Jeff Cleland, CEO of Versartis, got into the biopharma industry early. Cleland grew up in the San Francisco Bay Area, and his parents bought him his first biotech-company stock when he was still in high school in the early 1980s.
The stock was Genentech’s, right after its first IPO. He caught the typical triple-whammy bio-industry fever — characterized by scientific wonderment, humanitarian motivation, and career attraction. He first earned a degree in chemical engineering, which was, he says, “an intermediate step, doing more of the process side of the biotech, not the hardcore molecular biology.” After a short time interning at Genentech, he went back to school at MIT and earned his Ph.D. in 1991, then returned to a job at Genentech.
It was a different time in biotech back then. It was back in the days when they had food fights in the Building One cafeteria and [CEO] Bob Swanson would run around in a hoola skirt to get people to go to a Hawaiian Ho Ho. It was a lot of fun.”
At the same time, Genentech was also “a great place to be creative and collaborative with all different levels and different departments and at the same time, still advance really important products. The scientific rigor and the process I learned at Genentech was even more advanced than what I learned in grad school at MIT.”
Cleland went on at Genentech to help launch Herceptin and Nutropin Depot, among others. Even before Roche’s second, majority acquisition of Genentech in 2009, however, the company had become too large and bureaucratic for Cleland’s taste, and he launched himself into the entrepreneurial space to work in several smaller companies before applying everything he learned to founding Versartis in 2009. His most important lesson at Genentech?
“I had mentors like Andy Jones, a staff scientist who had been there from the beginning, and he taught me to do the ‘killer experiment’ early in the evaluation of a new drug candidate. Too much time and money is often wasted in later development because companies don’t do the killer experiment for an early go/no-go decision.” The killer experiment figures prominently in the story of how Versartis came into its present form.
FINDING A PURPOSE
Versartis is developing a “long-acting” form of recombinant human growth hormone (rhGH) for growth hormone deficiency (GHD), using the XTEN technology developed by Amunix. XTEN is essentially a type of molecular scaffold that Cleland says has enormous flexibility compared to older drug-carrying molecules. The founding concept for Versartis was to find and fill the first, most appropriate need for an XTEN-based therapeutic. Ultimately, the company selected rhGH, which patients must now inject daily; the Versartis product, coded for development as VRS-317, is for a single semi-monthly or monthly injection.
The first big challenge for developing the product was also the most fundamental one for establishing the company: raising the money to pay for it. To make matters worse than usual, Cleland and his partners were attempting the founding in the depths of the Great Recession. But sticking with a tiny staff, virtual operations, and careful cash management brought them through the darkest times to the present day, with a number of international Phase 2 and 3 trials set for the coming year, clinical/commercial-scale manufacturing in place, and more ambitious plans for the future. All that — and a product with a purpose and modality investors found appealing.
Cleland neatly summarizes the company’s achievement: “We built a virtual, capital-efficient organization, but we hit every milestone, created value, and were able to raise enough financing to achieve the next key milestone in our plan. We had the insight to take the right molecule forward with a truly novel approach. We figured out how to address the key issues with growth hormone, which no one had done before, and we were amazingly efficient. We had an IND for GHD within eight months of cloning the first VRS-317 molecule, using the killer experiment to show, first preclinically and then in adults with GHD, that the molecule was a monthly product with the same biology as daily growth hormone — another big milestone. But to really convince people, we also did a pediatric study, just completed recently, showing we are the first company able to achieve monthly dosing in children with no trade-offs on safety and efficacy compared to daily growth hormone.”
A monthly dosing of rhGH is much more than a convenience; poor compliance and other problems with daily injections create major safety concerns and poorer outcomes. Even with all of the problems, however, current rhGH drugs constitute a $3 billion market worldwide.
“The long-acting form is what really resonated when we went out and talked to public investors, in particular,” he says. Versartis raised $129 million pre-IPO, then went public in March 2014 after a lightning-fast filing period of four months in which it added only five employees to the nine it already had, according to Cleland. In total, the company raised about $200 million in 2014.
I had assumed the company began with the idea of a long-acting rhGH and then found a technology to create one, but it was really the other way around. Cleland met a pioneer researcher in drug delivery, the late Dr. Willem “Pim” Stemmer, who had started several successful companies before he invented XTEN and founded Amunix. Cleland answered Stemmer’s request to help find the right initial appliI had assumed the company began with the idea of a long-acting rhGH and then found a technology to create one, but it was really the other way around. Cleland met a pioneer researcher in drug delivery, the late Dr. Willem “Pim” Stemmer, who had started several successful companies before he invented XTEN and founded Amunix. Cleland answered Stemmer’s request to help find the right initial application for the technology.
“But Pim didn’t want to take any outside money from venture capitalists for his company,” says Cleland. “So we came up with a plan to create Versartis, getting a venture capitalist to invest in Versartis, with Amunix owning part of Versartis, to develop products. With my experience with growth hormone at Genentech, we ultimately focused on that as the lead product going forward. We essentially became the ‘product development arm’ of Amunix, to validate the technology.” In practice, Versartis is in-licensing XTEN from Amunix for a one percent royalty. (See also the sidebar, “Technology Close-Up.”)
“What investors liked about us was that, even with our private equity, we could take the product into Phase 3 because it was an orphan drug and did not need a large trial to get approved. Even now, as we talk to investors through the IPO process, we could launch and sell this asset ourselves as a commercial company with a small specialty sales force.”
Versartis also has a second product in the pipeline going through its own killer experiments. Cleland says the company will likely have data on the product and be free to speak with investors about it in 2015. Meanwhile, he says, with the company having more than 100 years of growth hormone experience among its two medical directors, the manufacturing team, and himself, there was “nothing to be gained” from partnering at this stage of development. “Once we’ve gotten through the Phase 3, we can win a much better agreement with a partner for some marketing outside the United States, particularly in a territory such as Japan where it would be difficult to build a sales force.”
Versartis is also ready to manufacture its first product at the commercial scale. Like many companies in early development, it went through a couple of other suppliers before establishing a relationship with Boehringer Ingelheim as its CMO. Again, however, it was its own internal expertise that helped the company navigate all the challenges of process scale-up and commercialization. It is now making GMP lots and will be ready to launch its Phase 3 trials next year, according to Cleland.
Most of the process for making the rhGH product is straightforward and familiar biotechnology using E. coli, he says. But one aspect of the product and its longacting technology presented an initial challenge. XTEN dramatically increases the solubility of proteins because the hormone- carrying molecule is hydrophilic and typically negatively charged.
“Growth hormone normally forms an insoluble inclusion body in E. coli. But in our case we form soluble proteins. That made that initial extraction step a bit challenging, but we figured out a way to overcome it early on, and we now have that part of the process, as well as the downstream process, well-scaled.”
Cleland says the company also initially used some uncommon resins that were unavailable in the sizes and quantities needed for commercial scale, but it found alternative sources of better resins. “It looks now like the costs of goods will be less than it would cost for an equivalent daily growth hormone dose.”
Pre-commercial development in any industry never means closing one’s eyes to the commercial realm. A start-up company must project not only the size and potential of its market but also its conditions as key factors in the business model. Cleland and his team applied that principle to elements they knew would determine the commercial fate of their long-acting rhGH as a specialty product — pricing and reimbursement.
“Even before the IPO, we did quantitative market research with the U.S. prescribers, 68 pediatric endocrinologists, and with payers, about 14 different pharmacy directors and medical directors, managing formularies for about 250 million lives. What the research told us — which will be highly valuable for us when we reach commercialization — was that there will be really strong demand for this product, if it continues to perform as hoped. But payers also told us that we should not ‘premium-price’ the product if we want to be considered preferred or health-preferred. ‘Just try to price it close to parity with the daily growth hormones already approved and access will not be a problem,’ they said.”
Cleland calls the situation with VRS- 317 “a real opportunity to disrupt and consolidate the market, which is really fragmented right now.” There are more than a half-dozen daily growth hormones now on the market, with none having a majority share.
At the same time, Versartis is not alone in the long-acting rhGH development space. But, Cleland says, of the several competing companies in the space, all are working on weekly dosing. Versartis is also ahead of the pack in developing the pediatric GHD indication, for which it hopes to be first-to-market. “Entering the market first with the longest-acting product should be an advantage for us if we can stay ahead of them. But that is the challenge, obviously — you need to stay ahead of the competition, and you need to prove your differentiation as you go forth.”
"Payers also told us that we should not ‘premium-price’ the product if we want to be considered preferred or health-preferred."
CEO of Versartis
Cleland has a few thoughts for startups gleaned from his own experience. “One important principle we learned early on was staying lean, staying virtual. Don’t add staff, and outsource as much as you can. Try to get to the next inflection point and do the next important experiment without spending a lot of capital. We are seeing a trend in our industry with more startups turning to a virtual model, and I believe it has really served us well. We are also fortunate to have talented people managing outside resources to achieve our goals, so make sure you get the right people with the right experience, to run your virtual operations.”
As for Versartis, Cleland says the company will go the distance with its now lone product but will continue to invest in additional products for its pipeline. It will also continue to add people — those who meet a high standard.
“We are planning to launch three registration trials next year — in the United States, Canada, Western Europe, and Japan — so we really need more resources. The biggest near-term challenge is finding the right talented people to come in and help us build the organization. Companies often underestimate the importance of culture, so we are being proactive and interviewing not just for talent but also for a cultural fit. We want people with the spirit we had at Genentech in the 1990s.”
Thus, Cleland supplies another reason Versartis belongs in The Enterprisers. May this industry never forget its roots — they were not about style, but enterprise.
Technology Close-Up: XTEN
The key to the long-action of Versartis’ longacting recombinant human growth hormone (rhGH) is the XTEN technology licensed from Amunix. Some aspects of the technology make it ideal for the product, and for future ones, according to Versartis CEO Jeff Cleland:
“XTEN is extremely tunable. Normally, with pegylation or something similar, you cannot easily change the length of the endogenous proteins and move them around within another protein. XTEN can be controlled or ‘tuned’ anywhere from very small sequences of maybe a dozen amino acids, all the way up to ones with more than 900 amino acids, which allows you a lot of flexibility. You can put them all over the molecule in different locations and separate domains or put a small amount on the C terminus and a large amount on the N terminus, as we did with rhGH.
“XTEN was first designed with the thought of replacing pegylation, so initially we had our growth hormone taking a similar path, where we added a long hydrophilic tail of over 900 amino acids to the N terminus, and we dramatically increased the size so that didn’t clear through the kidney. But the unique thing we did was to end up tuning the receptor binding of the molecule by adding the small sequence of XTEN to the C terminus that sterically interferes with the receptor binding. By doing that, we reduced receptor binding by tenfold, while increasing the half-life by thirtyfold. We were all taught in school that you don’t want to reduce receptor binding, you want to maximize receptor binding, but in this case it actually hurts you because you have more safety issues and a shorter half-life. Anyone given a month’s worth of rhGH in a single bolus would have severe side effects. Reducing the receptor binding made it possible to dose VRS-317 only once a month.”