Taking biopharmaceutical Visterra from investment to multi-million dollar M&A

July 26, 2018

On July 11, news broke of an acquisition agreement between pharmaceutical companies Visterra Inc, a Vertex Ventures HC investment, and Otsuka Pharmaceutical Co Ltd. The deal will have Japan’s Otsuka acquire Massachusetts-based Visterra for around $430M in cash by Q3 2018.

We first invested in Visterra in 2014, when they visited Singapore for a Series B funding round. At the time, biotech funding in the US, Europe, and Asia Pacific was booming. Many VC’s will recall how investment in this space approached historical highs in 2015. That record was broken two years later, when VC funding into biotech reached around $9.3B.

This was in stark contrast to Visterra’s experience at the time of their founding. Having previously started Momenta (then called Mimeon) and Cerulean Pharma, Dr Sasisekharan hoped to build another biotech company based on his work. He founded Visterra in Cambridge, Boston, in 2007. But the next year—as we all still remember, perhaps painfully for some—a major economic recession hit many industries, including pharmaceuticals.

Reflecting the global economic crisis, early-stage investment capital raised by biotech in US and Europe declined steadily from 2008 to 2010. In 2008—even as research spending increased by almost $3 billion—biotech funding dropped to $34B, 37 percent down from $53B the previous year.

A few companies, however, did get funded in 2008. These included Visterra, which raised a $2M seed round funded by Polaris Partners’ Alan Crane. The funding enabled Dr Sasisekharan to continue his work—developing the use of Atomic Interaction Network analysis to identify non-mutable epitopes of viruses, against which mutation-resistant antibodies are then designed.

The case for investment

As a venture capital firm, we are constantly looking for disruptive technologies and breakthrough science in the biotech and medtech sectors. Visterra’s novel Hierotope® platform is used to develop precision antibody-based biological medicines for hard-to-treat diseases.

When he first met Dr Sasisekharan in the early 2000s, Mr Teo Ming Kian—now our chairman at Vertex Ventures—saw the immense potential of the doctor’s research. In October 2014, through Mr Teo’s introductions, Vertex Ventures HC and Temasek stepped in to co-lead Visterra’s $30M Series B round with Merck Ventures. Other investors were Flagship Pioneering, Polaris Partners, Omega Funds,  Alexandria Venture, CTI Life Sciences Fund and Cycad Group.

“Unlike traditional antibodies discovery platforms, Visterra is highly differentiated in their approach to difficult-to-drug targets. The ability of the Hierotope® computational platform to detect otherwise undiscoverable epitopes is very powerful in enabling epitope-specific rational engineering of next-gen antibodies,” says Carolyn Ng, PhD, a principal with Vertex Ventures HC who has been serving as a board observer of Visterra. “We were compelled by the versatility of the Visterra platform and the wide range of otherwise difficult targets it can go after. Its application potential in multiple therapeutic areas with unmet needs is immense.”

Our interest was further stoked when we got to know Visterra’s strong leadership team. Visterra’s CEO, Brian J. G. Pereira, MD, is a biopharma veteran, having previously served as the President and CEO of AMAG Pharmaceuticals, Inc, where he raised more than $500M for the company. In addition, as a key opinion leader in nephrology, his experience and expertise in this specific therapeutic area has been instrumental to Visterra’s focus on the kidney disease space in addition to infectious diseases.

“The longstanding relationship between Visterra and SMART [Singapore-MIT Alliance for Research and Technology] opened the doors to many institutions in the Singapore life sciences environment. This included Duke-NUS, Temasek and Vertex Ventures HC,” says Pereira. “Mr Teo was the champion of the Visterra mission to bring much needed solutions to public health priorities such as dengue.”

Visterra set up a lab in Singapore to develop its broadly neutralizing antibody for the treatment of dengue, in collaboration with A*STAR of Singapore (Agency of Science, Technology and Research). This asset has since been in-licensed by Serum Institute of India, which plans to conduct clinical trials in Singapore for this indication.

We also participated in the Series C round in June 2016 and an extension financing round in October 2017, which raised $23.1 million and $23.6 million, respectively.

Pipeline development

Visterra’s CSO Zachary Shriver has done an impressive job in driving Visterra’s multiple pipeline programs forward. Their pipeline includes programmes to develop medicines for kidney diseases like IgA nephropathy, as well as for infectious diseases like influenza A, dengue fever, and cancer.

Under Shriver’s scientific leadership, Visterra has validated the potential of its platform with numerous targets, which eventually led to a research collaboration signed with Vir Biotech in 2017. The latter made an upfront payment with future milestone payments for up to five programs.

Now, with the Otsuka acquisition, Visterra will have access to resources and support to fully realize the potential of their treatment platform. According to Pereira, the acquisition will enable them to accelerate development of their pipeline.

Otsuka Pharmaceuticals, a wholly owned subsidiary of Otsuka holdings Co, Ltd, is a global healthcare company known for research into mental health. Their other R&D programs include hematological cancers as well as kidney, cardiovascular, and infectious diseases.

“The acquisition of Visterra by Otsuka has been a great outcome for investors, employees and the science at Visterra and validates the decision by Vertex Ventures HC to invest in Visterra,” says Pereira.

Lessons learnt

Pioneers tend to walk a rocky, uncertain path, while paving the way for others to follow with fewer obstacles.

The same may be said of Visterra. The company has come a long way in validating its platform technology and in refining its strategy and focus. It is no secret that the company originally considered going public but decided to withdraw its IPO filing last year due to unfavourable market conditions for such a company whose lead program is in the infectious disease space, an area of high unmet needs but yet unsexy for investors.

Despite their IPO setback, Visterra’s management team and board stayed the course with the company. The team and the board secured multiple sources of capital funding for their clinical and pipeline programs for infectious diseases. For instance, the company won a five-year contract from the Biomedical Advanced Research and Development Authority (BARDA) worth $204.5M to fund its lead program of therapeutic vaccine VIS410 for influenza A. The company also won the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) award of $7.2M to support preclinical development of VIS705.

Not wanting to be limited by US market conditions, Visterra’s team took a strategic and pivotal move to explore partnership opportunities beyond US shores. Yoh Chie Lu, our venture partner at Vertex Ventures HC, who also serves on the board of Visterra, elaborates, “The board actively helped Visterra reach out to large pharmaceutical companies in the world as potential partners. Discussions at every board meeting have always been lively and stimulating in steering the company in promising directions.”

“Yoh-Chie Lu and Carolyn Ng from Vertex were a reliable sounding board and strong support on the Board,” says Pereira. He and Greg Miller, Senior VP of BD for Visterra, did an excellent job in engaging Otsuka, which eventually led to the acquisition.

Given the global nature of our fund, we aspire to play an active role in expanding the geographical reach of our portfolio companies for cross-border collaborations and M&A opportunities. We’re always looking for companies that exemplify a next step in the medical frontiers. Visterra’s story has reaffirmed our investment thesis that companies with a compelling technological foundation and scientific understanding could be attractive acquisition targets not just for pharma players from the US and Europe, but also from Asia, where the pharma and biotech sector is aggressively growing.

We continue to work with other exciting biotech companies in the Vertex portfolio, including Palleon Pharmaceuticals, which is developing Glyco-Immune checkpoint compounds to treat cancer, and Obsidian Therapeutics, which is developing regulated cell and gene therapeutics for oncology. Bicycle Therapeutics also seeks to treat cancer and other diseases through its proprietary bicyclic peptide (Bicycle®) platform.