Year-old cross-border biopharma Terns Pharmaceuticals Inc. put some lift behind its pipeline of molecularly targeted, oral small-molecule candidates with an $80 million series B financing led by new investors Vivo Capital and Orbimed. New investor Decheng Capital joined the round, along with existing investor Lilly Asia Ventures, which led the company's $30 million series A earlier this year.

The financing is designed to move lead programs TERN-101, a farnesoid X receptor (FXR) agonist, and TERN-201, a semicarbazide-sensitive amine oxidase, or SSAO, inhibitor – both targeting nonalcoholic steatohepatitis, or NASH – into the clinic in the first half of next year.

The syndicate came together in the months after the startup, based in San Mateo, Calif., with its development team in Shanghai, in-licensed both assets and a preclinical NASH candidate from Eli Lilly and Co. in a global development and commercialization deal. (See BioWorld, April 5, 2018.)

As TERN-101 and TERN-201 advanced quickly toward the clinic so, too, did the company's costs, acknowledged Weidong Zhong, president and CEO. Plans for the series B kicked off in May, with a goal of raising $60 million to $80 million to take two to three programs to the clinic and, potentially, through proof-of-concept studies.

"In September, we finalized the term sheet," Zhong told BioWorld. "There was pretty strong demand, as far as the investors. And we all know NASH is going to be a long battle. It's not going to take a few years to get to the endgame. It's most likely going to take decades to get there. So we were quite selective about the quality of the investors – their experience and knowledge in NASH as well as their track record."

The company's philosophy is reflected in its name, which refers to a small seabird that nevertheless migrates the greatest distance of any species of bird.

In the end, Vivo and Orbimed "provided very strong support" as co-leads, with investment profiles that offered the potential opportunity to support additional private or public financings down the road, Zhong said. Decheng and Lilly Asia took the round to its top target, and Terns was content to stop there.

In addition to advancing the in-licensed NASH programs as far as phase IIa/b, Tern wants to move earlier assets to the clinic. Its discovery efforts have yielded preclinical NASH molecules, giving the company's NASH portfolio a mix of targets across stages of disease progression, from steatosis to inflammation of the liver, fibrosis and cirrhosis. Additionally, the company is building an oncology portfolio, with the first three discovery assets – mechanisms still undisclosed – targeting hepatocellular carcinoma, gastrointestinal cancer and chronic myelogenous leukemia.

"Two to three years from now, we feel we'll be in a very good position, with multiple assets that have different mechanisms of action, to do combination studies" in NASH, Zhong said. "This financing should be able to get us there."

NASH space 'evolving monthly, if not weekly'

Like many early NASH studies, Terns plans to use "an array" of noninvasive biomarkers in phase I to measure the mechanism's proof of concept – "to give us a good indication how well the drug is working and how safe the molecule is," Zhong explained.

The company also will seek to identify two doses to bring forward into later-stage studies, including combination efforts.

Terns is taking a well-informed approach to study design, as well.

"NASH is a space that is evolving monthly, if not weekly," Zhong said. "We have to monitor the field and target the KOLs very closely. At any given time when we start a clinical study, we have to come up with the most feasible and up-to-date protocol."

With a global focus on NASH, Terns will take the lead in initial studies, conducting them in parallel in China and in the EU or U.S., where pre-IND discussions with the FDA are underway and the first filing is expected in two months. The company intends to maintain control over its development programs in China while seeking partners prior to initiating combination studies elsewhere.

Its cross-border culture and competence give Terns an advantage over other NASH hopefuls in luring big biopharma collaborators, according to Zhong.

"In China, because the situation is quite different there, we can do things a lot faster and get our assets to the market a lot sooner than most other players can potentially do," he said. "That's why we built a very strong clinical development team, already on the ground in China. On the other hand, we've positioned our company as a global company. We will definitely engage with big pharma and big biotech companies and offer them something they probably don't have."

Terns is convinced, for instance, that its FXR assets offer the potential to serve as the backbone of combination therapies with a broad pleiotropic effect. Zhong, who prior to co-founding Terns served as executive director and global head of antiviral research at Novartis Institutes for Biomedical Research and, before that, as senior director of biology at Gilead Sciences Inc., understands that strategy well.

"I came from an HCV background, where Sovaldi [sofosbuvir, Gilead] anchored the whole regimen," he explained. "Our goal is to make FXR the cornerstone in NASH and add anti-inflammatory or antifibrotic molecules to complete this therapy and offer a lot of benefit to patients down the road."

The company's strategy is underscored, Zhong said, by recent moves in the field, including the development agreement disclosed a day earlier between Pfizer Inc. and Novartis AG to investigate combination therapies for NASH involving a phase II acetyl CoA-carboxylase (ACC) inhibitor, phase I diacylglycerol O-acyltransferase 2 (DGAT2) inhibitor and/or phase II ketohexokinase (KHK) inhibitor from New York-based Pfizer with tropifexor, a non-bile acid FXR agonist from Novartis, of Basel, Switzerland.

"We're positioned differently from other small biotech companies that typically have just one NASH asset," Zhong added. "We have three to four high-quality assets, and we'd like to build a diverse and high-quality portfolio. Sometime down the road we'll be ideal partners for a combination, and that's what we'll offer to the big players."

Terns will look broadly at those opportunities in regions where its footprint is too small to take programs all the way to market.

"Outside China, we're open to any potential partnership that will enable us to maximize the value of our assets and quickly bring our drugs to the patients who need them," Zhong said.

To date, Terns has 10 employees at its U.S. headquarters, mostly on the discovery and preclinical side. In Shanghai, the development team of 16 encompasses clinical research and operations, CMC functions and regulatory affairs. Zhong expects Terns to grow 20 to 30 percent every year, likely reaching 40 people by the end of next year – mostly additions to clinical development in the U.S. and China – and 50 by year-end 2020.

Zhong pointed to the company's early trajectory as a template for future growth.

"Even in the past year and a half since we started, we have made tremendous progress, not just with the license but also with our internal discovery programs," he said. "With this strong investor support, we'll definitely get closer to our goal of bringing innovative drugs to NASH patients globally."

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