Do you do more scientific research or more search for opportunities?
We make a targeted effort in searching labs worldwide for products with the potential to bring a new approach to the fight against cancer. In the past decade, we have succeeded in obtaining four technologies that we consider to have a high potential. Their common denominator is that they all take advantage of the immune system. I think that it’s something of a small miracle in the case of two of these technologies. Especially a program based on interleukin 15, which is a protein capable of stimulating the body for an immune response against tumors. We have improved the technology so that it has no major adverse effects compared to other similar treatments.
How do you search for such a substance? Who is the searcher? You?
We usually acquire substances of this kind in the very early stages of research and development. Programs that are already at the stage of clinical trials are very expensive, and they are usually acquired by large pharmaceutical companies if they show promising results. I’m part of a team of about seven people who do the searching, and I’m one of three who make the final decision. We use two basic approaches: we buy either a license for the substance or the company that develops it. Out of the approximately 400 programs we analyze annually, only one or two result in a successfully completed transaction. It means that the substance is added to Sotio’s portfolio and we continue developing it ourselves.
The person who does the search must have a very good knowledge of biology with regard to tumor cells. I guess my big competitive advantage is that I’m rather well familiar with medicine. It is of crucial importance to have access to analysts capable of determining whether a substance we deem attractive from the scientific and medical viewpoints also has the potential to be commercially successful on the pharmaceutical market. Sotio has a business development department, which mostly comprises specialists from abroad because positions of this kind essentially did not exist in the Czech Republic in the past.
What is the role played by such factors as intuition in the searching process?
A big one. If everything could be analyzed in detail with a complete degree of certainty, it wouldn’t make sense to build a company like Sotio. Processes like that would have been implemented by pharmaceutical companies a long time ago. It’s about finding new approaches to attacking tumor cells. Such factors as intuition, luck and chance play a big role in the process.
In what ways are you able to compete with large pharmaceutical companies?
When Pfizer approaches a small company in whose product they’re interested, they’ll say: “We’ll buy your product, pay an adequate price, plus we’ll guarantee that we have the resources to further develop what you’ve discovered based on our track record of the last 40 years.” In light of that, we don’t stand a chance. So we focus on promising programs that are at the very early development stage for pharmaceutical companies to invest in them. On the other hand, we take greater risks than what pharmaceutical firms are willing to incur because we invest in products that are at the stage of animal trials. PPF’s and Sotio’s big advantage is that decisions are made very fast by a small number of people. That’s precisely what we enjoy doing – finding substances that look promising in research, having them go through the complicated pre-clinical testing phase, getting them ready for clinical trials, and, hopefully, having them eventually approved for clinical use.
Does it mean that at this stage of the process you compete with investment companies that are also on the lookout for high-potential substances before they are acquired by pharmaceutical companies?
Absolutely. The stage I’m talking about is referred to as a startup project or spin-off project. Nonetheless, most investment funds have neither the ambition nor the infrastructure to continue the development of substances. They only invest into promising startups or biotechnology companies at the early research stage and gamble on the abilities of their managements. In a nutshell, their business model is based on the calculation that there is a 30% probability that a product will advance to clinical studies and, if the clinical results are promising, that the project will be sold to a pharmaceutical company at a 10-fold profit.
Do you ever use this investment strategy as well?
Very rarely. I’d say that it’s part of PPF’s DNA to keep things under control. PPF doesn’t like to invest passively, for example in the sense of holding a 10% stake and waiting to see how things turn out. Ten years after we started out, I can say that Sotio has built an internal portfolio of programs we fully own and develop using our resources. In addition, when the opportunity presents itself, when we very much like something but cannot get it, we do make a minor investment. Right now, we hold minor stakes in the Swiss company Cellestia and in the UK company Autolus.
But this very approach has now paid off...
The recent divestment of a stake in the Swiss company NBE was a huge success for us. We had invested into a project created by two people, which is based on a technology referred to as ADC (antibody-drug conjugates). Treatments based on the ADC platform can be targeted to find specific cancer cells and deliver a toxic substance into them, which in turn kills them. In essence, it is highly targeted chemotherapy. We’ve managed to negotiate a licensing agreement with NBE, under which Sotio is able to develop two programs. We’re hoping that one of them will reach the clinical trials stage next year. At the same time, NBE offered us the option to invest by buying a stake in the company itself. The way things have turned out is that last October, one of its programs did reach the clinical phase, and the company received several offers from pharmaceutical companies. In the end, NBE was acquired by Boehringer Ingelheim. The transaction significantly appreciated our investment into an approximately 25% stake. The total price paid for all of NBE’s shares amounted to 1.18 billion euros. The sale of the stake has had no impact on further development of our two programs, but we now know what their potential value might be.
So, you could finally pay some money back to Mr. Kellner...
The money we make is reinvested into the development of our programs. But you’re right in a way. That has always been my nightmare – the fact that we spend lots of money without being able to guarantee return on investment. The transaction has substantially boosted the morale in the company.
Do you want to follow the same pattern with the two licensed technologies? Or do you want to take the process all the way?
These are the most difficult issues to consider. It is tempting to try to bring the project to a successful conclusion, but the risk is still high. The chances that the substances will make it on the market are somewhere between 10 to 20 percent, while research and development costs rise up to hundreds of millions if not billions of dollars. The two ADC substances and interleukin 15 I previously mentioned are attractive for major players as well, and we have to decide whether to forge a partnership or whether to pursue further development on our own. The problem is that when a pharmaceutical company buys something, they don’t usually want a bunch of guys from Prague to interfere in their activities. But we want to have a say in things.
Has the transaction improved Sotio’s prestige?
It’s certainly boosted our image as an investor. The fact is that the most important developments in the biotechnology sector take place in the US. We have an office in Boston, which oversees the proper conduct of our studies in the United States. Last year, we acquired another CAR T cellular therapy platform in Cambridge, Massachusetts. As we’re now progressing toward more advanced stages of the development process, we need people who make important decisions in pharmaceutical companies and investment funds to know about us. Most of them are located in the United States.
How has COVID-19 affected the biotechnology market?
Last April, we began consulting the impact of the current pandemic with industry veterans who had gone through turbulent times in biotechnologies and pharmacology in the past. Their expectations were clear: it would be more difficult for small companies to find investors. Consequently, we thought about a year ago that there would be more opportunities for closing licensing or acquisition deals at better prices. Everyone was convinced that a financial crisis would ensue, which has for now been delayed by policies adopted by central banks, and that most young biotechnology companies would need to find money from investors within a year’s time, which would be difficult. As of now, none of that has happened yet.
Not even in oncology research?
As regards oncology research, the exact opposite is happening on the market for financing new, interesting firms, both on the transaction market and new listings on the stock exchange, especially NASDAQ in the US. One year after the coronavirus pandemic began, there is an acquisition spree that is manifesting itself by a surplus of investors interested in high-potential projects. On NASDAQ, there are an unprecedented number of biotechnology IPOs at prices higher than before. As surprising as it is, the cancer treatment biotechnology market shows no signs of slowing down for the time being. Likewise, prices pharmaceutical companies are willing to pay for promising oncological treatments are on the rise. Our transaction is a testimony to this trend. Boehringer Ingelheim bought NBE for a price that is the highest figure paid in a transaction of this kind in Europe in at least the last 10 years.
So, cancer research remains the focus of interest, regardless of COVID-19?
All things considered, it is logical. Cancer is the most frequent cause of death in the Western world. Right now, a story is resonating throughout the German press that draws a link between cancer and COVID-19. It’s a striking example of an incredibly successful startup. In essence, BioNTech is very similar story to Sotio. Like us, they have several oncology programs that are in the early stages of clinical trials. One of their programs is based on an attempt to create a vaccine against cancer. When COVID-19 struck, they used the same technology and very quickly developed a promising vaccine against the coronavirus. They immediately forged a partnership with Pfizer and together had the BioNTech/Pfizer vaccine registered and put on the market at lightning speed. BioNTech is now worth 27 billion dollars on the US stock exchange. That’s truly fascinating. For 12 years, they were trying to make it in the same field as Sotio, and all of a sudden, they are dollar billionaires working in a different sector to save the world. Hats off to these guys.
You’ve just referred to Sotio as a startup...
We are a startup in the biotechnology field.
As surprising as it is, the cancer treatment biotechnology market shows no signs of slowing down for the time being.
Unlike traditional startups, however, you have access to funding...
PPF allows us to build a portfolio of diverse programs, as opposed to following the conventional strategy of focusing on a single project, developing it, and hoping that it will make it and be acquired by a pharmaceutical company, for which the likelihood is about two percent. Our ultimate goal is not to sell Sotio to a big pharma player; our biggest dream is that Sotio will become a pharmaceutical company itself. Incidentally, that is one of the reasons why a large number of the many executives we have from abroad have not joined other biotechnology companies in Switzerland, Germany or France. They say that with us, they have the opportunity to take part in an endeavor with a long-term vision. Being with us allows them to bring projects to a successful conclusion and to work on multiple programs at the same time. At this time, Sotio comprises four biotechnology companies under the same roof, which is something that usually only big pharmaceutical companies with sufficient financial resources can afford.
It means that unlike the usual startups, you don’t have to waste energy in fundraising efforts?
The conventional model pursued by biotechnology startups is to do a financing round every other year to convince investors. Either investment funds from wealthy countries or private investors who allocate parts of their portfolios to biotechnologies. They are willing to invest even into ventures involving extremely high risk, such as the development of pharmaceuticals, which, on the other hand, have the potential to yield enormous profits if they succeed. In general, a large number of startups or spin-offs that become biotechnology companies have roots in the academic world. For example, prestigious universities hold conferences on a quarterly basis, where they present discoveries deemed to be of interest to pharmaceutical companies, investment funds or private investors. In the past, we had time to attend these events. It was highly interesting, but we no longer have the capacity to do that. In the Czech Republic, there is the fascinating story of the Institute of Organic Chemistry and Biochemistry, which is where Professor Holý’s medicaments have originated from. In the Czech context, they have high revenues from his patents, and thanks to their enlightened management, they are able to reinvest the funds into further research. In addition to pursuing scientific research per se, they try to discover concepts that can be used in medicine.
Does traditional research and development take place in big pharmaceutical companies the same way it does in young biotechs?
The definition of a pharmaceutical company is that it has products on the market. That’s the dividing line between biotechnology and pharmaceutical companies. All pharmaceutical companies without exception have departments that conduct research with a view to discovering new substances. Interestingly enough, however, statistics show that the internal departments of pharmaceutical companies are not where new substances are usually discovered. Such substances are in most cases bought from biotechnology companies. Also, there are thousands of research teams around the world, often at universities where researchers are not subject to managerial tasks to such an extent. The academic world provides funding in the form of grants, which gives researchers relative freedom as to the direction which they want to pursue. That is conducive to the development of truly innovative concepts.
Which project do you think has the potential to transform Sotio into a pharmaceutical company?
That’s a difficult question to answer. We currently have two platforms that are very attractive, which we know because of interest from pharmaceutical companies and because large transactions are being made in the relevant field. One of these platforms is interleukin 15. With this substance, we are already at the clinical phase, and we know that it does what it’s supposed to do. The other field is antibody-drug conjugates (ADC), which I have mentioned too. That has been the hottest segment in the research and development of cancer treatment drugs in the past year.
What other biotechnology segments are targeted by investors apart from oncology products? Autoimmune diseases?
Alzheimer. People live longer, survive cancer, and reach an age when dementia becomes a dominant factor. All pharmaceutical companies are trying to solve the mystery of Alzheimer’s disease, but all studies and all promising treatments have so far been a failure. Despite that, enormous amounts of funds are invested into this area because investors know that when somebody finally discovers a treatment, it will be the biggest jackpot in the 100 years to come.
Hrot Nr. 10
Author: Hana Boříková, Tomáš Novák