Will Fast-Growing Kallyope Stay in New York After New $66M Round?

Xconomy New York — 

Kallyope is unusual among biotech startups. Exclusively borne from the work of three Columbia University professors, the company started up in Manhattan, now has more than 40 employees, has gotten $110 million in venture dollars from high-profile investors, and still remains in New York City. Now the big question is: Will Kallyope stay in Manhattan as it increases its headcount? The two year old company says it’s staying, but it has already outgrown its headquarters and is still working out how it will handle the city’s challenging real estate market.

With a new $66 million round announced this morning, Kallyope—which is trying to understand the complex signals transmitted between the gut and the central nervous system—has now raised a nine-figure sum in just over two years. That’s fairly typical in Boston and San Francisco, where biotech startups can get these types of dollars in single rounds. But it’s far less common in New York, which has long struggled to create a biotech startup ecosystem that rivals more established hubs elsewhere. Kallyope’s $66 million round is one of the largest funding rounds for a privately-held, New York-based drug developer in the last several years.

But Kallyope CEO Nancy Thornberry believes that New York is catching up.  “I feel like there is really good momentum here in New York right now,” she says. And to an extent that’s true. Since late 2016, city and state governments have committed more than $1 billion to spurring on New York’s biotech industry. Several startup incubators have sprouted up, or soon will. The New York City Economic Development Corp. (NYCEDC) is putting up $100 million through the city’s LifeSci NYC initiative to entice outside investors to build a biotech campus in the area. These efforts have built on university collaborations that created the New York Genome Center and the Tri-Institutional Therapeutics Discovery Institute, and the arrival of startup creators like Versant Ventures and Accelerator Corp.

Still, New York has nowhere near the number of high-profile biotech startups that Boston and San Francisco regularly churn out. Kallyope, Petra Pharma, and Lodo Therapeutics came along in quick succession in late-2015 and early 2016 and raised $109 million combined in separate Series A rounds. Since then though, similar announcements have been few and far between, which Thornberry attributes to a lack of “awareness about the advantages of being in New York City.” One advantage, she says: the ability to recruit experienced people from pharma companies with offices in New York and New Jersey, and build a “stable workforce” since employees aren’t “constantly transitioning to the biotech next door.”

One thing that would help increase that awareness and change the perception of New York as a life sciences hub is a crew of startups like Kallyope growing, succeeding, and staying in New York City. For that to happen, a real estate issue that Kallyope and others will increasingly face has to be solved. Space in New York City is at a premium, and there isn’t much of it for biotech startups that have grown beyond just a few employees and a lab bench. “The question everybody’s asking is, where do they go after the incubators?” Maria Gotsch, president and CEO of the Partnership Fund for New York City, told Xconomy recently.

The plan is for the NYCEDC’s proposed biotech hub to have this type of desperately needed step-up space, its officials recently told Xconomy. But it’s also a multi-year project that has just begun. Brooklyn’s BioBAT, a step-up  facility in South Brooklyn for growing biotechs, is another answer, but it is far flung from the academic institutions lining the East Side of Manhattan and elsewhere.

Alexandria Real Estate Equities CEO Joel Marcus says that while this type of space is definitely needed in the long-term, it’s going to take years for the startups at the city’s incubators to grow and create enough demand. Until they do, only a select few companies are dealing with this problem. “There is no big waiting line,” he says.

Kallyope is one of those tenants, having already outgrown its headquarters in the Alexandria Center for Life Science. With plans to expand its roughly 40-employee team to around 60 by the end of the year, it needs more space quickly. Most of its scientists and researchers hail from Brooklyn, Manhattan, and New Jersey, complicating any possible plans to leave the area. Thornberry, who sits on the advisory council of LifeSci NYC, says Kallyope has been in constant discussions with Alexandria to solve the issue. Kallyope is committed to staying in New York “at this time,” Thornberry says. “We’re happy here right now,” she says. “We really want to stay here.”

Marcus says Kallyope has several proposals to expand within the Alexandria campus. Alexandria is able to open up some space in the Alexandria Center to help certain tenants “pretty immediately,” Marcus says. “We think we can pretty easily accommodate them,” he says of Kallyope. “I’m not too worried about that.”

Kallyope is using sequencing tools and other technologies to try to see, on a molecular level, how the gut and brain communicate along the “gut-brain axis”, and how that impacts human health. The idea is to understand the signals the cells in our gut send out, where in the body they go, and how that changes our behavior and physiology. With that information, Kallyope aims to develop small molecule drugs that block or boost those signals. Kallyope is developing drugs for metabolic diseases, like obesity and nonalcoholic steatohepatitis, and neurological diseases such as mood disorders and Parkinson’s. Kallyope hopes to be either very close to, or in human testing by the time it needs to raise more money, though Thornberry didn’t say when that might be. When the company was first founded, it had planned to develop consumer products, but that’s not part of the plan anymore, Thornberry says.

Lux Capital led the financing and was joined by existing backers The Column Group, Polaris Partners, Illumina Ventures, and Alexandria Venture Investments. New backers Euclidean Capital and Two Sigma Ventures also participated.

Here’s more on Kallyope and some of the other efforts to probe the gut-brain axis.