Three years after its initial investment and two years after inking a research collaboration to discover drugs for schizophrenia, Takeda Pharmaceutical Co. Ltd. found Envoy Therapeutics Inc. irresistible, snagging the privately held company for up to $140 million in cash, including an undisclosed up-front payment and progress-dependent, preclinical milestone payments.
In October 2009, Takeda Ventures Inc., the venture arm of Osaka-based Takeda, participated in Envoy's $8 million Series A financing, taking an ownership stake of approximately 12.5 percent in the round, which was led by 5AM Ventures.
The Envoy acquisition, by Takeda subsidiary Takeda America Holdings Inc., is expected to close within a week. Envoy will continue to operate in its Jupiter, Fla., offices through March 2013, when two-thirds of the staff – mainly the company's scientists and technology leadership – will relocate to the Takeda Pharmaceuticals Research Division in La Jolla, Calif.
Envoy has focused on discovering drugs with superior efficacy and fewer side effects than existing treatments using its bacTRAP technology, which combines genetic engineering with molecular biology techniques for labeling and extracting the protein-making components of specific cell types.
The technology is especially powerful in the brain, where hundreds of cell types are intermingled, but is applicable to therapeutic areas beyond the central nervous system (CNS), according to Rob Middlebrook, Envoy's chief financial officer.
The company was formed in 2009 around work emerging from Rockefeller University – specifically from the labs of scientific co-founders Nathaniel Heintz, Nobel laureate Paul Greengard and Lasker award winner Jeffrey Friedman. (See BioWorld Today, Sept. 23, 2010.)
Envoy's technology takes advantage of the way cells make proteins. Once a cell creates a messenger RNA copy of a gene, that mRNA migrates from the nucleus to the protein-assembling ribosomes in the cytoplasm. The ribosomes read the genetic sequence of the mRNA and assemble amino acids into proteins. Envoy's technology tags the mRNA being read by the ribosomes in one type of cell so that it can be quantitatively analyzed separately from the mRNA of other cell types.
Prior approaches to labeling and extracting the protein-making components of specific cells, such as laser dissection, "simply aren't precise enough, and the physical removal of a cell from a tissue can stress that cell and cause changes in the protein expression," Middlebrook explained. "The beauty of our bacTRAP technology is that it allows us in vivo to measure protein expression across all the proteins being expressed by a given cell type and much more precisely identify highly selective targets in a given cell type that might be involved in a specific disease."
In 2010, Envoy and Takeda formed a three-year research alliance aimed at discovering drugs for schizophrenia using the bacTRAP technology. Envoy's job was to identify proteins that are selectively expressed in specific cell types within the brain known to be affected in patients with schizophrenia. Both companies then worked together to evaluate and choose proteins with the greatest potential for therapeutic modulation.
At the time of the alliance, Takeda made a $3 million up-front payment, followed by $2.25 million per year in research funding and fees. The agreement also called for Takeda to pay undisclosed milestones and royalties on products that advanced to clinical development and commercialization.
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The acquisition of Envoy now provides Takeda with the opportunity to employ the bacTRAP technology, intellectual property, materials, datasets and analytical techniques across its pipeline. "Takeda is focused on both our bacTRAP technology and the ability to apply that across a whole range of therapeutic areas," Middlebrook told BioWorld Today.
In addition, Takeda gains access to Envoy's preclinical CNS assets, including the lead programs in Parkinson's disease and cognitive impairment in schizophrenia. "Takeda is very eager to have us continue to bring those programs forward, as well as the follow-on programs behind them," Middlebrook said.
In fact, the acquisition's milestone payments are based on a series of preclinical events that are achievable over the next 12 to 18 months, incentivizing scientists and management "to stay diligent," said John Diekman, founder and managing partner of 5AM Ventures and chairman of Envoy. "We're not so worried about the milestones."
Envoy also has a diabetes and obesity drug discovery agreement with New York-based Merck & Co. Inc. using the bacTRAP platform. Middlebrook said that work is continuing for the time being, and Merck will decide whether to modify the collaboration after the acquisition closes.
Diekman was ebullient about the deal. Takeda, he said, was attracted to Envoy for the same reasons as 5AM, which invests only in original financings. "The science is extraordinary," he told BioWorld Today. "This was target discovery, initially, and most venture firms won't invest at that stage, but we were really taken with the technology."
Envoy also is blessed with exceptional leadership, according to Diekman, describing CEO Brad Margus as experienced and disciplined.
In the end, the investment – a stretch for 5AM, which invested approximately $4 million – "worked out too well," Diekman said. "The science got off to a roaring start," with target discovery in Parkinson's and schizophrenia leading to the development of "solid preclinical compounds" in just three years.
In making the decision to "sell out," 5AM recognized that, after late preclinical, the next value inflection point would not come until lead compounds could be advanced to Phase II. Given the breadth of the portfolio and the interest of Takeda, the lead investor felt Envoy's scientists had a better chance to translate their discoveries into commercial success at a big pharma than a venture-backed biotech.
Of course, it didn't hurt that Envoy's initial investors reaped an enormous return.
The only downside, Diekman said, is that "we never got enough money in the company. But that's something you don't complain about."
Diekman also praised the prescience of Takeda, which invested early in Envoy. "This is how pharma used to be 10 years ago," he said. "I give them credit for great enlightenment. This was a fun project for all of us."