Xconomy doesn’t have annual awards (the X-ies, anyone?), but I don’t have any hesitation naming Juno Therapeutics (NASDAQ: JUNO) the biotech company of the year for 2014. This is neither a prediction of future success nor an endorsement. Rather, it’s an acknowledgment that hands-down, Juno was the most atypical biotech I’ve seen in years, perhaps ever.
How unusual is Juno? Let’s count the ways.
In a watershed year of biotech debuts, the Seattle-based cancer immunotherapy developer on Dec. 18 had the most notable IPO of all, notching a $2 billion valuation right out of the gate. By the end of the year, that figure was up to $4.7 billion.
Juno is built upon an atypical foundation, too. It has licensed cell-therapy technologies from three research institutions, and it is pushing ahead with clinical programs based on all three. Most important for people with hard-to-treat hematological cancers, the programs Juno has licensed are showing remarkable results in early clinical trials, as are cancer immunotherapy programs at other companies such as Novartis (NYSE: NVS), Kite Pharma (NASDAQ: KITE), and Amgen (NASDAQ: AMGN).
To fuel their ambitious plan, Juno’s founders convinced a most unlikely investor—the State of Alaska—to anchor the company’s private fundraising of more than $300 million in less than a year.
Given all this, it was fitting that my last interview of 2014 was with Juno cofounder Larry Corey—who immediately threw a wrench into the sui generis narrative. He thinks the Juno model could work again. “I don’t think Juno is an outlier from an idea point of view,” Corey said by phone on New Year’s Eve while on vacation on the west side of the Big Island of Hawaii.
As president of the Fred Hutchinson Cancer Research Center in Seattle, Corey was instrumental in making Juno a reality; much of the work Juno is doing was licensed exclusively from The Hutch, as it’s known. (Juno’s other institutional partners are Memorial Sloan Kettering Cancer Center in New York and Seattle Children’s Research Institute.)
Corey received at least half a million Juno shares well before the IPO; if he still owns them, they’re worth tens of millions of dollars. But he’s not on permanent vacation. He has left his post as Hutch president to go back to academic life and his lab at the research institution, where his specialty is infectious disease. One of the world’s top virologists, he also runs the HIV Vaccine Trials Network. The next couple years could be a highlight of what’s already an illustrious career.
While antiretroviral therapies and public health policies have gained traction against HIV infection, vaccine efforts have only provided three decades of frustration. But promising results from a vaccine trial in late 2014 have built momentum for more extensive trials in 2015 and 2016, with HVTN playing a key role.
While that work will be funded by government and nonprofit sources, Corey’s experience with Juno brings up the question whether a for-profit Juno-like model—research gathered from multiple institutions backed by a non-traditional venture syndicate—can work for infectious disease. “You’d have to solve big problems, big issues, big enough that you can attract everyone’s interest,” says Corey, who acknowledges it would be a challenge to parse out responsibilities among all the parties.
There are plenty of medical problems to solve—Corey cited HIV, herpes, cytomegalovirus, Epstein-Barr virus, and others—but could investors be persuaded to pony up Juno-like funds at Juno-like speeds? “You never know until you try,” Corey says.
I pressed Corey if he personally was willing to try. His response: “We’ll see where life leads.”
I asked Corey if Juno’s emergence in 2014 heralded a new chapter for the Seattle biotech community, where many promising homegrown companies have been acquired and broken up, or in the case of Dendreon (NASDAQ:DNDN), have spiraled into bankruptcy without much hope for a rescue.
“The Seattle biotech industry is having a hard time,” said Corey. “It had been a decent place to start a company. The Hutch spun out several, perhaps the best was Immunex, but in the end these companies would be bought out and eventually dissolved.”
Corey has several ideas for building a more permanent biotech base. One is a more muscular incubator fund within academic walls so that ideas and technologies could advance before moving into the outside world, looking for venture funding. “It would be like running a startup within the academic institution,” he said.
Corey’s original idea of doing this at The Hutch—“to leverage the expertise of the inventor and the institution”—led to Juno, he said. Could more follow if the fund idea were pursued? “I think there’s enough work at Hutch to do that, but I’m not sure if new leadership wants to pursue it.” (D. Gary Gilliland was named in November as Corey’s successor.)
“It’s a concept worth considering,” said Corey. “The University of Washington and others have it, but you have to incubate the ideas with enough capital. It has to be $1-to-$2 million, not just $50,000 or something. You need capital and structure, and more involvement from the experts, to allow ideas to flourish.”
(With the 2014 expiration of a lucrative patent, the UW’s tech transfer record has been under scrutiny lately, as Xconomy Seattle editor Ben Romano reported in September.)
Expertise and input. Business and scientific acumen. Is there enough of all this in the Seattle area to build and grow a stable block of biotech companies? Corey is of two minds on the subject. On one hand, local is crucial. He praises the “wonderful community of postdocs and scientists” whose job prospects have shrunk over the years, and he stresses the need to sustain companies with Seattle-based capital. (The Alaska Permanent Fund, one of Juno’s main backers, sort of qualifies regionally, although the shares are actually managed by a Fort Worth, TX, financier named Douglas Bratton. Through the Alaska fund and another fund, Bratton now controls 30 percent of Juno, according to recent SEC filings.)
On the other hand, Corey said it’s important to avoid parochialism. Juno built bridges beyond Seattle by bundling important cell-therapy work from Memorial Sloan Kettering, which was moving quickly ahead with its CART (chimeric antigen receptor T cell) program. MSK also provided a different connection: to New York’s financial community. (The cancer center’s various centers, buildings, and chairs are adorned with financier names like Henry Kravis, David Rubinstein, and David Koch.)
The MSK partnership “made a difference with respect to the science but also how the business community looked at the relationship,” said Corey.
I’ve already listed several big-picture reasons why Juno is one of the most unusual biotechs ever. Under the hood, there are other reasons, too. Take those MSK and Hutch partnerships, for example. Juno will not only pay royalties to the institutions (that’s a typical arrangement), but it will hand over bonuses—Juno calls them “success payments”—as its stock price rises. Such arrangements between a startup and its academic licensors are, if not unprecedented, extremely rare.
According to Juno’s SEC filings, the Hutch gets incremental payments as the stock rises from $20 to $160 a share, up to a total of $375 million. (The share price topped $50 just before the end of 2014.) For MSK, payments started when the stock price hit $40. The payments continue as the share price rises to $120, and top out at $150 million. The payments can be made with equity instead of cash. (In addition, the Hutch owned 13 million Juno shares and MSK 2 million just before the IPO.)
Juno’s third academic partner, Seattle’s Children’s, does not seem to be involved in the success payments.
Juno officials have also added unusual protection against hostile shareholders by adding a “fee shifting” bylaw to its charter. It’s a new, controversial weapon, legal in Delaware where Juno is incorporated, meant to discourage “nuisance” shareholder lawsuits, as Juno CFO Steve Harr wrote to Xconomy last month: “We’re going to try this new approach and see if it works.”
That last sentence from Harr could describe much of what Juno has done so far. But much of what it needs to do to be successful in 2015 and beyond is what any biopharma must do to win the confidence of regulators, insurers, doctors, and patients: prove its treatments are safe and effective, ensure a steady supply to meet demand, build a competent sales force, and make sure those who need the treatments can afford them.
If all those things happen, Seattle could have the biopharma cornerstone Larry Corey and others have craved. “With Juno, I wanted to create a company that not only would have the capital to make sure genetically engineered T-cells could be developed, but to create a company that would be based in Seattle, kept in Seattle, and essentially provide a long term anchor for Seattle’s dwindling biotech portfolio,” Corey said. “We looked for partners who would be willing to take a long term view. And we wanted to pick a CEO and a team committed to Seattle. You have to live in a community to have permanence. Decisions are influenced by where you live.”
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