Bringing operational, finance savvy to off-balance sheet pharma R&D
Company: Mereo BioPharma
Title: CEO and co-founder
Biopharma needs ways to rapidly advance R&D across vast candidate portfolios without further weighing down its profit and loss statement. One solution is spinning assets out into a separately financed entity that the biopharma retains an interest in. Mereo is working to cash in on this underlying biopharma industry trend.
The company started off this year with a huge lump of cash, $119 million, as well as an exclusive deal with Novartis ($NVS) that's already resulted in three midstage candidate that Mereo is developing with the aid of CRO partner, Icon. It isn't a virtual company, with a staff of about 25 to 20 people and heavily outsourced R&D.
Denise Scots-Knight has been behind this new company from the beginning.
As a managing partner at Phase4 Partners, she was talking to a lot of pharma companies about off-P&L financing models and looking at different potential structures a few years ago.
"We talked to quite a few pharma companies. It became clear that Novartis was willing to show us a number of products and strategically looking at doing something like this. We started working with them about 18 months ago," Scots-Knight said in an interview with FierceBiotech.
Mereo was founded with these three Novartis candidates: BPS-804, a monoclonal antibody to improve bone density in patients with orphan disease osteogenesis imperfecta, commonly known as brittle bone syndrome; BCT-197, an oral kinase inhibitor in development as a first-line COPD treatment; and BGS-649, an oral aromatase inhibitor that's being developed as a front-line treatment for hypogonadotrophic hypogonadism.
In July, it got the infusion of cash, which is backed by U.K. institutional investors Woodford Investment Management and Invesco Perpetual. Novartis holds an equity stake in Mereo in exchange for the three products, and it has committed to a cash investment in the company in the future.
The cash that Mereo has on hand is expected to be sufficient to get to key data points in all three programs. But Mereo is eyeing more than that--to become a full-fledged specialty pharma that systematically acquires validated, midstage development programs from big biopharma. Ultimately, Scots-Knight expects the company will get to portfolio products from different biopharmas. First, though Novartis gets a period of exclusive engagement.
"We secured the deal with Novartis and for the next 12-month period we have an exclusive tie-in with Novartis--we can't sign with any other company," Scots-Knight explained. "We raised the capital that we have on the back of those three programs. Post that period, we can in-license from other companies. During that 12-month period, we can add additional products from Novartis. In the corporate structure, we can add one-off products and we will be looking to get to 5 to 7 products in the long term."
Scots-Knight is explicitly employing a finance-based, portfolio management strategy. She posits that, unlike with typical biotechs, Mereo's approach results in market, regulatory, and clinical risks that aren't correlated. She added that ongoing pharma market rationalization means that there are a lot of companies shopping candidates that could offer good opportunities.
Her take isn't surprising given that she spent most of her career in biopharma finance--heading up Phase4 Ventures, before that leading the managed buyout arm at Nomura and prior to that as an investment manager at Rothschild Asset Management.
The operational side is familiar to her too, she started out her career in R&D management and the executive ranks of life science companies. Scots-Knight is also the chairman of the board of Nabriva ($NBRV), as well as a board member for OncoMed ($OMED) and Albireo. Prior to becoming a venture capitalist she was in R&D management at Amersham and Fisons and a senior executive at Scientific Generics.
Scots-Knight envisions Mereo evolving into a specialty pharma company, but, of course, she's not closing off any other opportunities. "At the moment we can be open. And some of the products, if they are successful in development you can see a specialty pharma company there," she said. "But it's too early for us to say which of those avenues we will pursue. The old adage is--you build a company." -- Stacy Lawrence (email | Twitter)
Novartis spins out 3 drugs to a biotech startup with $119M in VC backing