What would you do if you won the lottery? Wait, let me put that differently. What if you had founded a biopharmaceutical company that ended up having an extremely successful exit (i.e., a Powerball jackpot-type payout)? Would you ride off into the sunset to a life of luxury and leisure as many lottery players have fantasized? Or, would you get back in the high-risk game of biopharmaceutical drug development (i.e., buy another lottery ticket)? It was that kind of life-altering decision that was facing three executives of Kite Pharma in the fall of 2017.
In August 2017, Gilead acquired Kite for $11.9 billion. Three months later, Arie Belldegrun, M.D. (founder of Kite), David Chang, M.D., Ph.D., (former EVP of R&D and chief medical officer at Kite), and Joshua Kazam (cofounder and director at Kite), were attending a cocktail reception celebrating the acquisition. A colleague, who happened to be a banker, approached the trio and asked if they had plans of doing something different now that their company had been acquired. Apparently, Pfizer was looking for a partner to accelerate the development of its CAR-T pipeline. “I so vividly remember this conversation,” reflects Chang. “Our colleague made a compelling case to persuade us that we consider this CAR-T pipeline as our next career opportunity.” Makes sense. After all, YESCARTA (axicabtagene ciloleucel, approved by the FDA October 2017) was the CAR-T therapy they had been working on at Kite. YESCARTA is a highly specialized and individualized therapy, meaning, when you manufacture the product there’s only one patient who can benefit. And as these three already had been thinking about what might be possible with the next generation of CAR-T therapies, they soon found themselves formulating plans for what would soon become Allogene Therapeutics.
An Opportunity Too Good To Pass Up
“Considering the various advances in gene editing technology [e.g., CRISPR and TALEN], along with our increased understanding of science, we had been thinking about the possibility of developing a CAR-T therapy derived from the cells of another person, such as a healthy volunteer, which could be manufactured and modified for use in multiple patients,” says Chang. In such a scenario, they saw significant benefit in manufacturing yield as far as the number of patients that could be treated, along with being able to achieve product consistency. “We had been seriously thinking about all of this when we learned of Pfizer’s plans,” he shares. “And though we hadn’t been planning to do something different just yet, we immediately recognized that this opportunity was uniquely special.”
The problem was, they had to move fast, really fast. The term sheet was due to Pfizer in January 2018, and it was already November 2017. Fortunately, they were able to quickly bring some people on board who had left Kite following the acquisition (e.g., Veer Bhavnagri, Allogene’s general counsel; Christine Cassiano, Allogene’s chief communications officer). “You needed a team that trusts each other and excels in quickly resolving complex issues,” says Chang.
But as any entrepreneur can attest, creating a team or even any semblance of what you will eventually call a “company” is difficult before you’ve pitched investors, because, well, you don’t have any money. That means your “team” really consists of volunteers. “We probably had fewer than 10 volunteers, none of them actual employees, working relentlessly to create something that we all believed in.” In other words, these people wanted to become a part of new company, but there was no guarantee, and they weren’t getting paid, and Chang says in situations like this, you can’t even take the time to draft up any sort of compensation agreements, as you don’t know the outcome (i.e., without the Pfizer assets, the Allogene build is likely a no go). “Having a discussion on who gets what percentage that early would have been a waste of time and would have eroded trust, which is so essential to getting an operation up and running.”
To submit the term sheet to Pfizer, the company, which wasn’t quite yet a company, needed a name. And while you might think that such an important decision would involve an in-person conversation with “volunteers” gathered around a table to provide their input, such was not the case. “Actually, a few of us were just sharing some potential names back and forth via text messages,” he laughs. “I don’t even remember what other names were considered, because once Allogene was proposed, we thought it was perfect; “allo” means “other” or “different” and, as the company was created to advance allogeneic CAR-T therapy, which, by design, treats patients with genetically different T cells from another person, there was very little debate.”
Chang admits that this was an intense time for the company, and although they felt good about their proposal to Pfizer, there was never a sense of “It’s in the bag.” Nevertheless, by the end of February, the decision was made, and Allogene came out on top of all the other companies that were competing. According to Chang, it was the experience of the Allogene founders that really influenced Pfizer’s choice. After all, ideas are one thing, but successfully executing an idea is what really creates value. Allogene’s founders had taken Kite’s CAR-T therapy from IND to approval. Furthermore, they had just come away from a successful acquisition (i.e., Gilead acquiring Kite for nearly $12 billion). Pfizer was not only confident in placing its assets with Allogene but took a 25 percent stake and two board seats, as well. For this Allogene received the rights to 16 of Pfizer’s pre-clinical CAR-T therapy assets and UCART19, an allogeneic CAR-T therapy that was already in Phase 1 development for the treatment of acute lymphoblastic leukemia (ALL).
As the discussion with Pfizer accelerated, it became imperative that Allogene secure financing to finalize the Pfizer partnership. “First, we had to get comfortable with the science and technology, then come up with a strategy for how to translate these into a product candidate that can be developed as a treatment for an unmet need,” Chang relates. “How do we differentiate and be competitive in this field so that we can be successful, which really comes down to execution.” Chang asserts that this is the road map for how to build a biopharmaceutical company.
Of course, it also helps when you have someone like Belldegrun on your team who has years of experience in the industry as well as with building a company. “Arie was instrumental,” contends Chang. This became evident when it came time to raise the money to get the company going. In fact, the day of the announced Pfizer/Allogene deal, the company also announced it had raised $300 million, the second biggest biopharma Series A of that year! The Texas Pacific Group (TPG) was the first to commit, helped by the fact that Belldegrun had a long-standing relationship with David Bonderman, one of TPG’s founders. “When people have worked together previously (i.e., Kite) and been successful, you become not just business associates but trusted friends,” Chang relates. So, when Belldegrun told Bonderman about the idea for Allogene, things moved quickly. Next came Vida Ventures, a life sciences investment firm cofounded by Belldegrun in 2017. The team also went to Gilead, told them what they were doing, and soon they, too, were on board. The investment consortium also included BellCo Capital, a Los Angeles VC firm founded by Rebecka Belldegrun, M.D. (spouse of Arie); the University of California Office of the Chief Investment Officer; Two River; and Pfizer.
By September 2018, Allogene had completed a $120 million financing of convertible notes, with participants primarily being first-time investors in Allogene. Roughly one month later, the company pulled off the second largest biopharma IPO ever in October 2019, raising $324 million in an offering that suddenly had the company valued at roughly $3 billion. “We always knew that to continue growing and advance the pipeline we’d have to leverage the public market, so that was always part of the plan,” Chang explains. But there are certain things you can’t really plan, such as when to IPO, as that’s dependent on the market. “The advice we got from our board members, especially Arie, was when the IPO opportunity is there you grab it, so that’s why we went for it so quickly,” he concludes.
The fact that the teams of Two River and Vida Ventures include all three Allogene cofounders is encouraging. It means that these men who benefitted from a “lottery-type exit” aren’t taking their money and running; they’re putting their money where their mouths are. Remember, no matter how experienced and smart you are, drug development remains a risky proposition. But Allogene seems to be on a path to soar much higher than Kite. And while there could be a big exit down the road for its cofounders, if Chang and his team prove successful in developing new CAR-T therapies, those who will benefit the most are patients. And isn’t that what matters?
WHAT’S IT LIKE FOR A FIRST-TIME BIOPHARMA CEO?
David Chang, M.D., Ph.D., cofounder and CEO of Allogene Therapeutics, says that the plan from the very beginning was for him to be the company’s CEO.
And though he knew this going in, he still had plenty of trepidation and sometimes, self-doubt. “Do I really want to do this?” he asks. “Can I do this? Am I the right person?” Chang admits that he went through such mental anguish. However, it was extremely helpful being surrounded by supportive people, including his family, not to mention fellow Allogene cofounder and executive chairman Arie Belldegrun, M.D. “When you have someone as successful as Arie telling you that you’ve been doing similar things and that this should be easy, it gives you the confidence to get through challenging periods,” he shares.
Still, Chang knows that, as in life, rarely does everything in biopharma go right all the time. In fact, biopharmas often encounter many failures on the path to success. As such, he too pays attention to encouraging and inspiring others. “I always try to be transparent, realizing that despite having a technical background and a leaning toward introversion, as my job definition has now changed, so must I evolve, and that means spending more time on people and approaching things in a team-based way,” he says. He also focuses on self-awareness. “Is the individual aware of what they are doing and how their actions are causing reactions? When trying to teach, I try to put myself in the other person’s shoes, then think about how to carry out the conversation. Because one of the things I’ve learned is, a lot of times it’s the individual themselves who limits their own potential.” Perhaps this comes from years of experiences when things did not go well. But as a leader, Chang tries to help employees eliminate that kind of baggage and reset by verbally painting a picture of success. “If you provide a clear goalpost of what you are trying to do, it helps individuals step up.” Having clarity on what you want to do and believing in it is always the starting point, but never forget the importance of the team itself and the process of building the team. And, especially from the CEO or management side, don’t forget how important it is to enable that team to perform its best. To that end, one thing Chang always tries to do is to push a decision down to the person with the most in-depth knowledge of the decision that needs to be made. “Doing so really enables the team to move more quickly than if they are always waiting on the CEO to decide,” he contends. “But you need to be aligned so that the decision is right for patients, and if you’ve communicated things properly, it should also be right for Wall Street.”
WHEN THE STUDENT IS READY, THE MENTOR WILL APPEAR
Prior to entering industry in 2002, David Chang, M.D., Ph.D., cofounder and CEO of Allogene Therapeutics, held dual appointments as an associate professor of medicine and of microbiology, immunology, and molecular genetics at the David Geffen School of Medicine at UCLA. This is significant because the person who would eventually become an important mentor (i.e., Arie Belldegrun), also was a professor at UCLA. “Arie was in the surgical department overseeing urology cancers, so while we didn’t have any active collaborations, we definitely knew of each other,” Chang shares.
Fast forward to 2014. “I was at Amgen leading the hematology/oncology development area when we had an opportunity to go to Kite and review its plans and get a better understanding of its technology and clinical data,” Chang states. At this time, CAR-T therapy was still fairly new, though some case reports had already been published in the New England Journal of Medicine. And while there had been a few companies created to advance CAR-T therapies in the clinic, there remained a lot of questions and naysayers. “There wasn’t any known pharmaceutical industry commercialization model for making a therapy that used a patient’s own cells to develop a treatment just for that patient, and many simply thought it couldn’t be done,” he elaborates. But then he attended the meeting at Kite led by Belldegrun.
“Arie shared some patients’ data from a study being conducted at the National Cancer Institute (NCI), and when I saw some of the radiographic (i.e., PET, CT scans) results of patients having received CAR-T therapy, well, it was really mind blowing, especially for an oncologist who had treated similar patient populations,” he attests. Tumors, sometimes nearly the size of a grapefruit, were simply going away three to four weeks after a single infusion of CAR-T cells. To Chang this was astonishing, and he found himself thinking that if this therapy can provide that kind of clinical benefit, it has to be developed. “I knew there were a lot of things that needed to be worked out as far as logistics and manufacturing, but when you have a therapy with this kind of potential to address an unmet medical need, shame on us as scientists and drug developers if we can’t figure out how to advance it to benefit patients,” he shares.
Following the presentation, Chang approached Belldegrun, telling him he liked what he was doing, the science looked great, and the clinical data, while early, still looked promising, though a lot of work remained. In short, Chang wanted to be part of what they were doing, which is how he joined Kite. “I saw this as an opportunity to really think outside the box. Rather than trying to develop CAR-T therapies the way cancer drugs always had been developed, we were taking a different route,” he states.
Most drug developers put their drug candidate through clinical studies (i.e., Phases 1, 2, and 3) to generate the necessary evidence to get it approved. But that method wasn’t applicable for a therapy developed for just one patient. “We had seen a profound treatment effect, and a majority of the patients receiving CAR-T therapy showed some response, with some achieving complete remission.” To put this in perspective, most oncology treatments were showing responses in one-third to one-half of patients, while CD19 (a biomarker for normal and neoplastic B cells and follicular dendritic cells) CAR-T therapy was showing responses in 80 to 90 percent of patients. With their backgrounds in oncology, Chang and Belldegrun could see how CAR-T therapy was not only going to help patients but also change the practice of medicine for the better. “Arie is such a visionary. Early on, with very little information, he was able to clearly see the real-life potential of something that looked very much like science fiction to others,” Chang states.