COLUMN’S CREATIONS FINANCE

STRATEGY
EMERGING
COMPANIES
REGULATION
FINANCE
FINANCE
COLUMN’S CREATIONS
BY JENNIFER RHODES, STAFF WRITER
Including milestones, Bristol-Myers Squibb Co.’s takeout of Flexus
Biosciences Inc. late last month is enough to return the capital of The
Column Group’s entire second fund. While it’s the third quick exit
for TCG, the VC remains focused on creating and building platform
companies it intends to hold for the long term.
“We spend very little time looking at existing companies and close to all
of our time just starting two to three companies a year around an exciting
new area that we think will be a fruitful area to be doing drug discovery
in 5-10 years’ time,” said founder and Managing Partner Peter Svennilson.
The firm likes early stage drug discovery based on “unique scientific
platforms with the potential to deliver multiple breakthrough
therapeutics,” he said.
“Each successful company should be able to return the whole fund,
because we only have 8-10 bets,” per fund, he added.
TCG closed its first fund with $260 million in 2008 and its second last
October with $322 million.
Svennilson said the returns from each of its exits, including the milestones,
is enough to cover all the capital of the fund from which it came. Two exits
came from the first fund, while the Flexus exit came from its new fund.
TCG has put $15 million into Flexus since its launch less than two years
ago and led the company’s tranched $25 million series B round last year.
BMS is buying the cancer immunotherapy play for up to $1.3 billion,
including $800 million up front, in a deal slated to close this month. On
the upfront portion of the deal, TCG will see a 14x return, about $208
million; including the milestones, the firm would see over 21x, or about
$325 million.
The other two exits were prostate cancer company Aragon
Pharmaceuticals Inc. and Aragon spinout Seragon Pharmaceuticals Inc.
Johnson & Johnson bought Aragon in 2013 for $650 million up front
and up to $350 million in milestones. TCG invested about $25 million
in Aragon, which was founded in 2009, and owned about 23% at its
acquisition.
Roche’s Genentech Inc. unit acquired breast cancer play Seragon last year
for $725 million up front and up to $1 billion in milestones. TCG invested
about $8 million in Seragon in late 2013 and owned about 23% at the time
of its acquisition.
“We wouldn’t have thought we’d have an exit so soon in our fund,” said
Svennilson. “When we raised our first and second fund, we told our
investors that they needed to be very patient, that we were building
companies over a horizon of 10 years and that they should not expect to
get any early returns.
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“It happened we got these bids, but that was luck, and we would have
continued building those companies over the long term if we hadn’t been
lucky to get early interest from pharma,” he said.
TCG’s LPs include a large, undisclosed university endowment, sovereign
wealth funds and several large family offices. Several of the LPs also coinvest in the firm’s portfolio companies “at a later stage when they can
better evaluate where the company is and what the upside and risks are,”
Svennilson said.
“We have quite a focused group of investors who know us well and know
our strategy and know our focus of building companies and value, but over
the long term,” he said.
“EACH SUCCESSFUL COMPANY
SHOULD BE ABLE TO RETURN
THE WHOLE FUND, BECAUSE WE
ONLY HAVE EIGHT TO 10 BETS.”
PETER SVENNILSON, THE COLUMN GROUP
COMPANY CREATION
TCG has four full-time partners and a team of six science partners who
together come up with ideas for creating and building companies with the
goal of launching two to three product engine plays per year. Svennilson
said the firm targets an investment of $30-$40 million per company.
The firm’s other three partners include Larry Lasky, a former Genetics
Institute Inc. and Genentech scientist who was later at VCs Latterell
Venture Partners and U.S. Venture Partners. David Goeddel was cofounder and CEO of cancer company Tularik Inc. and then senior
scientific VP at Amgen Inc., which acquired Tularik. And Tim Kutzkey
was a scientist at KAI Pharmaceuticals Inc., another Amgen acquisition.
“We don’t look at deal flow or potential investment opportunities. We’d
rather come up with our own ideas for companies and make sure they’re
staffed with people we know well from the past,” said Svennilson. “We
typically want to see a rich pipeline of programs for our companies, and
not just sort of one lead drug.”
It was Goeddel’s connections with Flexus’ management that led to TCG’s
investment in the company. Goeddel had worked with Flexus CEO Terry
Rosen and President and Head of R&D Juan Jaen, while at Tularik and
later at Amgen.
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“We knew them well, and we felt that it was as good as a company we
had started ourselves,” said Svennilson, adding that it was a “very good
example of how we want to build our companies.”
Flexus is going after several targets in cancer immunotherapy and has
multiple platform technologies.
“We come up with our ideas in constant brainstorming sessions with our
science partners,” he said.
“We challenge each other to come up with the new breakthroughs in
development that will yield the most exciting areas for research over the
next 5-10 years. That’s how we started NGM, to go after the observation
in bariatric surgery that the metabolic syndrome had been alleviated. It’s
how we started Constellation.”
Epigenetics play Constellation Pharmaceuticals Inc. is developing small
molecule inhibitors of epigenetic targets, including a lead compound in
Phase I testing targeting BET bromodomains. Genentech has an option
to acquire Constellation under undisclosed terms.
NGM Biopharmaceuticals Inc. is using its high throughput discovery
platform to discover biologics for diabetes, obesity, muscle wasting and
other cardiometabolic diseases.
“When we went into metabolic disorders, not many other venture
investors were investing in metabolic disorders because of the clinical
development times and the cost of developing these drugs as a small
biotech company,” said Svennilson. “But we found the research in that
area was very exciting and novel and didn’t hesitate to build a company
like NGM.”
Last month, NGM and Merck & Co. Inc. announced a deal that gives
Merck options to license multiple preclinical candidates from NGM,
including cardiometabolic and cancer programs. Merck will pay NGM
$94 million up front, purchase a 15% equity stake for $106 million, and
provide up to $250 million in R&D funding over five years.
It’s not an exit, but Svennilson said the deal will pay for most of the costs
of developing NGM’s pipeline over the five years. “We intend to see this
partnership through and see what the company looks like then,” he added.
TCG has invested roughly $50 million in NGM, making it the largest
stakeholder, with about 21% of the company; Merck is now the second
largest investor.
Other portfolio companies from the first fund include cancer vaccine
play Immune Design Corp., which raised $60 million in an IPO last year,
plus cancer companies Igenica Inc. and Peloton Therapeutics Inc. and
ubiquitin proteasome play Nurix Inc.
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COMPANIES
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Svennilson said the firm has so far closed down one company, which was
developing a prodrug approach for cancer. TCG invested $4.5 million in
Cyterix Pharmaceuticals Inc. before winding down operations.
SECOND COLUMN
The firm has made five investments from its second fund. Besides Flexus
and NGM, the portfolio includes oncogene play Effector Therapeutics
Inc., which Lasky helped launch while at USVP.
TCG has disclosed few details on the two newcos launched from the
second fund. One is cancer company ORIC Pharmaceuticals Inc.,
which Svennilson said is working on overcoming resistance mechanisms
in cancer. The other is CNS play Neurona Therapeutics Inc., which is
based on science from the University of California San Francisco on
interneurons and neuronal stem cells.
“We don’t need to see a drug lead program crystallized early on,” said
Svennilson. “We bet on the people and the quality of the research and see
what comes out of it over the longer term.”
COMPANIES AND INSTITUTIONS MENTIONED
Amgen Inc. (NASDAQ:AMGN), Thousand Oaks, Calif.
Bristol-Myers Squibb Co. (NYSE:BMY), New York, N.Y.
The Column Group, San Francisco, Calif.
Constellation Pharmaceuticals Inc., Cambridge, Mass.
Effector Therapeutics Inc., San Diego, Calif.
Flexus Biosciences Inc., San Carlos, Calif.
Genentech Inc., South San Francisco, Calif.
Igenica Inc., Burlingame, Calif.
Immune Design Corp. (NASDAQ:IMDZ), Seattle, Wash.
Johnson & Johnson (NYSE:JNJ), New Brunswick, N.J.
Merck & Co. Inc. (NYSE:MRK), Whitehouse Station, N.J.
Neurona Therapeutics Inc., San Francisco, Calif.
NGM Biopharmaceuticals Inc., South San Francisco, Calif.
Nurix Inc., San Francisco, Calif.
ORIC Pharmaceuticals Inc., San Francisco, Calif.
Peloton Therapeutics Inc., Dallas, Texas
Roche (SIX:ROG; OTCQX:RHHBY), Basel, Switzerland
University of California San Francisco, San Francisco, Calif.
REFERENCES
Cukier-Meisner, E. “ARrangement for antagonism.” BioCentury (2013)
Cukier-Meisner, E. “Less unSERDainty.” BioCentury (2014)
McCallister, E. “Playing turnabout.” BioCentury (2010)
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