The sun is nearly down in San Francisco and Zak Zimmerman and David Puerta are worried about arriving late for their final meeting on a long day. It is the first day of the JPMorgan Healthcare Conference, and the men, leaders of the biotech start-up Forge Therapeutics, have been up since long before dawn. They walk briskly out of the Hotel Nikko and turn left on Powell Street toward Union Square, where swaths of men and the occasional woman are spilling out of nearby hotels to hit the first cocktail parties of the night. Zimmerman and Puerta weave through the crowds, cut across to Stockton Street, and start up the hill to the Ritz-Carlton.
Oh, that hill. So steep, even a former college soccer player like Puerta slows his pace on the hike up. So notorious, one hedge fund manager says of the Ritz, “I won’t take meetings there.”
As the Forge executives march up the hill, the challenge of what they are trying to accomplish that week is manifesting itself in physical form. They have come to sell the promise of their chemistry for developing metalloprotein inhibitors. They are here to make a deal.
Their ambitions are no different from those of the thousands of other biotech entrepreneurs who flocked to San Francisco, which for a few days every January becomes the global nexus for drug industry money, connections, and opportunity. They are here at a time when the environment has never been riper for early-stage science like theirs. Last year, nearly $1.9 billion went into the first major funding rounds for biotech companies, $1 billion more than the year before. And big pharma’s hunger for science coming out of academia and young biotech firms is unabated.
But even with that money and appetite, the way forward isn’t easy for young companies. For the Forge executives—Zimmerman is the chief executive officer and Puerta the head of chemistry—the goal at the JPMorgan meeting is to push their company to the next level.
Launched in early 2015, the firm secured “seed” funding—a small influx of cash from private individuals—to set up labs and start generating data. Zimmerman and Puerta are hoping in 2016 to attract a first round of funding from venture capitalists or secure a partnership with a big pharma company—maybe even both.
They know they have hurdles to overcome. Forge’s academic founder, University of California, San Diego, bioinorganic chemist Seth Cohen, doesn’t have a track record in the industry. Zimmerman is a seasoned biotech executive, but this is his first time as CEO. Forge is in San Diego, a reasonably vibrant biotech hub but less active than Boston or the Bay Area.
Subtler forces are working against them as well. Forge is launching during a period when many early-stage venture capital (VC) firms are focused on cultivating technology internally, incubating ideas until they are ripe for substantial investment. A traditional academic spin-off such as Forge is less in vogue than in the past.
Forge is banking on solid science to overcome any perceived liabilities. The week in San Francisco is about making new contacts and strengthening relationships with VC and big pharma firms that have been evolving for months.
As the men arrive at the top of the hill, the sidewalk evens out. They catch their breath and arrive at their meeting just on time. Zimmerman, the timekeeper and overall taskmaster of the team, looks relieved.
For a few days in January, tens of thousands of biotech and pharmaceutical executives, bankers, venture capitalists, and journalists pack themselves into an area smaller than a square mile. They are ostensibly in town for the annual JPMorgan Healthcare Conference, but much of the action takes place outside the Westin St. Francis, the official meeting hotel.
“I’ve been going to this for over a decade, and I’ve never once actually set foot inside the JPMorgan conference itself,” says Brian McVeigh, GlaxoSmithKline’s head of global business development. “But everybody that matters in the industry is there, and that’s the real value for most of us.”
The weeks leading up to the conference are full of public bravado: Social media is flooded with people talking up their packed schedules, blog posts give first-timers tips for how to survive the week of heavy meetings and late-night parties, and everyone speculates on the deals that might be announced during the week.
But at JPMorgan the bluster is actually backed up by reality: Those few days in January are essential for big and small companies alike. “It really lives up to the hype,” says Paul Biondi, head of business development at Bristol-Myers Squibb. “For us, it is an absolutely critical meeting.”
For members of McVeigh’s GSK team, back-to-back meetings allow them to connect with VC firms, get a feeling for technologies or assets that might fit their portfolio, build relationships with companies, and meet prospective partners. “I’ll see dozens of different technologies, companies, people looking to do deals, looking to get bought,” McVeigh says.
That jam-packed schedule sets the agenda of his team for the next six months. Given the importance and volume of meetings—and the number of business and science staffers flying out—big drug firms such as BMS and GSK rent out floors of hotels to receive visitors.
Everyone else scrambles for space. Every café and restaurant near Union Square is populated by groups of people clustered around computers. A quiet place to think or chat is so hard to find that it isn’t surprising to walk into a ladies’ room lounge and find a row of women with their laptops plugged in, some going so far as to take a conference call with the sound of flushing toilets in the background.
Given the space crunch, and with 21 meetings on their docket, Zimmerman and Puerta find themselves crisscrossing the city to make their pitch in settings both usual and unexpected. One hour they are being escorted through a maze of hotel conference rooms, all commandeered by the same big pharma firm. The next they are chatting with potential investors in the basement food court of a Macy’s, indie rock blaring in the background.
In just over 48 hours, Zimmerman and Puerta logged many miles up and down San Francisco’s hilly streets. Those two days are the culmination of more than 15 years of work by UCSD’s Cohen. The bioinorganic chemist, who previously was a member of C&EN’s advisory board, spent years building the case for rethinking how to tackle a broad class of drug targets called metalloproteins.
For more than a decade, Cohen has kept a paper labeled “Best Review” on his computer desktop. It was this 1999 article on metalloprotein inhibitors by British Biotech chemist Mark Whittaker, who now works at Evotec, that set the course for Cohen’s academic career and ultimately laid the groundwork for Forge.
The lengthy review included nine pages of structures of matrix metalloprotein (MMP) inhibitors, compounds that blocked the activity of zinc-dependent proteins, which have been implicated in cancer, glaucoma, and high blood pressure.
Cohen noticed that the dozens of inhibitors had something in common: They all used the same ligand—a hydroxamic acid—to bind to the zinc ion in the active site of the protein. “It struck me as very odd because, as an inorganic chemist, I knew there were zillions of ligands out there that could serve as the warhead,” he recalls.
The problem was none of those hydroxamic acid-based MMP inhibitors were panning out in the clinic. They cleared the body too quickly, weren’t selective enough, or generated toxic metabolites.
When job hunting out of his postdoctoral position at Massachusetts Institute of Technology, Cohen proposed his lab would hunt for new functional groups for binding metals, with the ultimate goal of developing more potent or better-behaving therapeutics. “It was the proposal I was hired on and pretty much what I got tenure on,” he adds.
Puerta, Forge’s cofounder, was the first graduate student in Cohen’s lab at UCSD to work on the metalloprotein inhibitor project. In the early 2000s, he helped explore the first 20 functional groups that could serve as alternatives to hydroxamic acids.
After earning his doctorate, Puerta moved to Cambridge, Mass., where he spent seven years as the head chemist at Living Proof, a consumer products company started by MIT chemical engineer Robert Langer. Eager to move back to San Diego and return to his work on metalloproteins, Puerta reached out to Cohen about starting a company. By that time, Cohen’s lab had come up with about 100 metal-binding ligands, a collection that his lab and Forge have since built into a library of 300.
Puerta managed Cohen’s lab and began considering which metalloproteins would be enticing targets for big pharma. Cohen had developed a few inhibitors, but his target choices had always been, as he describes it, “haphazard.”
Puerta struck upon LpxC, a zinc-containing enzyme found in gram-negative bacteria. The enzyme plays a role in building lipids that make up the fatty outer layer shielding gram-negative bugs from antibiotics. Major drug firms have been plugging away at LpxC since the 1990s, but all of the published compounds featured the hydroxamate ligand—and they all failed because they were metabolized too quickly.
The two chemists knew the science, but they needed help on the business side. One day in December 2014, Puerta took his kids out to play soccer and ran into another family. “Zak was out there with his kids, and it turns out we had worked across the street from each other in Cambridge,” Puerta recalls.
It was a fortuitous meeting. Zimmerman had led business development at Alnylam Pharmaceuticals and was lured to San Diego when the firm spun off the microRNA business Regulus Therapeutics. In other words, he had years’ worth of industry, venture, and banking contacts that could be exceedingly helpful to a young business.
It turned out that Zimmerman, Puerta, and Cohen lived within a mile of each other. And they discovered that in addition to the usual commonalities—kids, soccer, science—they had an easy rapport. Conversations about a potential company quickly turned into the launch of an actual one. Zimmerman put his network to work to come up with a list of metalloprotein targets that were of interest to big pharma companies. If Forge’s novel chemistry yielded inhibitors, partners might be interested.
Meanwhile, the team scraped together about $2 million from family, high-net-worth individuals, and the San Diego-based private investor network, Tech Coast Angels. Last spring, the three hired several researchers and set up shop in JLABS, a sought-after Johnson & Johnson incubator in San Diego where tenants share lab and office equipment. A pilot agreement with J&J soon followed.
Zimmerman, who takes the lead at meetings, told the story of Forge’s formation over and over again in San Francisco. More than one person asked who won the soccer game between their families. (No one—they were just playing around, although Zimmerman is quick to note that Puerta could handily beat him.)
It was an easy joke, but underlying the question is a bigger issue for potential investors and partners: Who are these guys, and how well do they work together?
Of course, companies and venture capitalists will probe a biotech firm’s science, but potential investors say the character of the team is also important. “When we do due diligence, I’m looking at what it’s like to interact with these people,” GSK’s McVeigh says.
He gauges “how they operate and how they think” and whether they’ll be able to adapt to big pharma culture. Potential collaborators are at a disadvantage, he says, if they don’t have experience working with a big pharma company.
On the other hand, lack of experience in a start-up is far from a deal breaker, notes Noubar Afeyan, founder and CEO of the early-stage VC firm Flagship Ventures. Of the CEOs of companies in his portfolio in the past two years, less than half led a company before, and even fewer had been at a start-up.
“We take each case one at a time,” Afeyan says. After getting to know a team over several months, “we’ll make a decision as to whether we want to get in the boat with them because, at the end of the day, the science may be super compelling, but you’re ultimately interacting with people, not science.”
Zimmerman is well aware that the sit-downs in San Francisco are as much about trust as they are about science. “We realize you have to go to a lot of meetings, you have to be patient, and you have to be focused,” he says while picking at a salad before the partners’ first major meeting of the week.
Of the two, he more outwardly wears his worry over what they are up against. Although a few of the companies on their agenda will be getting their first look at Forge, many of their appointments are follow-ups to earlier discussions. Zimmerman knows how critical it is, particularly as first-time entrepreneurs, to show Forge is making progress.
“One of the things we’ve done really well this year is told people, ‘We’re going to do these sets of experiments, and this is the data we expect to get,’ ” he says. A month later, the pair goes back with data in hand. “Now we’re going back for the third or fourth meeting to say, ‘Here we are again!’ executing and building trust.”
The need to show they are “executing” creates a balancing act well-known to start-up executives: Operating on seed funding is limiting, but a firm must be quick to generate the data that will give a potential partner the confidence to pull the trigger on a deal.
For Forge, that means moving rapidly with its lead LpxC inhibitor. The firm has shown that the compound can kill gram-negative bacteria; now, it is working on second-generation molecules with increased potency.
But Zimmerman and Puerta are also trying to prove that their chemistry is a platform—that it works against a wide swath of metalloproteins, not just ones related to bacterial infection.
To reinforce the idea that they have a platform technology that could attract a wide range of pharma partners, they’re working on inhibitors against metalloproteins implicated in cancer. One effort involves blocking a set of epigenetic targets called Jumonji lysine demethylases. Forge is also working on inhibitors of IDO, an immuno-oncology target that has been the subject of heavy deal-making, including an acquisition announced the first day of the JPMorgan event.
In a well-appointed suite at the Four Seasons, executives from a prominent VC firm got up to speed on Forge’s progress. This was their third interaction with Zimmerman but their first with Puerta. The investor team was well prepared, with PowerPoint presentations printed and marked and questions ready.
Zimmerman ran through the data; most of the information was already familiar to his primary contact at the venture firm. Forge’s tiny team has developed compounds that can knock out several resistant strains of Escherichia coli in both petri dishes and mice. But the researchers need to improve their potency so they can take out Pseudomonas aeruginosa, one of the most recalcitrant and deadly bugs out there. That, they believe, would be a game changer for their platform.
A member of the VC team cut to the chase: How long do they think it will take to solve the potency problem?
Zimmerman stressed that the Forge team is making derivatives and testing them as fast as they can, but they are just four scientists and four contract researchers. It could be weeks, but it might be months, too.
Although the meeting went well—there was interest in another follow-up—Zimmerman and Puerta are clearly frustrated at their plight. With a few hundred thousand dollars more they could quickly get to the proof that everyone is anxious to see. But that’s money they don’t have.
The interaction highlighted the ever-present challenge for young companies such as Forge. They need to stretch their seed money long enough to generate data that will lure a larger commitment from either VC or pharma partners.
It’s nearly impossible to do without cutting corners. That doesn’t mean sloppy science, but it does mean picking the experiments that will yield the most valuable information—and skipping those that researchers in a big pharma lab would have the luxury of exploring.
The next morning in a cramped but sunlit hotel suite off of Union Square, Zimmerman and Puerta make the case for their metalloprotein platform to the heads of early licensing and medicinal chemistry from a large European drug firm. After the two explain the basic premise of Forge and run through their early data, the pharmaceutical executives raise a question that is becoming a refrain for the week: Why has no one done this before?
The answer, according to Puerta, is that once medicinal chemists found the hydroxamate group they stopped looking for other ways to bind their drug candidates to metalloproteins. But Cohen is a bioinorganic chemist operating outside of traditional academic drug discovery circles. He simply thought about the problem differently.
After reading countless publications from that era and talking to many scientists who worked on metalloprotein inhibition at big pharma firms, Cohen came to the conclusion that medicinal chemists put most of their effort into modifying the backbone and decorative elements of their compounds. For binding to the metal, they continued to rely on hydroxamic acid. “This functional group became such a go-to molecule that it ended up dominating the entire field of metalloprotein inhibition,” Cohen says.
Puerta, clearly in his comfort zone, explains to the big pharma chemist that the variation in metalloproteins’ active sites—the craggy pockets in which a compound needs to fit—means hydroxamic acid often isn’t a good fit. By starting with a fragment that slips into that pocket just so, then building out a molecule with the properties they want from a drug candidate, Forge can overcome the problems of all those previous campaigns, he says.
The big pharma chemist nods. He was one of the many who worked on metalloprotein inhibitors in the late 1990s. Although his company had screened its sizable library to look beyond molecules with the hydroxamate group, they only came up with one hit, and it failed.
The big pharma chemist wants to know whether the Forge researchers have crystal structures for their lead compound bound to its target. Puerta smiles and acknowledges they do not. They are working on it, but they can’t afford to do everything at once.
After a discussion of the next steps, during which the pharma executive takes copious notes, the meeting is over.
Consensus afterword is it went well, but then, so did nearly every encounter the Forge executives had throughout the week. Even when an interaction feels encouraging, it can be hard to gauge whether the people on the other side are looking to make a deal, want to keep an eye on the company to see how the technology develops, or are just being nice.
“It’s like dating,” says Ethan Perlstein, who started his company, Perlstein Lab, without previous industry experience. “You can spend a lot of time going on a lot of fruitless first dates.” Two years in and Perlstein says he now has a feel for “what is genuine interest and what is polite interest.”
Even with years of experience sitting on the other side of the table doing business development, Zimmerman can’t always gauge whether interest is real or not. After each meeting, when asked how he thought things went, he shrugs. “We’ll see,” he says.
While Zimmerman and Puerta try to move their technology to the point of a partnership, the fate of Forge is also tied up in larger challenges that are out of their control.
As they entered the JPMorgan gantlet, overall sentiment about the health of the biotech industry was gloomy after the record-long bull market flagged in the final days of 2015. The biotech stock index had been crushed the week before the meeting and has yet to recover. No biotech firms went public in the month of January, and companies that raised cash were forced to take unfavorable terms.
It wasn’t uncommon to walk by someone in Union Square staring at a sea of red ticker symbols on their smartphone. And despite the bustle and parties in San Francisco, ask an investor or a biotech executive how they felt going into the week and you would get a shake of the head and a grimace. “Not good.”
How sentiment for publicly traded companies trickles down into the start-up world remains to be seen. One piece of good news is that many venture capitalists’ funds were replenished last year, so there’s a lot of money available for start-ups, according to Wende Hutton, general partner at the venture firm Canaan Partners.
“It’s not going to be a dry period,” she says. “It’ll still flow down, just with a bit more cautious attitude.”
More critical for start-ups than a short-term softening in the biotech sector is a general shift in the way that companies get formed. A decade ago, an academic like Cohen would have an idea; spin it off from a university, perhaps with support from a small business grant; and eventually find funding from a syndicate of VC firms.
These days, many prominent VC firms are taking a different investment approach. These investors still tap into academic science, but they are more likely to develop an idea with a group of scientific founders, cultivate the science in their own labs, and eventually launch a platform company with substantial funding that generates a whole pipeline of products.
“I do think it is a very significant and real trend where a lot of the big venture firms are all starting companies in this manner,” says Bruce Booth, partner at Atlas Venture.
VC firms cite several reasons for the shift toward the company-creation model. The first is simply a numbers game: Starting the company at the ground floor means owning a larger percentage. Instead of putting in $5 million or $10 million, they nurture for a while and then commit tens of millions of dollars in funding.
But aside from the financial gains, cultivating companies internally helps them to thrive, Booth argues. The biotech firms built inside of Atlas benefit from guidance, experience, and a supportive environment, he says.
“There’s a reason why a lot of successful companies in this last vintage began their lives in VC firms,” he says. “They all know each other, they’re constantly sharing ideas, sharing strategic questions. It’s the whole village that helps.” Currently, eight companies are incubating in Atlas’s labs in Cambridge.
That shift means fewer investors today have an appetite for the “one shot” companies that typically emerge from universities, says Kevin Starr, founder and partner of Third Rock Ventures. “Quite often we get approached by academics who have a single target, a single pathway, or a single area of research and say, ‘Would you write us a check?’ ” Starr says. The answer, for Third Rock, is usually no.
That doesn’t mean academic ideas that come over Third Rock’s transom can’t get funded. Rather, how an idea is turned into a company is changing.
“We see a lot of early-stage approaches that are very complicated, and simply putting dollars behind it is not enough to be successful long-term,” Starr explains. Third Rock managers will match an academic scientist who has a promising target with related projects. They then invest significant time and resources—it could be years and millions of dollars—to convince themselves that the ingredients are there for a drug discovery platform.
The result of this approach is a new generation of platform companies. “Venture capitalists nowadays have jumped on the bandwagon of trying to do platform or multiproduct platform deals,” Flagship’s Afeyan says, noting that his firm has always focused on platform development. “Many times, those same venture capitalists five years ago had completely disavowed that area.”
Afeyan thinks sentiment will eventually cycle back, in part because platform companies require deep investment. Indeed, many of the biotech firms that launched last year had major backing, including the largest first investment round—$217 million for neuroscience-focused Denali Therapeutics—the industry has ever seen.
Although Forge was not created or incubated inside a VC firm’s network, its leaders are hoping their platform approach will resonate with potential partners.
A week after the meeting, Zimmerman and Puerta were still moving at full speed.
They had already heard from a few of the companies and investors they had met with in San Francisco. One pharma firm brought a team of chemists and business development executives to Forge’s labs, and another big pharma firm had scheduled a visit. A Bay Area VC group wanted to pencil in a teleconference, and three Boston-based investors asked the executives to come out for a face-to-face meeting.
The following week brought the most concrete sign of success: One of the big pharma companies they had met for the first time in San Francisco asked to start early due diligence on a project.
Zimmerman and Puerta want to develop options because options provide leverage. If more than one drug firm is interested in, for example, their lead antibiotic program, they will have more power over the terms of the deal.
And interest breeds interest. As Zimmerman notes, venture firms are often waiting for another investor to “go first”—to signal that it believes a company’s technology is valid—before they pitch in. Big pharma firms, meanwhile, demonstrate newfound urgency when they know someone else could be ready to snatch up a program.
But it’s not just about money. The tenor of a company’s early deals can determine whether it succeeds. “A great partnership can make a company, and a bad one can severely disable a company,” Atlas’s Booth says. “It’s a critical decision.”
Three weeks after the conference, another big pharma company asked for a sit-down to discuss one of its programs. And Forge has new data showing that its first generation of LpxC inhibitors can knock out a strain of E. coli that is resistant to essentially every antibiotic in the medicine chest.
Forge is still working on Pseudomonas, but Zimmerman and Puerta seem excited that they are, despite limited resources, moving so quickly. As Puerta said over and over again to potential partners in San Francisco, it’s just a matter of time until they find that winning molecule.
For this young company, how long that takes—weeks, months, a year—means everything.