Building A $1 Billion Gene Therapy Company — In 6 Years
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
“THAT WAS A TERRIFYING MOMENT,” reflects Matt Patterson, cofounder, chairman, and CEO of Audentes Therapeutics, a genetic medicines company focused on the adeno-associated virus (AAV). It was the fall of 2012, and Patterson was preparing a final pitch to OrbiMed Advisors to lead a $25 million to $30 million Series A funding round for Audentes, which was then just an idea for a company. But pitching OrbiMed wasn’t what was terrifying. After all, at the time Patterson was working as an entrepreneur in residence (EIR) for OrbiMed, so he knew the people in the room. However, this was his last pitch — after his first few hadn’t garnered much interest. “You have to remember, in 2012 there weren’t a lot of gene therapy companies other than bluebird bio,” he explains.
In his role as an EIR, Patterson had connected with a researcher at Wake Forest University working on X-linked myotubular myopathy (XLMTM), a severe neuromuscular disease with no available treatment. “It took me about 72 hours to decide I wanted to start a company to develop something for these patients and their families, and I quickly came up with an initial vision for how to do a clinical trial, what endpoints to study, and what might be compelling to regulatory authorities,” he notes.
But when he made that first pitch to OrbiMed, Audentes was considered extremely high risk, since in addition to being gene therapy, it was based on early-stage preclinical work and a single asset idea. To decrease that risk and make the company more compelling for his final pitch, Patterson added programs for Pompe disease and Duchenne muscular dystrophy through additional academic connections.
“As an EIR, you are obligated to provide your employer [i.e., OrbiMed] the first opportunity to invest in any idea you have, though legally you’re a consultant and can leave to do your own thing,” he clarifies. And although he really wanted OrbiMed’s support, he already had determined — and communicated — that if they weren’t interested by this point, he’d seek funding elsewhere. This was the nerve-wracking part; not having OrbiMed would make raising funds much more difficult. “How do you explain to other VCs why the firm you worked for didn’t want to be part of the build?” he asks.
Ultimately, OrbiMed provided Audentes with $1 million in seed funding and a soft commitment to support the Series A. It wasn’t the robust financial infusion Patterson had hoped for, but “it was enough to get started.”
FROM THE CLEANROOM TO THE BOARD ROOM
Though Patterson studied science in college, he says he didn’t know much about biotech until 1993. “A college friend, also a biochemistry major, got a lab job at Biogen Idec,” he shares. The friend encouraged Patterson to look into the same work, and eventually he landed a manufacturing tech job at Genzyme. “I was a protein purification technician in a GMP facility,” he recounts proudly. In other words, his days involved gowning in and then spending 6 to 8 hours working away in a lab coat, hairnet, and safety glasses. “It has played an important role for me as a CEO, because I can relate well to the day-to-day challenges faced by people working in manufacturing and laboratory areas,” he says.
After nearly five years at Genzyme, during which time he transitioned to working in regulatory affairs, he moved to California and joined BioMarin as employee number 15. Now in a more senior role, he had the opportunity to work with and learn from folks like Emil Kakkis, M.D., Ph.D., current president and CEO of Ultragenyx Pharmaceuticals. “At BioMarin I realized rare diseases was where I wanted to work for the long term, and after leading the regulatory group though approval of our first product, they offered me the opportunity to expand into other more business-oriented roles,” he says. This eventually led to Patterson joining Amicus Therapeutics in 2004 as chief business officer and employee number eight. Less than two years later, he was picked to be COO, and less than five years after that he found himself in an even bigger role. “John Crowley, Amicus’ chairman and CEO, was considering alternative careers at the time and had decided to step down, so I became acting CEO. Being a CEO hadn’t been a driving force in my early days, but rather something that became more real over time as I found myself in ever-expanding roles.” However, Crowley ended up returning as Amicus’ CEO, and Patterson decided it was time to consider a new opportunity.
In late 2011 he joined OrbiMed as an EIR, where he was working closely with General Partner Jonathan Silverstein, who had brought Patterson to the firm. “One of the benefits of being at a VC is there is an amazing number of technologies and company profiles that flow through these firms,” he elaborates. It also seemed an interesting way to see a wide variety of prospects, to learn, and eventually land a CEO opportunity. During this time, Patterson became reacquainted with gene therapy. Amazed by the amount of progress being made, especially in the monogenic rare disease targets where he was so personally passionate, he began reaching out to various academic contacts he had made during his time at BioMarin and Amicus. This was how he connected with the researcher at Wake Forest working on XLMTM. “The early research was extremely compelling and had all the hallmarks of past successful programs I had worked on, meaning there was significant medical need, a clear understanding of the scientific basis of the disease, compelling early data from two animal models (i.e., mouse and dog), and a motivated patient and medical community wanting to see research advance.” All of these things were exciting to Patterson, and he became convinced that he could help.
In preparing for the previously mentioned pitches to OrbiMed, Patterson worked up a vision for how much he needed to raise to accomplish milestones meaningful to VC investors. “This is an important part of building early-stage businesses, because when you think about financing, you have to think about how much money is needed to comfortably get to milestones that will produce additional value, as VCs look at it from the perspective of what they are going to get for their money and in what time frame,” he explains. This is where working at OrbiMed helped refine Patterson’s knowledge, making it easier for him to think about how to pitch an opportunity. Nonetheless, even with this wisdom and pitching to people he knew it remained a challenging conversation.
By the fall of 2012, Patterson had become even more passionate about the company, which by then even had a name – Audentes Therapeutics. “For those Latin nerds, Audentes means those who have courage, those who have boldness or daring,” he notes. Patterson says he consulted his mother (a former Latin teacher) on the name to make sure his grammatical use of the word was accurate. This also explains how the company eventually came up with its NASDAQ ticker symbol, BOLD. “The courage theme always resonated with me when I think about the patients and families within the rare disease communities, so I wanted a word that captured that.”
THE BUILD – IT’S NEVER AS EASY AS YOU THINK
After officially founding the company in November 2012, Patterson worked out of his apartment in Manhattan for about six months before moving to San Francisco. “I always knew that if I wanted to build an innovative biotech, I needed to put it where I could hire really talented people, and for me, at the time, that was either Boston or San Francisco.” Having worked in both regions, Patterson also figured personal connections might prove important to getting those first few staffers on board. “People say they like the idea of going to a cool, small startup, but the reality is it’s not for everyone,” he states. “Once prospects begin to kick the tires, it’s personal relationships and a history of working together that tend to make the difference.”
But there was a lot to be done before he could begin recruiting. For example, he needed to have weekly calls with the scientists on both U.S. coasts and in France to make sure they were making progress that would keep Audentes on track from a development standpoint. He had to put sponsored-research agreements in place to help fund some of the work that needed to happen to continue to prove the company and its compounds had potential. “There were other licenses that were needed to enable the technology to go forward and make the investment story more compelling,” he elaborates. So, Patterson started a conversation with another company that had IP related to the vector Audentes wanted to use and convinced them not to force him to pay up front for a license. “I pitched the company and my background, and thankfully they thought it credible,” he shares. The two agreed on terms that deferred payment until Patterson landed the Series A funding. This, along with securing licenses for any IP developed by the academic scientists he was working with, was pivotal, because now he could comfortably say to VCs that he had key IP agreements in place. “The clock was ticking, and all these things needed to happen in parallel, because the reality is a million bucks wasn’t going to last very long.”
Next, Patterson set about trying to improve his PowerPoint slide deck for the 2013 J.P. Morgan (JPM) healthcare conference in San Francisco. As an executive of Amicus for many years, the JPM environment wasn’t new. “But instead of getting a room at the Westin St. Francis [the host hotel for the annual gathering] and getting one-on-ones all day with investors, it was me lugging around my laptop and meeting with VC contacts in the lobby of the nearby Hilton with dozens of people around us screaming their own investment stories,” he relates. It was an experience that helped him better understand what did and did not resonate with investors — which in this case was primarily gene therapy. “I heard a lot of different excuses for why people didn’t want to invest in gene therapy, but essentially most of them were just saying it was too risky.”
Over the next four to five months, Patterson spoke with about 25 VCs with little progress. “In retrospect, given the profile of what I was trying to do, the best use of my time would have been with firms that had a history of investing in innovative science at an early stage, because at that time there was really only a handful of VCs interested in early stage, with most of them clearly being more comfortable with programs already having proof-of-concept.” But where he did make progress was when he finally connected with Kush Parmar, M.D., Ph.D., at 5AM Ventures. “He was a relatively new member of the 5AM team at the time, but lucky for me, he was personally interested, as he had been doing some work on gene therapy and was aware of the advancements made in academic research as well as its potential in rare diseases,” Patterson grins. With Parmar as a champion, 5AM was immediately interested, which helped bring OrbiMed further along, as the two had a history of working together. And while OrbiMed, led by Silverstein, stepped up to lead the Audentes Series A, at a $30 million round, they wanted Patterson to find yet one more firm. He continued his dialogue with multiple firms, but with the credibility of OrbiMed and 5AM backing, it suddenly got easier. “Once there’s momentum in a deal, VCs will often follow each other,” the CEO notes. “In the end, we were glad to add Versant Ventures as our third, and that became the Series A, closing in July 2013, with OrbiMed investing $15 million, and 5AM and Versant splitting the other $15 million, and all three joining the Audentes board.”
HOW A “TOTAL FAILURE” BECAME A SOURCE OF SUCCESS
Another round of financing was completed in the fall of 2014. At the time, gene therapy was gaining more acceptance as a powerful treatment option for a range of rare diseases, so Patterson started planning to expand the company’s pipeline to help mitigate risk and increase the impact of their therapies. And then, the unthinkable happened. “We had a total failure of the manufacturing of the lead product in late 2014, which was being done at an academic center,” the executive explains.
When he started the company, Patterson felt confident he understood the manufacturing component. After all, biologics manufacturing at Genzyme and BioMarin was where he got his start. “Turns out I didn’t know as much as I thought, because on the surface gene therapy looks a lot like a traditional biologics manufacturing processes, but the manufacture of AAV gene therapy products was far more complex scientifically than I had initially appreciated, and that was a tough lesson to learn,” he states. Further, there was no one in the world that knew how to do it at the scale necessary to run a clinical development program and eventually be commercial. Obviously, the company needed to find a new way. The initial thought was to come up with a small-scale process and work with a CMO. But here’s the problem. First, there were no CMOs that knew how to make AAV gene therapy products at the time. Second, if the company did decide to go the CMO route, it would be a long-term collaboration with Audentes essentially teaching the CMO gene therapy process development and scale up. “I realized this was a really important turning point in building the company,” he relates. “Because how to manufacture this type of product, do it well, and at large scale was something that was going to become a big issue, especially considering we were seeing more gene therapy companies being started.”
Instead of lamenting over this setback, Patterson viewed it as an opportunity, akin to the biotechs of the 1980s and ‘90s working on innovative technologies and having to build their own internal manufacturing capabilities. “Similarly, we realized this was our moment to be a leader, and we recognized the importance of owning that manufacturing capability,” he shares. But there was just one problem — he had to convince a board composed primarily of VCs that the money they had just invested should go toward building an internal, large-scale GMP manufacturing facility. That wasn’t the plan during the fundraising round, and it wasn’t a plan normally supported by investors. Still, Patterson was able to convince them of the incredible importance of having such capabilities to the eventual success of the business. “It was the most important strategic decision we’ve ever made as a business and probably my greatest success as a CEO,” he smiles.
The company found an old decommissioned GMP plant in South San Francisco that was really just a section of a warehouse that had been used for biologics manufacturing. “We invested $15 million into the facility and leased the adjacent space to be able to expand capacity down the road,” Patterson says. Taking such a staged approach made the move more financially feasible for the business. “It also made it easier to pitch to the board of directors, who thankfully had the courage to support it,” he adds. “It’s a tired phrase in biologics that the process is the product, but it is very much the case in gene therapy.”
That same year, the company began to consider another big move. “It was clear we were building a capital-hungry enterprise, which meant going public so we would have the funds needed to continue to build the business the way we knew it needed to be built,” he states. After a mezzanine financing round, Patterson and his team began the laborious task of choosing banks for the IPO. “It was important to have the panache of at least one larger bank, but I also wanted to make sure it was a bank that would fight for us if times got tough,” he says. He also wanted a couple of smaller banks that he felt would work hard to get the deal done, as there were signs the markets would be a little more uncertain in 2016. The syndicate ended up consisting of Bank of America (BofA), Merrill Lynch, Cowen and Company, and Piper Jaffray as joint book-running managers for the offering, and Wedbush PacGrow as acting comanager.
The first quarter of 2016 turned out to be the worst quarter in biotech in many years. But the additional private financing gave Audentes the runway to be patient, and it was finally able to complete the IPO in the summer of 2016.
The banks, of course, wanted Patterson to immediately embark on a road show to announce the deal, but they were surprised to see three weeks blocked off in June on his calendar. He explained he was getting married and didn’t believe cancelling his honeymoon in the interest of the IPO would be good for his well-being. “Thankfully, all the banks agreed,” he shares. “So, it turned out to be a pretty fun and exciting six-week window, both personally and professionally.”
Today, Audentes Therapeutics is a publicly traded company valued at nearly $1.8 billion.
However, there are other measures of success. For example, in September 2017, Audentes initiated a clinical trial of its lead program, AT132 for XLMTM, and positive results to date led them to announce plans to file for approval of that product in mid-2020. In the meantime, the company has expanded its pipeline of neuromuscular targeted programs, going after Pompe disease, Duchenne muscular dystrophy, and myotonic dystrophy and has grown to more than 250 employees. “Throughout the last seven years, we’ve gone from humble beginnings to where we are today, and while I’m sure we have a long road ahead of us, I am very proud of what it has become,” Patterson concludes.
BECOMING THE CEO THAT HE WANTED TO BE
When Matt Patterson was at OrbiMed Advisors working as an entrepreneur in residence (EIR), he became enamored with the idea of founding a gene therapy company. He admits, though, that there were plenty of other opportunities that he could have pursued considering the amazing number of technologies and company profiles that flowed through OrbiMed. “I had looked at a couple of later-stage companies, as OrbiMed wanted me to be pitching a company that was already in the clinic with some data,” he says. But he had made up his mind that he was only interested in finding an opportunity where he could work as CEO. He says that if a company was in the clinic with data that looked good, and they were looking for a CEO, then something else must have been wrong. “A fixer-upper wasn’t interesting to me, and I didn’t want to be a hatchet man whose job it was to fire most of the team and refocus the company,” he explains.
He did find some interesting rare-disease assets at some larger companies that he thought were, frankly, not well-suited to advance, and so he set out to try to convince those companies that those assets would be better off in his hands. For example, when Bristol-Myers Squibb (BMS) bought Amylin Pharmaceuticals, Amylin had an orphan drug product called metreleptin for a genetic disorder. “I tried to convince BMS that they should out-license that program to me. The conversation lasted about three days, meaning two interactions of, ‘That’s interesting. We’ll get back to you.’ and then, ‘No.’” In the end, he stayed committed to his original plan and ended up starting a new company, Audentes, around the X-linked myotubular myopathy (XLMTM) program he discovered at Wake Forest University.
EMBRACING THE AUDENTES CORE VALUES
Throughout the course of growing Audentes Therapeutics, Matt Patterson admits to taking the concept of culture very seriously, but he wasn’t overly formal about defining it — especially in those early years. “I’ve always been fascinated by the fact that, in biotechnology, one could have a brilliant scientific hypothesis and vision, but the idea goes nowhere because you failed to hire and retain a talented team,” he mentions. “It’s critical that people enjoy their work and are inspired to put in the effort needed to be successful. I was always paying attention to our culture. We had a high rate of employee retention, and everything seemed to be going well,” he elaborates. But when the company reached the 100-employee mark, he felt culture was something to be discussed a little bit more formally. “We spoke about it at a leadership team meeting and attempted to engage the employee base more broadly in the issues they found important, so they’d have a voice, and we could learn.”
The company also did various surveys and small group meetings that were really productive, but in the end, Patterson says neither fundamentally changed the company’s overarching vision or mission as a business. All of those exercises led to the creation of three core values, although Patterson admits he was skeptical when they began creating them. “I’ve been at companies where they went through that exercise, and it became something like a 3x5 card that sat on the desk of every employee but was never truly embraced.” He recalls starting the first meeting by saying, “I don’t think this is going to be a good use of time, and the last thing I want is to come up with a few catchy phrases that management thinks sound good but really don’t resonate, as that seems silly. I’d rather publish nothing than have that outcome.” But as the program evolved and the group began getting into the brass tacks of core values and how to make them real, he became more enthusiastic. “We came up with three that we felt were meaningful, could be acted upon, and made an example of on a daily basis.”
The first is to be bold, find a way. This means striving to really figure out how to solve a tough challenge, whether scientific, clinical, or other. The second is to care deeply about patients, the work, and the team. The third, which is about being focused and working hard every day to achieve the company’s goals, is #GSD, which stands for get “stuff” done, though Patterson shares that they tend to use a four-letter word in place of “stuff” internally. “We felt those three captured who we were and who we wanted to be,” he says. When someone does something outstanding to solve a challenge or to help a teammate, Audentes might recognize them with a “Boldy,” a symbolic award that includes a small financial component.
They implemented the three core values about 18 months ago, and ever since then they seem to come up all the time. “When employees use them casually and regularly without management telling them to, that’s the most important validation,” he contends. And though this CEO went into meetings about culture and core beliefs as a bit of a skeptic, he says he came out a believer.