Friday, December 07, 2012

Deals of the Year Exit/Financing Nominee: Warp Drive Bio

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. We're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply a half dozen nominations in each category throughout December and you, the voting public, will decide the winners by voting early and often, commencing once we've announced all the nominees. Strap yourselves in, it's The Race for the Roger™.

No life science venture firm makes more blockbuster early-stage investments than Third Rock Ventures, often without syndicate partners. But the bicoastal firm opened 2012 with a twist on its typical modus operandi when it unveiled Warp Drive Bio in early January.

Warp Drive itself is a new approach to an old concept. The firm is using new computational technology to find the basis of new drugs in natural products -- or if you prefer, pharmacognosy -- once the main hunting ground for the pharmaceutical industry but left behind in the era of high-throughput screening of vast libraries of synthetic compounds. Warp Drive is building what it calls a genomic search engine to comb through all accessible bacterial genomes and look for conserved chemical structures that signal underlying gene expression with “novel and profound biological effects” and higher potential of drug-like properties. The firm calls these structures “chemomemes” – a term coined in an early Warp Drive meeting by scientific advisor Rick Klausner, a former National Cancer Institute chief and current VC at The Column Group (which is not a Warp Drive investor).

CEO Alexis Borisy reckons his team has sequenced “more microbial genomes than the rest of the planet a couple times over just this year alone,” and has moved on to step two: searching through the digitized genomes, more than 40,000 so far, for chemomemes that point the way to potential drugs. “We don’t tell anyone what we’re looking for,” says Borisy. “It’s a closely guarded secret. We think it’ll cause a lot of people to go ‘Wow.’”

Hello? Any drugs here?
Borisy thinks Warp Drive will be ready to unveil the secret in scientific papers a year or so from now. For now, he says the proof of concept is working; the team has already put searches to the test and gotten “hits,” to use search-engine parlance. The firm will stick to bacteria, which dominate every corner of the planet, and will later investigate fungi. Plants are much more difficult, says Borisy.

The total for the round was tabbed at $125 million, 60 percent of which was equity. As the lead investor, Third Rock wanted not only to build a syndicate to spread the investment risk but also find a potential buyer who could guarantee a healthy return. With that in mind, Third Rock recruited two others for the Series A: Sanofi and Greylock Partners. Sanofi’s involvement is where the deal twist comes in. The multinational pharma company, with an undisclosed equity stake, also has an option to buy Warp Drive. It’s a two-way street, in fact: The investors can force a sale to Sanofi if Warp Drive hits certain goals. The strike prices for each side are pre-determined but undisclosed, as are the milestones that would trigger the put and call sales.

Sanofi receives the chance to collaborate on early-stage research and feed its pipeline, while Warp Drive gets cash to develop its platform and form a drug pipeline of its own. Under the Sanofi collaboration, the sides would like to get at least two drugs into the clinic within the next five years.

Third Rock had already incubated Warp Drive Bio for “a couple of years,” according to Borisy, when conversations with Sanofi began in mid-2011. Warp Drive Bio was built around the ideas of Harvard University professor (and Third Rock partner) Greg Verdine. Harvard University genetics professor George Church, and the University of California, San Francisco pharmaceutical sciences professor James Wells are co-founders. 

The plan upon unveiling was to spend 2012 building the platform, then spend the next couple of years building a pipeline, going after previously undruggable targets. Borisy says the firm is ahead of schedule and has already triggered some of the equity and non-equity milestones with its build-out and its early chemomeme search activities. Warp Drive should grow from its current dozen staffers to about 40 next year.

The Warp Drive deal kicked off another year of Series A activity for Third Rock. It has since funded, either solo or with syndicate partners, the companies Alcresta (nutritional supplements), Global Blood Therapeutics (blood disorders), Myokardia (allosteric modulators for cardiovascular defects) and Cibiem (carotid body modulation device).-- Alex Lash

Photo of Yellowstone extremeophiles courtesy of flickr user Tim Pearce.

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