Crossover investors—institutions that back both public and private companies—have been piling money into biotechs over the past few years. Today you can add Selecta Biosciences to the list of crossover-cash recipients, and pencil the Watertown, MA-based company as a future IPO candidate to boot.
Selecta, a developer of nanoparticle technology, has raised a $38 million round to get its first drug, a potential gout therapy called SEL-212, through its first clinical trial. Selecta has added a group of new backers in this latest round, among them the VC arm of Sanofi (Sanofi-Genzyme Bioventures), and several crossover investors including OrbiMed, Ridgeback Capital Management, and Osage Partners. The company’s existing backers, which include Polaris Partners and Flagship Ventures, also took part.
The raise comes at a time when crossover investors continue to pour cash into private biotechs, even through August, which was an ugly month for the public biotech indexes. These rounds tend to be a prelude to an IPO, and as Alex Lash noted last week, there are at least two dozen private biotechs that have raised crossover rounds since the start of 2014. Some, like CytomX Therapeutics and Edge Therapeutics, have already filed to go public. Several others could soon follow.
Selecta has taken a different route than many of these companies, however. Their crossover rounds have often been the company’s Series B financing—as was recently the case for Editas Medicine ($120 million), Ovid Therapeutics ($75 million), and WaVe Life Sciences ($66 million). Selecta is older, formed in 2008 (Editas and Ovid, for instance, started in 2013 and 2014, respectively), is now on its Series E round, and has yet to go public. That means its investors have been waiting awhile for returns on what is now $115 million in total venture dollars, and that Selecta will need a bigger windfall to make those returns materialize. CEO Werner Cautreels says that because of these factors, Selecta didn’t want to raise “too much” and dilute its existing backers, but needed enough cash to execute on its clinical plan.
“You want to have a good balance,” he says. “You want enough [cash] so that you can execute, but stay lean.”
Cautreels says that Selecta has just now brought in crossover backers because it took some “maturation” to figure out exactly how to best use the company’s technology: a method of producing biodegradable, polymer nanoparticles that can, for instance, be custom-built to have the same shape and size of specific viruses. As I’ve written in the past, Selecta started out aiming use that technology to make vaccines. But it pivoted along the way, and thought of a potentially better niche. It’s now using the technology to tell the immune system to call off an unwanted attack on a particular target—creating what’s called “antigen-specific tolerance.”
Selecta aims to use this potential benefit in a variety of ways, like warding off the immune response against biologic drugs and gene therapies. It’s been working with Sanofi to develop a therapy for an unspecified food allergy, and an immunotherapy for celiac disease meant to induce tolerance to gluten. That relationship has gone from a partnership to an investment with the new Series E round.
Selecta, of course, envisions a future as a public company. “Clearly it’s something we’ll explore,” Cautreels says. With a broader investor base, Selecta has laid the foundation for a future offering. But Cautreels adds that the “dynamics” have to be right and the investor interest has to be there for Selecta to take the plunge. That means SEL-212 has to come up big for the company, and prove the worth of its approach.
SEL-212 is a modified form of pegsiticase, a gout drug that had problems with immune reactions that limited its use. Selecta is trying to show that it’s effectively fixed those problems. It’s already started a Phase 1 study for SEL-212 and, with the help of the new cash, expects to produce data from a Phase 2 trial by the third quarter of next year.
That could be a significant day of reckoning for the company. “When we have that first clinical data, the value of the platform [could] increase significantly,” Cautreels says.