Amira Pharmaceuticals CEO Bob Baltera has gotten lots of questions lately from his fellow biotech entrepreneurs, which all basically go something like this:
“How did you do that?”
Baltera has certainly had a lot to talk about since late July when Amira agreed to be acquired by New York-based Bristol-Myers Squibb (NYSE: BMY) for $325 million in upfront cash, plus $150 million in future milestone payments. This is one of those rare stories in which a startup drug developer and its shareholders were richly rewarded for bringing an experimental drug through the first of three phases of clinical trials—leaving plenty of risky hurdles left to clear. Other big acquisitions this year in biotech—Berkeley, CA-based Plexxikon, Woburn, MA-based BioVex, and Seattle-based Calistoga Pharmaceuticals—went much further along in development before getting their paydays. Even so, the company’s VCs—Versant Ventures, Prospect Venture Partners, Avalon Ventures, Novo A/S—made a more than 10-fold return on their Amira investment on the upfront cash payment from Bristol alone. Amira raised only about $28 million in venture capital since it was founded in 2005.
It’s an unusual story in biotech drug development, given that only one out of 10 drugs makes it through clinical trials, and the whole process tends to take truckloads of money and excruciatingly long timelines. Knowing all that, Big Pharma companies have often been reluctant to write big checks at such an early stage for programs like Amira’s.
But as lucrative and unusual as the Amira deal might seem at first glance, it’s even more favorable to the company than was reported in the initial July 21 press release. It turns out that Amira and its investors only agreed to sell its drug development program that inhibits a biological pathway known as LPA1. The program includes Amira’s lead drug candidate AM152 and some backups, which are thought to have promise against pulmonary fibrosis, systemic sclerosis, and scleroderma. But Amira and its shareholders were able to retain Amira’s ownership rights to two other drug development programs in the works—one against a pathway known as FLAP, and another called DP2. So the former Amira has set up a couple of independent companies, established as limited liability corporations (LLCs), which will continue to hold equity in those drug programs as they advance through development. The DP2 company is being called Panmira, while the other one still just has the placeholder name—FLAP LLC.
If either of those programs pan out, then Amira’s founding executives and investors could get a second set of windfall payments.
“As an investor, this is a dream scenario,” says Brad Bolzon, a managing director of Menlo Park, CA-based Versant Ventures, and Amira’s chairman.
Baltera and Bolzon chalk this one up to a combination of really rigorous science, one particularly hard-nosed business decision, and some excellent timing.
To recap, Amira’s lead drug candidate is for pulmonary fibrosis, a disease that’s best-known for damaging and scarring the lungs of first responders to the 9/11 terrorist attacks. There isn’t currently an effective FDA-approved treatment. The disease makes it hard for people to breathe and ultimately kills an estimated 40,000 people a year. While this is a relatively rare disease, Baltera has noted this is a “grievous illness,” which really means anybody who comes up with a good drug could probably command a high price, and end up with a pretty sizable market opportunity.
Amira’s founding scientists certainly know a lot about diseases of the lungs. Peppi Prasit, Jilly Evans and John Hutchinson were part of the team at Merck that developed the $5-billion-a-year blockbuster montelukast sodium (Singulair) for asthma. No major innovations have come along to really improve the quality of life for pulmonary fibrosis patients—and it’s traditionally been a disease that’s hard to diagnose because of its similarity to other lung diseases. But the biology of the LPA1 pathway (which I wrote about here in March 2009) made it look like an intriguing target for drug development. As a niche market, this also looked like an area that a small company like Amira could pursue with a modest amount of cash, Baltera recalled.
So Amira’s team went through its methodical paces like they did at Merck, screening a number of small-molecule drug candidates. And true to their Big Pharma roots, they spent extra resources continuing to invest in backup compounds in case the first one failed, and alternative compounds designed to hit closely related biological targets. It’s a rigorous approach that many cash-strapped biotechs often can’t afford to follow, as most of the resources go toward one lead drug. But the process that Amira followed, which some might consider a luxury or a belt-and-suspenders approach, was critical in creating an auction among pharma companies for the Amira program, Bolzon says.
“As a small company, you have to almost be better than the programs out of Big Pharma. You don’t have the ability to muscle it through with greater resources,” Bolzon says. “And if there are any warts on it, someone in a 30-40 person Big Pharma diligence team will pick it up.”
Financially, Amira was able to pursue this broad and deep understanding of its compounds and their LPA1 target, partly thanks to a sugar daddy—GlaxoSmithKline. The London-based pharma giant helped support Amira starting in February 2008, and helped float it during the Great Recession years, by agreeing to co-develop drugs for asthma against the FLAP target. That partnership still remains intact, Baltera says.
While the Glaxo deal mitigated Amira’s cash burn rate, Amira was still losing money like all startup drug developers. It toyed with the idea of going public to raise more cash once it had some Phase I clinical data. But the markets have shown no interest in companies with that still-risky profile. Instead of raising another round of venture capital that would have diluted existing investors and made it more difficult to get a big return, Amira made a tough decision to cut costs. It cut loose about half of its workers right before Thanksgiving 2010, reducing its staff to just 25 people.
“I don’t think any CEO or board enjoys making decisions like that,” Baltera says. “We had our ups and downs.”
Hard as it might have been for Baltera—and even harder for those affected—the layoff was strategically important for the company. By cutting the payroll, Amira never ran dangerously low on cash, so it was able to maintain a strong bargaining position. It essentially meant no Big Pharma acquirer could hold it over a barrel, offer some stingy deal terms, and wait for Amira to cave in just to get enough cash to keep the lights on. “We could stand on our own two feet and tell potential bidders we’ll be go forward independently,” Baltera says.
The financial independence meant that Amira was in good shape by the spring of 2011, just as Big Pharma started getting a lot more interested in pulmonary fibrosis. Amira had started gathering data from its first trial of healthy volunteers, which showed its drug was safe at a variety of doses. Meanwhile, another company, Brisbane, CA-based Intermune (NASDAQ: ITMN) enjoyed a stroke of good fortune when European Union regulators approved its new drug for pulmonary fibrosis, sparking a frenzy of investor interest in this disease category. As pharma companies looked around for other alternatives in this emerging drug category, there wasn’t a whole lot to pick from. Amira was one of the few startup companies out there with a serious program, along with Cambridge, MA-based Stromedix.
Apparently, the due diligence teams at Bristol and at least a few other companies (Baltera wouldn’t say how many bidders there were) liked what they saw in the Amira pulmonary fibrosis program. And by getting maximum bang out of a small research team, Amira was able to deliver the kind of returns that can actually help biotech VCs justify their existence.
While there’s no way Amira could have predicted back in 2008 when it started that Big Pharma would fall in love with pulmonary fibrosis in 2011, it did run its program to pharma’s usual standards, and stayed in the game long enough, and watched its pennies carefully, so it was in position to capitalize when the clouds parted.
“If this deal hadn’t happened, it wouldn’t have been the end of Amira,” Bolzon says. “This company was well prepared. It’s a real blueprint for companies going forward.”
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