By Fred Olds
“You have to be comfortable with chaos when your company’s bank account goes from $0 to $44 million overnight,” says Laura Shawver, CEO of Cleave Biosciences, which received series A funding in Sept. 2011. Shawver recently guided the fledgling biotech start-up through the first three months of operation after she and the founders convinced investors to fund their company. Cleave is a rare survivor in the tortuous passage from concept to operation. To get here, Shawver says, you simply need good science, a good plan, and a good team. Of course, that’s not a simple thing to do. Organizing, funding, and opening shop is an exceedingly difficult process that requires persistence and a network of contacts who will provide sober analysis and direction.
“Most funding proposals are denied because they should be,” says Larry Lasky, a business-savvy scientist at U.S. Venture Partners and an investor and board member of Cleave. Lasky was a pioneer in biotech and has seen more than his share of hopeful projects. He says there is a naiveté among suitors about what’s needed to get support. So, most proposals lack both depth of science and a credible business plan. Cleave cofounder and biology professor at Cal Tech Ray Deshaies puts it this way, “Researchers face a threat in their optimism. Sometimes you believe elegant science will lead to a final product, but it’s much more. You’ve got to be able to trace a line from basic science to the market and do that with as few question marks as possible.”
The good science at Cleave began with Deshaies’ basic research in protein degradation. While the precise nature of the research is a secret, it does relate to ubiquitins, naturally occurring markers that identify proteins for destruction. Deshaies collaborated with Francesco Parlati, senior director of biology, Cleave Biosciences; and Seth Cohen, chemistry and biochemistry professor, UC San Diego, to further develop the science and understand the biology of the targets. Once they had lead compounds that could affect tumor growth and survival, they felt they had enough to pursue translational science and possible commercialization.
Instill Confidence For Investors With Experience
Gaining financial support for a drug discovery company is an esoteric process that most often meets with denial, frustration, and failure. So Deshaies took the research to Lasky to get an opinion on the viability of Cleave’s science and business possibilities. Lasky saw promise in the enterprise and encouraged Deshaies to proceed. Deshaies then sought the assistance of Peter Thompson, an associate who had years of experience in biotech and venture capital, to develop a business plan and put together a team.
Deshaies says, “You want to show up with as many boots on the ground as possible when you present your plan to investors.” Those boots need to be filled by experienced professionals with demonstrated success in science and business. It’s about credibility. Deshaies says if you think there’s a question about a potential team member, ask an investor if they would back the candidate you were considering for a position like CEO or CSO (chief science officer).
Lasky says that with Deshaies and Parlati, Cleave had premier scientists from a world-class institution who had started and sold Proteolix to Onyx Pharmaceuticals. Mark Rolfe would join the team as chief scientific officer. Rolfe’s previous work at Millenium gave him a depth of knowledge in Cleave’s operating space — small molecule inhibitors of the ubiquitin system. For a CEO they got Shawver, a bench researcher who became president at Sugen and CEO at Phenomix.
The Coincidence Of Science And Life
Shawver was entrepreneur in residence at 5AM Ventures when Deshaies contacted her. She says she was immediately taken by the science. It was novel chemistry and novel targets, which she describes as an “interesting warhead” that had both potency and selectivity. With a career in molecular and genetic cancer research, she recognized the scope its impact could have on difficult-to-treat cancers.
The science drew her on a personal level, as well. In 2006 Shawver was diagnosed with ovarian cancer, a cancer with a poor prognosis and a high recurrence rate. Professionally, she knew what the state of the science was when she received the diagnosis, and she set out to map her tumor and select the appropriate therapy. “What I found was a completely different experience as a patient. The standard of care outside the big four (lung, breast, prostate, colon) was 40 years behind current science.”
“I was lucky,” she says, “that standard care worked for me, but I began to understand how difficult it is for people with recurrent and refractory cancer when standard care fails.” She founded the Clearity Foundation to help women with ovarian cancer in getting tumor mapping and access to appropriate nonstandard therapies. Shawver says, “You can imagine how jazzed I was when the opportunity at Cleave came along. I couldn’t think of a better marriage of all my personal experiences and professional skill set.”
Develop A Compelling Rationale, And Get In Front Of Investors
When seeking support, the team has to have a rationale that investors understand and see the value in. A company needs to show that the compound will meet an unmet need, can be moved through the regulatory approval system, and gain support from payors. Shawver, Deshaies, Parlati, and Thompson developed hypotheses for how they would develop their lead compounds, what the patient subsets would look like, and what companion diagnostics they would need to identify those subsets. Shawver says, “In this day and age we need to identify the subsets of patients who will benefit from drugs. It makes no sense to deliver toxicity without benefit.” Working toward greater specificity in patient selection stacks the cards in the patient’s favor and provides greater clarity for regulatory and payor approvals.
Shawver says, “The process of getting funded is a game of getting in front of people. It’s meeting them in person, not over the phone.” She says sending proposals in an email, cold calls, or asking for a lunch meeting with a phone call are generally time better spent networking. “You have to identify whom you need to meet and find someone who can introduce you to them.”
Deshaies advises, “Get used to hearing ‘no,’ and don’t take it personally.” Persistence is a necessary virtue. Believe in what you’re doing, and focus on that. Shawver advises one to learn from the negative replies. Come away from any meeting with an understanding of why you were turned down. That knowledge can help you improve your plan, presentation, timing, or target.
“Don’t let your first meeting with venture capital be the time you ask for money. What I like to do,” says Shawver, “is talk to people who might want to invest in this or a future venture, and say here’s what we’re doing. Would you be interested? A lot of times you get turned down. Sometimes you get ‘maybe.’ When you have data, you go back to the ones who said maybe and say, ‘Here’s what we said we were going to do, and here’s the evidence. We’re looking for X amount of money to take us to A, B, or C.’”
And don’t forget to always maintain contact. She says over time you develop relationships not only with those that fund you, but with those that don’t. She already had a long-standing relationship with 5AM Ventures; it had funded Phenomix when she was CEO there. That relationship helped Cleave get in to make a presentation and led to 5AM agreeing to fund the new company. The investors who didn’t invest in Phenomix knew her as well and were willing to listen to the Cleave proposal. In the end, Lasky says that once 5AM agreed to fund Cleave, the syndicate coalesced with the addition of U.S. Venture Partners, Clarus Ventures, OrbiMed Advisors, Astellas Venture Management, and Osage University Partners.
With syndicates of this size in a high-risk business, it’s critical to get good legal counsel. There are many lawyers familiar with these types of transactions. The ticklish part, Shawver says, is finding one willing to work ex ante facto for ex post facto payment. The process for the Cleave venture lasted more than nine months, and arrangements for that amount of work on a promise may pose problems.
Don’t Overlook Managing The Operation
“One thing that comes with $44 million is expectations,” says Shawver. “The board and investors expect to see immediate progress on the business plan.” The other thing that comes is acceleration. Usually a company starts with seed money and has time to ease into operation. Cleave’s business plan had timelines for research, but none for setting up shop. Nonetheless, that had to happen simultaneously — and appear somewhat magically, Shawver adds.
Operational issues are background noise to the mission, but can become a frantic test of ingenuity that can dominate your time. Cleave had no lab space, equipment, bank accounts, or Internet. “You have to be resourceful, dive in, and get your hands dirty.” You also have to look for ways to solve problems, not just patch things for later.
The funding closed on Sept. 9, 2011, and the company borrowed space from Clarus for the first month. “We found suitable space and moved in Oct. 3. While T1 lines were being installed, we used MiFi (My Wi-Fi) and worked in the conference room while office and lab space were being finished, and we were able to find good used equipment to save money.”
Probably one of the more annoying situations was to have $42 million in the bank and no credit. Shawver says they couldn’t set up accounts with vendors and ended up paying by check or putting purchases on personal credit cards. She cited an incident with a pipette vendor who said his company wouldn’t set up an account because they couldn’t verify credit through the bank. She suggested the vendor have their company “Google” the Cleave press release. An account was set up the next week.
It’s Not For Everybody
Today, most of the operational issues have been solved, and the company is focusing on proof-of-concept — classic drug discovery research. Shawver explains, “We have to recapitulate with a small molecule what others have shown against the same targets using genetic strategies.” Optimistically, she says they may be able to do that with one of Cleave’s three lead compounds in the next six months, but she adds, “It will probably take longer than that.”
There’s no doubt that developing and running a start-up is challenging. “This sort of work is living on the edge. It’s not for everybody,” says Shawver. “In the end, I hope we do something here that helps cancer patients where there are no options or poor options.” Getting this far was the result of good science, a good plan, and a good team.