Last week, Amgen has announced the completion of the acquisition of Nasdaq-listed German company Micromet Inc., valuing it in the proximity of US$1.2b. With this acquisition, Amgen has gained a Ph3 stage molecule (blinatumomab) in development for blood tumours, a Ph1 molecule for solid tumours and the BiTE platform, the underlying innovative antibody technology platform. First of all, as we obviously bow to Christian Itin, President & CEO, and his management team for having delivered Index Ventures and the other stakeholders a billion dollar exit, we especially congratulate him and the entire company for the real value they have created for the industry: the discovery and development of a new breakthrough approach that could potentially help various groups of cancer patients. And now, in the hands of Amgen, this could become reality.
How did the company get here? What was its trajectory on the way to become a major European biotechnology company?
Micromet was founded in the first half of the nineties, as a spinoff of the immunology department of Munich University and incorporated in 1998. As most often happens, the company was started on a different technology from the one that has driven it's value today. After a start as a cancer diagnostic company, Micromet moved on developing a pipeline of new antibody molecules, using existing platform technologies, in the same years when Genmab (an Index Ventures-backed company), Medarex, Abgenix and Cambridge Antibody (CAT) were also developing pipelines of fully human antibodies. Backed by first tier venture capitalists, the company started its normal exploratory life as a private company, broadly exploring different technologies and business models. In the years between 1996 and 2001 a number of venture rounds were secured by the company, raising a total of approximately US$ 60m: the main asset back then was a classical antibody (MT201) and it was followed by other earlier stage molecules.
For good or bad reasons, we at Index had declined to invest at every single round of venture financing. In 2001, a new asset had started to appear on the Micromet pipeline table: MT103 (soon to be renamed blinatumomab). The relevance of this asset was also driven by the fact that it was derived from a very innovative antibody technology platform, being developed by the company, in parallel to the main classical antibody business. Just very briefly, the new antibody platform was called BiTE, for Bispecific T-Cell Engagers), to describe a very unique feature of these novel antibody molecules: differently from the classical ones that only have the capacity to bind to the antigen on the cancer cell (single specifity), the BiTEs are also artificially equipped with an extra molecular hook, able to bind T-Cells, the ultimate effectors in blood of the destruction of foreign agents. In doing so, the BiTE antibody was predicted to be able to drag and force the effector molecule to the cancer cell, which was still targeted by the other usual binding specificity as any other antibody (hence "bi-specific").
Very neat and powerful science, but still the secondary focus of the company. Over the following years, the company found more and more difficult to keep on raising money from private investors, as the most advanced lead molecules had not yet achieved the critical point of "proof of concept". In 2006, Micromet reverse merges into Cancervax, a US public company, with approximately US$30m in the bank and a light pipeline. The Micromet management team takes the leadership of the combined company while the Micromet shareholders control two thirds of the share capital. This is approximately 10 years after the first venture capital has been raised. The resulting combined company has a market value of approximately US$ 120m, despite having raised close to US$ 100m. In the following couple of years, the company raises an additional 30m USD, but life is still uncertain. Then something happens.
In August 2008, Prof Bargou et al., publish the first results from the clinical testing of MT103 (the first BiTE molecule), showing the first very impressive responses in patients. This is it: I still remember vividly when Steve and Patrice, two brilliant MDs that drive oncology investments strategy at Index, claim they would bet their houses on the molecule. We invest, finally, for the first time, and anchor the US$40m PIPE of October 2008. Since that moment, the company raises approximately an additional US$ 220m, over various financings, consuming half of it, before the US$1.2b acquisition by Amgen. Arguably this value is largely driven by this single molecule, MT103, now renamed blinatumomab, but not only. The platform technology is now validated and the trick of the “extra hook” could possibly be applied to many other cancer indications. What do we make of all this?
First of all, celebration to the management team and the CEO : Christian Itin. Experienced entrepreneur, smart scientist, believer, and great executive leader. He joined the company in 1999, as VP Business Development, and was appointed CEO in 2004. Since then, great leadership skills and tight focus on goals. This guy will probably be a first level figure in the biotech scene for many years to come. Secondly, let's look at the financial metrics. Over its lifetime, the company has approximately burned US$ 250m, maybe something more. If we place the key defining event of the company’s fortunes in August 2008, when proof of concept (POC) is achieved, then we come to realize that around half of the US$250m were burned before POC and half after POC.
For simplicity, the US$125m burned before 2008 had been invested in many different exploratory technological efforts and various lead molecules and a minority in blinatumomab. This is the natural cost of “exploration”. Conversely the US$125m expensed since early 2009 were largely invested in the lead BiTE program. The first “explorative” US$ 125m had brought the company to a market valuation of approximately US$100m, the second “focused” US$125m, have driven the company to the billion dollar exit value. The “explorative” cash is what makes early stage biotech investing challenging. Clearly the second part of the story would have not happened without the explorative phase, so the answer to solve the issue of early stage investing is not to cut the exploratory part.
Leaving Micromet aside, an increadibly well run company, let’s look more broadly at the issue of the generally bad returns on exploratory research: let’s make sure that at least we realize that we have to find ways to limit the cost of exploring wrong avenues as much as possible, and that we need to think very hard about financing models and sources of capital to optimize it, avoiding to capitulate to the “this is the nature of the beast” argument. In the meantime, congratulations to Christian and Micromet: they have delivered immense value to the whole community. And congratulations to Amgen for the smart move.
*Follow Francesco on Twitter: @fderubertis