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How Seragon CEO Rich Heyman Made Lightning Strike Twice in San Diego

Xconomy San Diego — 

The Fourth of July was no picnic for the legal team at San Diego’s Seragon Pharmaceuticals. While other San Diegans were relaxing during the long holiday weekend, they were working through mountains of paperwork and filing notifications related to the $1.7 billion buyout offer from Genentech that Seragon had accepted a few days earlier.

For most of them, it was déjà vu all over again. The same legal team also worked through last year’s Independence Day holiday on Johnson & Johnson’s $1 billion acquisition of Seragon’s predecessor company, Aragon Pharmaceuticals.

“I joked with our lawyers, because literally a year ago on the Fourth of July weekend we were in the thick of the Johnson & Johnson deal,” Seragon CEO Rich Heyman said. “I semi-promised our guys, wink-wink, that a year from now I wouldn’t make them wreck their Fourth of July three years in a row.”

As the founding CEO of both Aragon and Seragon, Heyman found a way to make lightning strike twice in the same office building in San Diego’s Del Mar Heights. Before selling Aragon, which had developed a new drug for hormone-driven prostate cancer, Heyman spun out Seragon to advance a similar, pre-clinical program for metastatic, hormone-driven breast cancer.

“These are two really big deals,” said Jon Norris, a managing director at Silicon Valley Bank who has tracked the sale of private, venture-backed biotechs across the U.S. since 2005. Each would rank in the top 10 of such deals, Norris said. Put together, the sale of Aragon and Seragon may set a new high for value creation at a private, venture-backed biotech.

“It’s amazing to me how quickly he was able to do two deals,” said Bob Baltera, who knows something about beating the odds in life sciences M&A. As the former CEO of San Diego’s Amira Pharmaceuticals, Baltera oversaw Amira’s sale to Bristol-Myers Squibb in 2011 for a total of $475 million. Amira also kept some other drug candidates out of its deal with BMS, which led to the creation of two new companies, Panmira Pharmaceuticals and Inception Sciences.

There are a few examples of similar deals—Amgen spun out Redwood City, CA-based Relypsa about four months after acquiring Ilypsa in 2007, and the co-founders of Peninsula Pharmaceuticals went on to start Cerexa with several antibiotics from Peninsula’s drug portfolio after Johnson & Johnson acquired Peninsula in 2005. Both of those spinouts, however, came after big pharma had closed on its buyout.

At Aragon, Heyman said an early “aspirational goal” was to find a big pharma buyer that would consider letting Aragon’s core team start over with the pre-clinical drug for breast cancer that was still in Aragon’s pipeline. “We really tried to prospectively find companies that would be open to that,” Heyman said in a recent phone interview.

Johnson & Johnson proved to be ideal because J&J already had developed a global sales-and-marketing infrastructure for abiraterone acetate (Zytiga), a prostate cancer drug that reaped $1.7 billion in sales last year. J&J wanted to build its brand as a leader in prostate cancer drugs, and was willing to let Aragon spin out its follow-on drug for breast cancer. Other potential buyers that showed interest wanted both of Aragon’s drug development programs, Heyman said.

Baltera said he’s also amazed that Aragon’s VCs returned to re-invest in Seragon. “To their credit, all of [Heyman’s] investors were willing to stand by him,” Baltera said. When Seragon raised $30 million in initial funding last fall, the Column Group, OrbiMed Advisors, Aisling Capital, venBio, and TopSpin Partners all participated.

Usually, venture investors “really don’t like to roll one investment over into another one,” Baltera explained. “It’s hard to pull off, given the dynamics of venture investing.”

Rich Heyman

Rich Heyman

Heyman nevertheless managed to get all the variables in alignment. “We always felt this was kind of like having your cake and eating it too, because we were so excited about that second potential program,” Heyman said. “That’s why we were trying to set that up.”

“He is representative of what life sciences in San Diego is all about,” said Jay Lichter, a life sciences partner with San Diego-based Avalon Ventures. “He’s a fantastic scientist, and a great CEO, and he’s scrappy in the way that life sciences in San Diego is scrappy. He sticks to hard science, and creates value with as little money as possible.”

As Heyman tells the story, Aragon and Seragon were based on new insights in hormone-driven cancers that came out of the lab of Charles Sawyer, a Howard Hughes Medical Institute Investigator at New York’s Memorial Sloan-Kettering Cancer Center. Sawyer was trying to understand why some hormone-driven prostate cancers eventually become resistant to drugs like bicalutamide (Casodex) that block hormone-signaling pathways.

In the process, Sawyer saw an opportunity to develop a new generation of drugs that would block androgen hormones like testosterone from “switching on” tumor growth much more effectively than first-generation drugs like bicalutamide. These second-generation drugs would not only bind more tightly to hormone receptors—“like superglue,” Heyman said—they also would degrade the hormone receptor itself beyond repair.

Aragon was founded in 2009, after Heyman got a cold call from Sawyers and Rick Klausner, who was then a managing partner with the Column Group, a life sciences VC firm. “They were thinking primarily about going just for prostate cancer,” said Heyman, who had worked on hormone receptors as a postdoc in Ron Evans lab at the Salk Institute.

Instead of focusing only on prostate cancer, however, Heyman recalled that he saw how a similar mechanism of action would explain why some women with hormone-driven breast cancer eventually fail hormone inhibitors like tamoxifen, as well as aromatase inhibitors that  block the production of estrogen. From the beginning, Heyman said he viewed the development of second-generation drugs for hormone-driven breast cancer as equivalent to the program Sawyers and Klausner envisioned for prostate cancer. Heyman built the research team Aragon needed to pursue both areas, and when Aragon began early stage clinical trials in men with metastatic, hormone-driven prostate cancer, the company was building a parallel program in breast cancer at the same time.

“We were actually always very excited about the second program,”Heyman recalled. “It was not sitting on the shelf. In our case, some of our investors said when they invested in our company, ‘I actually like your second program as much if not more than your first.'”

By 2012, Aragon’s mid-stage trials of more than 120 men with prostate cancer “were very encouraging,” Heyman said. But Aragon would need about $100 million to advance the program to a 1,200-patient, late-stage trial. The options he laid out for Aragon’s board included additional fund-raising, establishing a Big Pharma partnership, and selling the company.

After Aragon and J&J had agreed on terms for the buyout, Heyman said, “People literally went home over the weekend; they kept me on as the sole employee over the weekend, and then 25 of the 40 we had at Aragon came back to work on Monday. We gave them all new employment contract as Seragon employees. Same office, same labs.”

After raising $30 million from its investors last August, Seragon began early stage clinical trials this spring with about two dozen women diagnosed with estrogen-receptor-positive metastatic breast cancer who had failed multiple lines of therapy.

“The idea at that point was to build a company that was heavily committed to breast cancer,” Heyman said. But a few companies knew about our breast cancer program.” One thing led to another, and Seragon was soon deeply involved in buyout negotiations with Genentech, the headquarters for parent Roche’s U.S. pharmaceutical operations.

So what’s next for Heyman?

“I’ll help Genentech through this transition because that’s what we’ve agreed to do, and we’re excited to do it, he said. After that, “We’ll probably stay involved in the San Diego biotech community. We love it here.”