Atlas Venture: It takes a village

May 27, 2015 ctheodoropulos

Atlas Venture pioneered the “built-to-buy” business model a few years ago knowing that it takes a village to build a successful biotech company—assuming that village is populated by innovative scientists, serial biotech entrepreneurs, risk-tolerant investors and biopharma partners with the wherewithal to take drugs from clinical development to commercialization.

That combination is aligned in Boston and will be present at BioPharm America™.

Built-to-buy

Atlas’ built-to-buy portfolio is based upon strong connections at larger biopharmas. “At their inception, these companies often already have a relationship with a pharmaceutical or big biotech company. That firm has signed off on the research or clinical plan and has agreed to buy the startup when specific milestones are reached,” explained Bruce Booth, D.Phil., partner at Atlas Venture.

“This model has no correlation to the public capital market,” he stressed. Exits are expected within two to three years and generate good returns without IPOs. Annovation Biopharma, for example, recently was acquired after completing Phase I testing, only 30 months after beginning its relationship with the Medicines Company, he says. Annovation had developed a novel, quickly-reversible, intravenous anesthetic that seems to allow precise control during administration. Dubbed ABP-700, it is designed for procedural sedation as well as general anesthesia. Its potential market is large. “The product should advance through the clinic easily,” Booth predicted.

In another example, Lilly spun out its migraine prophylaxis (the CGRP antibody dubbed LY2951742) to Arteaus Therapeutics for development. Arteaus, working with Atlas, raised three tranches of a Series A funding for single and multiple ascending dose studies and then Phase IIa point of care studies. At that point, Lilly reacquired the antibody and reintegrated it into the company. Arteaus took the project from IND to the completion of Phase II trials in less than three years.

Bruce Booth, Atlas Ventures

Bruce Booth, Atlas Venture

This type of R&D externalization helps pharmas access project financing and gain market feedback along with the entrepreneurial mindset and nimble management that are associated with startup companies. It also gives the acquiring company a voice in the early development of projects and experiments, thus ensuring they are aligned with their own needs and approaches. Consequently, promising assets can be developed quickly and then folded into the acquiring company for global development. Such externalization also helps acquiring companies avoid project bias.

“The build-to-buy model is incredibly enabling for young startups,” Booth said. “Companies have less need for a huge infrastructure and team, so they can be configured differently.” For example, rather than extensively hire in-house experts or build infrastructure, they can leverage some needed expertise and infrastructure from their biopharma partners.

And, Booth continued, “because they’re focused on early R&D, they’re very capital efficient.” That enables low-cost kill points for projects that fail. These projects also have very specific, unambiguous milestones, he said, along with a predetermined exit strategy if key milestones are met.

The benefits are clear for Atlas, too. Built-to-buy models promise a clear path to returns that typically exceed the investment by a factor of five. By leveraging existing expertise and infrastructure, built-to-buy companies are capital-efficient.

Then, because built-to-buy companies have a predetermined exit strategy and time frame, the risk is lowered and the investment period is shortened, thus providing faster return on investment and diversifying the overall venture investment portfolio. “About 20% of our portfolio is comprised of built-for-buy investments,” Booth said. The rest of the portfolio is made up of bigger drug discovery platform companies and asset-centric product plays.

Easy interaction

“Eight startups are incubating with us. They interact with each other,” he said, as well as with nearby companies, leading universities and major institutes in the area. “There’s huge connectivity and intellectual capital to create more interaction points.”

This proximity to resources means there are plenty of opportunities to ensure that foundational insights and technologies are reproducible in a capital-efficient manner, and to fine-tune protocols so they are straightforward before investing in scale-up. “This seed-led de-risking proves the science,” Booth said. “It bends the risk curve in our favor.”

Boston has long been a strong life sciences city, but “the seminal moment came in 2002 when Novartis moved its research headquarters here,” Booth said. “At that point, the game changed and nearly every major pharmaceutical company established outposts here. Now nearly every major company has a significant presence in Boston.”

As talent flows among organizations it produces confluence of expertise, providing the “right talent at the right time for the right company,” Booth said. “In business development, relationships matter.”

Few biotech startups

“The recent boom has been great for early stage biotech companies,” Booth said, in terms of IPOs and acquisitions. It hasn’t significantly affected the number of biotech startups, however. “For the past five years, only about 20 to 25 venture-backed companies started up each quarter in the US. That’s an incredibly small number,” Booth said.

Although the first quarter of 2015 saw record financing levels of USD 400 million (about double the norm) that averaged more than USD 14 million each, “there’s a supply/demand disconnect,” Booth said. “Few investors actually focus on venture formation, and there’s a real scarcity of talent.

“Risk-taking biotech entrepreneurs are very different from entrepreneurs in other sectors,” he explained. For example, he said, IT entrepreneurs may be tenacious 22-year-olds launching an app, while biotech entrepreneurs are more likely have 15 to 20 years’ industry experience inside larger biopharma R&D organizations. While both may have sizeable professional networks, motivation, sound product ideas and willingness to take risks, building a successful biotech company depends heavily upon experience.

That single factor limits the talent pool, Booth said. To fill this gap early on, Atlas, therefore, often becomes part of the acting management team of its seed-stage startups.

The differences between biotech and technology investors result in different investment philosophies and, therefore, contributed to the decision to create a separate company for Atlas’ technology investment services. “In the divorce, the biotech side got the Atlas name, and the tech side got the house (meaning the office),” Booth joked.

Atlas Venture moved into the 12,000 square foot penthouse space at 400 Technology Square in Cambridge a few months ago. Located in the heart of the biotech community, this new space will host about 25 staff members from six to eight startup companies that Atlas is incubating, as well as its own venture capital staff.

The decision to focus wholly on seed and early-stage biotech companies reflects Atlas’ commitment to do what it does best. With a portfolio divided fairly evenly between drug development companies focused on a new biology or modality and asset-centered companies focused on a single target, Atlas excels at creating value for very early-stage companies.

Booth will be looking for new opportunities and sharing his experience at BioPharm America 2015, appropriately convening later this year in Boston, September 15–17.

bpa15_banner_615x80

 

 

Related Posts

No related posts.

Previous Article
When de-risking, relationships matter
When de-risking, relationships matter

De-risking has evolved from literature searches to the cultivation of many wide-ranging relationships throu...

Next Article
Aisling Capital: Strategies to survive the boom
Aisling Capital: Strategies to survive the boom

The biotech industry survived the financial valley of death of the past decade and emerged into a figurativ...