Tiny biotech RaNA Therapeutics brought in Wall Street-savvy CEO Ronald Renaud last year, and today the startup announced its biggest round of funding to date led by an investor whose past ties to Renaud ended with a surprising and lucrative exit.
Under Renaud, Cambridge, MA-based RaNA has raised a $55 million Series B round, its first financing since its $20.7 million haul in 2012, when it was led by founding CEO Art Krieg.
Renaud steered hepatitis C drug developer Idenix Pharmaceuticals to a $3.85 billion sale to Merck in June 2014, and now he has has recruited a past Idenix investor into RaNA’s latest round. The Baupost Group, a Boston hedge fund manager that built up a big position in Idenix, co-led the $55 million round with MRL Ventures, an early-stage therapeutics fund run by drug maker Merck (NYSE: MRK).
Renaud says the Series B cash announced today will help fund the preclinical work needed to get at least two programs into human trials in 2017. So far the company has touted potential therapies for spinal muscular atrophy and Friedreich’s Ataxia. These therapies are RNA-based drugs meant to switch back on genes that are silenced in certain diseases, and thus don’t produce critical proteins (like spinal motor neuron in the case of people with SMA, and frataxin for those with Friedreich’s).
Renaud says Merck and RaNA had been talking before he came aboard in December. Merck has a long track record of interest in RNA-based drugs, going back to its buyout of RNA interference player Sirna Therapeutics almost a decade ago, and more recently via an equity stake in Moderna Therapeutics, which is developing messenger RNA drugs.
But Renaud could look to his rolodex for other calls he had to make. “A lot of what executives do in this industry is leverage relationships and past discussions,” he says.
Along with Baupost, other so-called “crossover” investors joined the round: Rock Springs Capital Management, Brookside Capital, Leerink Partners, and an unnamed “blue chip investment fund,” according to the company.
Backers like these are often an indication that a startup is laying the groundwork for a future IPO. In some cases, that future arrives quickly. Seres Therapeutics (NASDAQ: MCRB), for instance, closed a $48 million round from crossover backers in December and priced an IPO in June.
Other Boston-area biotech startups potentially heading down that path with crossover-fueled Series B rounds include Dimension Therapeutics, Voyager Therapeutics, Jounce Therapeutics, and Unum Therapeutics; some have hinted that an offering is on the horizon.Renaud declined to drop IPO hints, saying instead he’s focused on building RaNA “brick by brick.” It’s about to move into a bigger headquarters on Cambridge’s Sidney St. in September and hire more employees. “Going public or whatever strategic initiative we want to do corporate-wise down the road will only come as a byproduct of building a great private company,” he says.
Although there is precedent during the boom for a preclinical RNA-focused biotech going public, RaNA is still a long way away, some two years, from its first clinical test. It’s also refining its strategy.
Renaud says RaNA is exploring fields like immunology, immuno-oncology, and liver disease, trying to find the right strategic fits to take forward. The hope, he says, is to build preclinical programs in three or four more diseases over the next year and a half to prove the breadth of RaNA’s technology.
“We want to be able to do this as broadly as possible,” he says.
Renaud is also wrestling with RaNA’s corporate structure. The company is set up as a limited liability company—basically a holding company, making it easier to sell off individual drug candidates or groups of them to partners who don’t want to buy the entire company. When times were lean during and after the Great Recession, VCs believed these structures would help generate quicker exits through acquisition. But times have changed, money is flowing into the sector, and Renaud says RaNA’s LLC framework is “currently under evaluation.”
“As you bring more public investors in, you have to spend more time focused on whether or not that structure is the right one for the long term,” he says.
When Renaud became CEO of RaNA in December, the startup had been operating without a CEO for about a year. (Krieg stepped down in late 2013 and was later named the chief scientific officer of Sarepta Therapeutics—a move that didn’t end well.)
The company is pursuing an unproven method of developing drugs. It’s mining so-called “junk DNA”—a bunch of DNA sequences that don’t code for proteins and were thus once deemed useless—for drug targets.
Recent research has shown that junk DNA is transcribed into “long non-coding RNAs” (lncRNA), which, far from useless, actually help turn gene expression on and off. Sometimes when these RNAs switch a gene off, a key protein isn’t created, and disease occurs. RaNA’s goal is to find these cases, target the single lncRNA responsible, and reverse the process.
RaNA’s existing investors Atlas Venture, Monsanto, MS Ventures, Omega Funds, Partners Innovation Fund, Pfizer Venture Investments, and SR One (the VC arm of GlaxoSmithKline) also participated in the round. MRL president Joshua Resnick has joined RaNA’s board as part of the funding. RaNA has now raised about $90 million in venture cash since its inception, according to Renaud.