When Jay Luly took the reins at a privately held biotech start-up called Enanta Pharmaceuticals (NASDAQ:ENTA) in 2003, he thought he was in for a quick fix. A floundering biotech based on a peptide-morphing technology, Enanta needed a new direction. He was an entrepreneur-in-residence at a venture firm at the time, which is a sort of gig for an entrepreneur between gigs. Enanta looked to him to help turn the Watertown, MA-based company into something totally different—a drug developer.
"I jumped in for what I thought would be a shallow dive to get that going," Luly says.
It's turned out to be much deeper than that. Some 11 years later, Luly is still the president and CEO of Enanta, and it's nothing like the teetering enterprise he took over all those years ago. Enanta's now a publicly traded company worth more than $500 million. Its shares are worth about $31 apiece, more than double the $14 figure it debuted at in March. And through a variety of reinventions, strategic partnerships, and early intellectual property work, it's set itself up to become one of the biggest beneficiaries of the new all-oral, interferon-free treatment regimens that are beginning to dominate the landscape of hepatitis C.
Indeed, within the next year or so, Enanta's got a good chance to get $195 million from AbbVie (NYSE:ABBV). The big drugmaker from Chicago is developing a treatment Enanta helped create, ABT-450, as part of a massive slate of late-stage clinical trials for hepatitis C that'll wrap up in 2014. Should AbbVie file applications with regulators, and win approval, that $195 million will flow to Enanta. Just how much share of the market AbbVie will be able to take from Gilead Sciences (NASDAQ:GILD) and its powerhouse sofusbuvir (Sovaldi) is open for debate, of course. Enanta traded worldwide rights to ABT-450 to AbbVie for a series of milestone payments, and royalty streams, long ago, and has since declined an option to pick up 40 percent of the U.S. profits in exchange for a like-sized share of the development and commercialization costs. That means AbbVie is the company in line to potentially pull in billions in sales, leaving Enanta a relatively small share of the proceeds. Even so, it's a big turnaround from where Enanta was when Luly first walked in the door in 2003.
"It was hard. There were certainly harrowing financial moments," Luly says, looking back to his early days. "Probably the hardest part is trying to be competitive and do everything that you want to do when you've got really limited private company resources. But the flip side is it makes you smarter, it makes you more efficient with capital, it makes you prioritize, it makes you work really hard to make things successful, and it gives you all the right sort of motivations for success in a way."
Luly is a chemist by training. He worked at Abbott Laboratories, LeukoSite, and Millennium Pharmaceuticals in the '80s and '90s. Eventually he settled in as an entrepreneur-in-residence at Oxford Bioscience Partners in 2002. One of Oxford's portfolio companies was Enanta, which incidentally had a chief scientific officer—Yat Sun Or—who had worked previously as a scientist with Luly at Abbott.
That company, however, was lost. Enanta was originally incorporated in 1995 and started out as a platform company, built on a technology out of Harvard University that was designed to take peptide molecules and morph them into small molecules that had better characteristics. But the plan wasn't working—"it didn't materialize into what people had hoped for," Luly says—and the technology was returned to Harvard. Luly was then brought in to help reshape Enanta, and turn it into a "products" company. A drug developer.
That, it turned out, would take a lot of work. Enanta was in need of an overhaul. The company had more than 80 employees—far too big when considering how much cash it had in the bank and how fast it was being burned up. So just as Luly came onboard, Enanta downsized to roughly 50 people and changed its direction. Luly says Sun Or had planted the "seeds" for both a hepatitis C and an antibiotics program, so Enanta could hedge its bets in both areas and not rely solely on one thing. Even so, it really branded itself as an antibiotics company with a single hepatitis C program in its back pocket, Luly says.
It's a good thing Enanta went that route, too, because it ended up saving the company. Enanta, in 2003, needed to sell a new story to investors that had poured millions into a company that was now going in a different direction. To get that cash, it needed to hit some milestones, like unearthing an actual drug candidate and finding a partner to help move it forward, according to Luly. Fortunately, Enanta found both in an antibiotic candidate for community-acquired pneumonia that it called EDP-013420.
The candidate was promising enough that Japanese pharma giant Shionogi, then the largest antibiotic company in Asia, bought in. The two signed a licensing deal in 2004, through which Enanta gave up Asian rights to the product. It was huge for Enanta. The company has never disclosed the financial numbers tied to the deal (Luly will only say Enanta got a "very good" up front payment), but Enanta hit a number of milestone triggers to add much needed cash to its bank account. Enanta also got the chance to "learn and to build" in other ways. It ran the first clinical trials for EDP-013420 on its own, manufactured the drug in-house for the studies, and supplied it to Shionogi for early studies in Japan.
"When you've gone through that process and withstood that rigor, not only did it help build a great relationship with a terrific partner, but I think the investors see that as further validation of, 'hey these guys know what they're doing, and maybe there is something there,'" Luly says (Shionogi still owns about 8.9 percent of the company).
Rather than taking that cash and going full bore into antibiotics, Enanta instead invested it elsewhere. It used the Shionogi dollars to start developing its nascent hepatitis C program. At the time, Enanta didn't even have a drug candidate yet—just some intellectual property for a protease inhibitor, a type of antiviral drug that came into vogue in the 1990s as part of cocktail therapies for HIV.
That decision proved prescient, because Enanta's antibiotic never made it through clinical trials. EDPT-013420 completed an early Phase II study, but did so at a time when, as Luly says, the FDA's guidance on antibiotics "moved around a bit." Some companies with late-stage antibiotics flopped after having to unexpectedly run additional trials that took extra time and money. Pharma's interest in the area was waning. Further, controversy exploded around telithromycin (Ketek), the antibiotic Enanta was testing its own drug against in Phase II trials, and it was taken off the market. And even though Enanta owned most of the drug's rights, the company was far too small to ever think of amassing the huge sales force needed to commercialize a drug in primary care. Eventually, Enanta just stopped developing it, Luly says.
Even so, the antibiotic had served its purpose. It kept Enanta afloat for years, enabling it to operate without raising additional rounds of cash that diluted the ownership stakes of early investors. The antibiotic also pulled in enough cash to propel Enanta's diversification strategy into hepatitis C, right as that market was starting to warm up. Enanta's intellectual property soon became ultra-valuable as large players all over the biotech and pharma world began snapping up protease inhibitors and forming alliances to develop them as potential treatments for the chronic liver disease.
Nearby, for instance, the much larger Cambridge, MA-based Vertex Pharmaceuticals was seeing its stock soar in 2005 on some promising clinical data from the most advanced protease inhibitor of the bunch, telaprevir. It formed a partnership to develop that drug with Johnson & Johnson. InterMune, another public company larger than Enanta, struck a deal with Roche. Schering-Plough, later acquired by Merck, was also developing what would become the first protease inhibitor for hepatitis C to hit the market, boceprevir (Victrelis).
Enanta, seeing all these large powers align, quickly decided it needed help to develop its drug and get in on the race. Luly's Abbott connections came through. Negotiations between Enanta and Abbott ensued over the second half of 2006, and the deal closed in December of that year. Enanta got its then-biggest payday: a $57 million check up front, $250 million in potential milestones, and double-digit royalties down the road. All in return for worldwide rights to the protease inhibitors developed through the partnership. This despite the fact that Enanta didn't have a finished compound—just IP, and "a lot of leads," according to Luly.
As it got to work in the Abbott partnership, Enanta branched out some more. It put some research dollars toward antibiotics again, and has since won a contract from the National Institute of Allergy and Infectious Diseases to develop antibiotics that would be used against bacteria found in anthrax. Luly also saw a bigger opportunity within hepatitis C. It was becoming clear that treating the disorder "would be a cocktail therapy kind of a game." So Enanta came up with an NS5A inhibitor, EDP-239. Novartis grabbed rights to the drug in return for $34 million up front, and another $440 million in milestone payments down the road. Enanta's also developed some other in-house drug candidates that affect other proteins implicated in the replication of hepatitis C, and has a next-generation protease inhibitor it's developing in tandem with AbbVie.
Unlike the antibiotic that started the ball rolling for Enanta, these partnered drug candidates haven't fizzled as of yet. The original protease inhibitor to come out of the Abbott deal is now known as ABT-450, and it's one of the drugs being used in all six of the Phase III studies AbbVie is running in hepatitis C. Enanta has already gotten $55 million of those milestone payments, and "should get the majority" of the remaining $195 million this year, as they're tied to regulatory applications and approvals, Luly says. Novartis has paid Enanta $11 million in milestones so far, with the next $15 million check coming if EDP-239 makes it to a Phase II clinical trial.
Even though Enanta didn't need cash at the time, it still went public last year. Sure, the access to more cash down the road from deep-pocketed public investors was a lure, but according to Luly, the company was also tired of living in the shadows while AbbVie's hepatitis C program continued to gain value in the public marketplace.
"You kind of get no credit for that as a private company," he says. "You're just sitting there cheering in Watertown with good news, but nothing happens in terms of people recognizing that, in terms of valuation of the company and so forth. Part of [the reason we filed] was to get out and be able to get credit for that publicly, because we knew we were going to have a tremendous amount of newsflow coming."
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