody-related, we are more and more becoming the one-stop shop,” Gerngross says.

If Adimab can deliver on that, and it plays its cards right, it could end up being that rarest of birds—a profitable, independent, private biotech company in which the founders and employees control their own destiny. The VCs might leave the picture altogether after 10 years or so, Gerngross says. It’s possible to entertain that idea, he says, because Adimab’s founders and employees still retain about half of the ownership of the company, making a management-led buyout a possibility.

When asked how long he might want to run this show, Gerngross wouldn’t really say. Two years ago, he co-founded an Austria-based company, Arsanis, that seeks to develop its own antibody drugs for infectious disease. But most of his time and attention remains directed to the discovery of antibodies, leaving the long-term drug development to others. He seems happy to leave the impression that he might enjoy running a private, employee owned, profitable biotech company for a long time.

“Adimab’s a great company,” he says. “I have no other plans.”

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