OK, I am for sure going to get some of the science and terminology wrong here, but what can say? I am just a caveman lawyer without a STEM background, and, unfortunately, hanging around all our lovely STEM-trained MSL students has not magically turned me into a scientist. So I apologize in advance for the lack of science sophistication you are about to see. But the talk I am reporting on was so aptly delivered by Dr. Norbert Riedel that I actually thought I understood some of it!
Today was the first DPELC-MSL speaker of the semester. And it was a blockbuster. Dr. Norbert Riedel, CEO of Aptinyx, gave a super interesting talk that was right at the intersection that the MSL focuses on: his talk crossed over the disciplines of business, law, intellectual property, regulation, entrepreneurship, negotiations, contracts, finance, deal-making, science, and ethics. Basically, the entire MSL curriculum rolled into one talk.
Dr. Riedel started by talking about some of the characteristics of a successful company. He said that a successful company usually must be a pipeline for multiple products, rather than be just a one-trick pony. He also said that there is a need for multiple meaningful inflection points – both short-term and long-term – rather than putting all eggs into one longer-term basket. This allows the company to validate what it is doing instead of the more risky approach of freighting everything on a big result down the line. A successful company also benefits from having well-recognized investors, because of the “pull effect” these have on other investors. A successful company must be managed by a good team; Riedel noted that investors bet on the teams as much as they do on the technologies involved. He also said that there need to be barriers to entry so that other companies can’t come into the exact same space – barriers such as strong IP protection. A good company will need to distinguish itself, so that it has enough freedom to operate without a lot of risk that another company will encroach on its territory.
Dr. Riedel than discussed his company, Aptinyx, which, in an earlier incarnation, was called Naurex. The focus at Naurex was on developing new molecules that could address multiple diseases of the nervous system. The process and research was more than 20 years in the development. The founder and chief scientific officer of the company is a faculty member at Northwestern, a molecular biologist, whose research involved a pivotal receptor in the brain that acts like a master switch. If this receptor is working well, then the brain is in a healthy state, but if the receptor is slightly off, there can be devastating consequences, and a plethora of issues can develop – various kinds of neural and cognitive deficits. Used to be, the method for treating problems with this receptor was the equivalent of an on-off switch for the receptor. Naurex figured out that if you can manipulate and normalize the master switch, then you should be able to regulate the effects of the dysfunction, and they set out to discover molecules that could do just that.
To describe how the molecules work and why they are so effective, Dr. Riedel gave an example of a house that is too cold. To raise the temperature of the house, occupants could either use a thermostat or light the house on fire. Both methods would generate heat, but the thermostat method allows for moderation, manipulation, and control. Previous technologies had acted more like the setting fire method–by completely turning off the master switch–but the new molecules allowed for more tailored and minor adjustments. Naurex (and now Aptinyx) has since synthesized hundreds of molecules that are unique in their ability to modulate this receptor.
One potential effect of these molecules is that they can enhance the way nerve cells in the brain operate; because the brain creates memories and cognition, these molecules can trigger an event that could potentially lead to a long lasting effect. You know, neuroplasticity and all that jazz.
Naurex found an antibody and made a slew of peptides and tested whether the peptides could simulate or mimic what the regular antibodies did. (This is a good place to remind you of the lack-of-scientific knowledge disclaimer at the beginning of this post.) Sure enough, the molecule they developed repeated what the antibodies did. And it was relatively easy to make and administer; they were able to develop a molecule that could be delivered orally instead of in an IV. So they succeeded in making small chemical molecules that were able to mimic what the regular antibodies do. This is a big deal, absolutely new chemistry. And they have been very active in patenting their molecules, so they have developed an extensive and novel IP portfolio that they expand every month; this creates big barriers for other companies to enter their territory.
With Naurex accumulating an impressive patent portfolio and reaching its interim targets and inflection points, it was a very successful and attractive company.
The team at Naurex wanted to think expansively about what uses the new molecules might be put to – they didn’t want to focus just on one particular application, but were eager to have multiple possibilities, including short-term deliverables along the way. They had multiple funding rounds and delivered various markers along the way. They were getting great results in their trials: the drug seemed to reduce the effects of depression in two hours (unlike typical SSRI medication, which can take weeks to have the desired effects). Besides being fast-acting, the drug had very robust results: after one administration, patients were feeling better for up to two weeks, with no adverse effects.
Naurex built the value of the company over time but didn’t weight the value all on longer-term deliverables. They actually went down the path of doing an IPO, but ultimately decided that they didn’t want to give up the independent nature of their private company.
Along comes Allergan. Allergan was interested in Naurex’s molecules, mainly for their application in Allergan’s already established commercial domains: depression and Alzheimer’s disease. Allergan was interested in buying out Naurex, but the Naurex folks thought there were potentially very broad and had multiple applications for their molecules. Naurex did not want the use of those molecules to be limited to just the particular disorders in which Allergan was interested. The team at Naurex knew that Allergan had the resources and wherewithal to get the depression- and Alzheimer’s-related use drugs into the marketplace, but they were concerned that selling everything to Allergan would potentially deprive other patients–those outside of the depression and Alzheimer’s areas–of what could be developed in other areas. They knew there was more potential for the molecules and felt an obligation to explore and develop this potential. So Naurex decided to sell part of the company to Allergan – they sold some of their good stuff to Allergan and kept some of it to ensure continued developed in other areas of great need.
Ultimately, Allergan and Naurex worked out a complicated deal whereby Allergan would buy two of the molecules for use in nervous system disorders, and Naurex would reorganize as Aptinyx and continue to develop molecules and uses separate from what Allergan was doing. Every shareholder of Naurex retained a proportionate share of Aptinyx. And Allergan paid 1.7 billion for what they got from Naurex. Not kidding. Not all of this was paid up front, of course, but a big chunk of it was. Because this is such promising science, and really unprecedented, the transaction price was gigantic.
What Aptidnyx does now is similar to what Naurex did, and the team from the Naurex days is still mostly intact; the whole team rallied around the idea of creating this new company. This stability in team composition gives investors a lot of confidence in the company. Now the company is focusing on neuropathic and chronic pain (such as fibromyalgia and pain experienced by diabetes sufferers) and not on depression or other nervous system disorders, which they gave up to Allergan. They aspire to be a pipeline company (as opposed to a one-trick pony) and to broaden their reach into all areas of Central Nervous System disorders – such as neuro-degenerative disorders, PTSD, TBIs, and others – instead of just being focused on one disease. And just like they did when they were Naurex, they continue to focus on both short-term and long term meaningful deliverables. They have completed Investigational New Drug (IND) submissions for Phase 1 filings, and have satisfied requirements for moving into Phase 2. Their timeline includes other shorter-term deliverables. As these broad and varied applications were the motivation to build the company in the first place, the Aptinyx team seems very happy with where they are. And they believe they have a very promising path forward.
Dr. Riedel’s story was so interesting, and covered so many cross-disciplinary threads – what a treat to get to hear him tell it. After Dr. Riedel’s talk, there was a lively Q & A, which will be discussed in Part II of this post. Check back soon for a report on that interesting session.