follow if the fund idea were pursued? “I think there’s enough work at Hutch to do that, but I’m not sure if new leadership wants to pursue it.” (D. Gary Gilliland was named in November as Corey’s successor.)
“It’s a concept worth considering,” said Corey. “The University of Washington and others have it, but you have to incubate the ideas with enough capital. It has to be $1-to-$2 million, not just $50,000 or something. You need capital and structure, and more involvement from the experts, to allow ideas to flourish.”
(With the 2014 expiration of a lucrative patent, the UW’s tech transfer record has been under scrutiny lately, as Xconomy Seattle editor Ben Romano reported in September.)
Expertise and input. Business and scientific acumen. Is there enough of all this in the Seattle area to build and grow a stable block of biotech companies? Corey is of two minds on the subject. On one hand, local is crucial. He praises the “wonderful community of postdocs and scientists” whose job prospects have shrunk over the years, and he stresses the need to sustain companies with Seattle-based capital. (The Alaska Permanent Fund, one of Juno’s main backers, sort of qualifies regionally, although the shares are actually managed by a Fort Worth, TX, financier named Douglas Bratton. Through the Alaska fund and another fund, Bratton now controls 30 percent of Juno, according to recent SEC filings.)
On the other hand, Corey said it’s important to avoid parochialism. Juno built bridges beyond Seattle by bundling important cell-therapy work from Memorial Sloan Kettering, which was moving quickly ahead with its CART (chimeric antigen receptor T cell) program. MSK also provided a different connection: to New York’s financial community. (The cancer center’s various centers, buildings, and chairs are adorned with financier names like Henry Kravis, David Rubinstein, and David Koch.)
The MSK partnership “made a difference with respect to the science but also how the business community looked at the relationship,” said Corey.
I’ve already listed several big-picture reasons why Juno is one of the most unusual biotechs ever. Under the hood, there are other reasons, too. Take those MSK and Hutch partnerships, for example. Juno will not only pay royalties to the institutions (that’s a typical arrangement), but it will hand over bonuses—Juno calls them “success payments”—as its stock price rises. Such arrangements between a startup and its academic licensors are, if not unprecedented, extremely rare.
According to Juno’s SEC filings, the Hutch gets incremental payments as the stock rises from $20 to $160 a share, up to a total of $375 million. (The share price topped $50 just before the end of 2014.) For MSK, payments started when the stock price hit $40. The payments continue as the share price rises to $120, and top out at $150 million. The payments can be made with equity instead of cash. (In addition, the Hutch owned 13 million Juno shares and MSK 2 million just before the IPO.)
Juno’s third academic partner, Seattle’s Children’s, does not seem to be involved in the success payments.
Juno officials have also added unusual protection against hostile shareholders by adding a “fee shifting” bylaw to its charter. It’s a new, controversial weapon, legal in Delaware where Juno is incorporated, meant to discourage “nuisance” shareholder lawsuits, as Juno CFO Steve Harr wrote to Xconomy last month: “We’re going to try this new approach and see if it works.”
That last sentence from Harr could describe much of what Juno has done so far. But much of what it needs to do to be successful in 2015 and beyond is what any biopharma must do to win the confidence of regulators, insurers, doctors, and patients: prove its treatments are safe and effective, ensure a steady supply to meet demand, build a competent sales force, and make sure those who need the treatments can afford them.
If all those things happen, Seattle could have the biopharma cornerstone Larry Corey and others have craved. “With Juno, I wanted to create a company that not only would have the capital to make sure genetically engineered T-cells could be developed, but to create a company that would be based in Seattle, kept in Seattle, and essentially provide a long term anchor for Seattle’s dwindling biotech portfolio,” Corey said. “We looked for partners who would be willing to take a long term view. And we wanted to pick a CEO and a team committed to Seattle. You have to live in a community to have permanence. Decisions are influenced by where you live.”
