On the Side of the Angels: How to Raise Money When VCs Shy
By Randy Osborne
BOSTON – “How Far Can You Go with Angel Investors?” asked the title of a panel discussion that included two financiers and two company chiefs at the Biopharm America conference.
The answer: Pretty far, at least if you’re panelist Walter Ogier, CEO of Boston-based Acetylon Pharmaceuticals Inc., which in July made headlines by way of its hefty deal with Celgene Corp.
In the agreement, centered on selective histone deacetylase (HDAC) inhibitors, Acetylon pulled down $100 million up front, and Celgene, of Summit, N.J. – already an investor – gained an option to take over the company for at least $500 million more, with milestone payments of as much as $1.1 billion: $250 million for regulatory goals and $850 million for hitting sales targets. (See BioWorld Today, July 29, 2013.)
The collaboration involves Acetylon’s lead candidate, ACY-1215, an oral HDAC6 inhibitor in two Phase Ib trials for hematological malignancies, as well as the HDAC1/2 inhibitor ACY-738 for neurological diseases and an-as-yet unnamed project that spans cancer and noncancer disease indications.
On the Biopharm panel, though, Ogier spoke mostly of his early days with Acetylon, and how the firm began its growth from angel investor money that backed research licensed from Dana Farber Cancer Institute and Harvard University, first pushed along with cash contributed by board member Marc Cohen after “something of a nuclear winter” for venture capital (VC) in 2008.
Acetylon functioned at the outset as a virtual company in China, conducting lead optimization and biological screening assays after licensing the technology, which was “no easy trick, because they [Dana Farber and Harvard] both had to sign the agreement,” Ogier said.
July 2009 brought a $7.25 million round of angel investor cash. The contributing Kraft family, which owns the New England Patriots football team, was “very typical of other investors, [with] little experience in investing in medical ventures, but a keen interest in trying to help the progress of treatment, particularly for multiple myeloma [MM],” Ogier said.
A year and a half later, Acetylon gained an investigational new drug allowance from the FDA. Progress “went pretty rapidly,” Ogier said, “and I have to attribute that in part to the nice hand of cards we were dealt” by the licensed research. Next, the company raised $28 million from all the original investors plus another 15 or so individuals.
Much of the bigger financing was accomplished “just by networking,” Ogier said. “These are people who mostly have not invested in medical start-ups before, but they’re very wealthy and very interested in seeing success in particular areas of medicine.” Another $6 million came from the Leukemia and Lymphoma Society as repayable conditional debt.
Enter Celgene, with a $15 million investment that “was quite useful, and allowed us to start a collaborative clinical trial with their drug, Revlimid [lenalidomide],” already approved for MM and anemia, Ogier said. Celgene gained an observational seat on the board, with “no other strings attached, which we put in the press release, and they’ve had to react to, ever since,” he deadpanned.
Phase Ib results are showing high rates of response with Revlimid combined with Acetylon’s drug, “70 percent to 80 percent, depending on which week you take a look at the data, which is maybe twice what [Celgene] might expect with their own drug,” Ogier said.
The latest Celgene pact “gives them a period of time to watch us go further into Phase II clinical trials, and then they will have an option to buy the company within a set of parameters that are pretty nice,” Ogier said. “It’s still early. We could still hit the wall and be done.”
Even so, the story stands as a testament to the power of angel investors who, in the case of Acetylon, put down money “almost exclusively on the guidance of a key opinion leader,” Ogier said.
“Having that individual be at Harvard has not hurt us, and that individual having a track record with two very successful drugs – and more that he’s working on currently for other companies – is certainly not a problem, either,” he said.
Far from it, in fact. “For most of these investors, the most we had to do is answer a few emails and have a half-hour phone call,” Ogier said. “The super-wealthy tend to know each other,” and already are chipping their money into favorite nonprofits, he said. “You can go online and look at their Christmas gala photos and figure out who their big [charities] are.”
He allowed that it’s “pretty hard to go there and ring doorbells if you’re just an entrepreneur with a history degree,” and urged other firms attempting the Acetylon route to “find an academic investigator who’s willing to speak out for the benefits of what the medicine could be doing.”
‘We Like the People We Invest With’
Speaking for the angel side of the fence, Jeff Arnold, president of Arnold Strategies LLC, said he has invested in six biotech firms, three of which have exited.
One of those went on to raise VC money after the angel round and, “although the company exited, and the milestone payments are coming in, I can [only] buy myself a nice dinner with the milestone payments I’m getting and I will never do that again,” Arnold said.
“All of the rest have been companies whose intention from the start was to get to the goal line entirely on angel money,” he said. “They’re all companies you’ve never heard of, because they don’t spend any money on advertising, and they don’t spend any money on a website.”
Another of Arnold’s exiting firms was bought by Cephalon Inc., of Frazer, Pa., for $140 million, including $43 million up front.
“How do you do that? One thing is that you have to live on rice and beans as a CEO,” Arnold said. “You can’t expect to get paid a market salary. You’re not going to have a fancy office. Everything is done on a shoestring.”
Regarding the asset or platform, Arnold said, “there needs to be some hook – either some reason why you think you can get to the goal line on less money than it ought to really take [such as an approved drug, repurposed], or you have good reason to believe you can get an exit early, or you know for sure you can get efficacy data out of your Phase I study. There are a lot of opportunities like that out there.”
For companies, he said, it’s best if they also understand the nature of the angel investor beast. “Angels don’t believe in down rounds, and we don’t believe in wiping out our friends,” he said. “We’re not really doing this only to make money. We like the people we invest with. And angels never replace CEOs. We can’t. We don’t know how.”
Biopharm America, sponsored by the EBD Group, ended Thursday.