With big pharma scaling back early-stage discovery, CBC Group is keen to incubate biotech start-ups developing drugs from scratch. NiKangTherapeutics is the first to secure wider investor attention
01 June 2021
Healthcare investor CBC Group is best known for backing start-ups that license nascent treatments from the US and develop drugs for the China market. Everest Medicines, a biotech player incubated by CBC, leveraged this strategy last year to complete a Hong Kong IPO. It now has three drugs approved in the US, six in phase-three clinical trials, and a market capitalization of $2.8 billion.
NiKang Therapeutics represents the other end of the spectrum: a company working on its own small-molecule oncology treatments, of which one has already been out-licensed to US-based Erasca and begun phase-one trials. CBC helped assemble the founding team and then provided $10 million in Series A funding. A $50 million Series B closed last September, and the company recently secured a $200 million Series C.
“Our deals will mostly still be late-stage commercial plays, but we want to do more incubation as well,” says Sean Cao, a managing director at CBC. “In the past 20 years, big pharma has cut back on early-stage discovery work, although they still aggressively license early-stage compounds from small biotechs. Most of the early-stage work is now funded by VCs and there are opportunities to back strong teams of scientists who worked for big pharma before resources were withdrawn.”
CBC developed the NiKang concept around the time it established Everest but recognized the two strategies could not coexist under one roof. The two founders, Zhenhai Gao and Yan Lou, were colleagues at Novartis before going to work for different US biotech companies. They are Chinese-born scientists who completed their tertiary education in the US and ended up working there.
Cao first got to know Gao during their undergraduate days in China, but he plays down the significance of geography, while conceding that the US is still the best place to find early-stage drug discovery talent. “It doesn’t matter whether the company is in the US or China,” he says. “NiKang is based in Delaware, but it is thinking about establishing an R&D center in China. We will not limit ourselves geographically for this kind of work. Besides, everything is becoming more virtual.”
Nikang’s remit is to develop oncology drugs in areas where there is a strong biologic rationale but developing small molecule compounds is challenging. Most treatments of this kind target proteins, typically service proteins with common characteristics of functions. G-protein-coupled receptors (GPCRs), a widely found family of cell surface receptors that detect molecules outside the cell and trigger cellular responses, are a routine target.
“Many other proteins serve important physiological functions, but either they do not have obvious structures for small molecules to bind to or they are hidden inside cells and so small molecules cannot access them,” Cao explains.
Nikang’s two lead candidates fit this hard-to-drug profile. The first, which has been licensed to Erasca, is an SHP2 inhibitor. It binds to a non-mainstream protein and interferes with signaling, thereby preventing the growth of tumor cells. According to Cao, several companies, including Novartis, are working on similar compounds but they are only at the early clinical stage.
The second is an HIF-2 alpha inhibitor, which targets a small protein involved in transcription, whereby DNA fragments and copied and converted into proteins. Mutations can lead to the generation of additional proteins, in turn driving abnormal cell growth. This has been linked to kidney cancer. The protein is hard to access and interact with, but Peloton Therapeutics, whose treatment is in stage-three trials, was duly acquired by Merck for around $1 billion.
“After Peloton it became even more difficult to find a location to make a drug without violating their patent. We found a new place and a different structure, and we think it could achieve the same outcome as Peloton, or maybe even do it better,” Cao says. Phase one trials are scheduled to begin in the second quarter.
NiKang’s Series C was led by Cormorant Asset Management, HBM Healthcare Investments and Octagon Capital with participation from the likes of EcoR1 Capital, Perceptive Advisors, Wellington Management, Ally Bridge Group, Pavilion Capital, BlackRock, RA Capital Management, Samsara BioCapital, PFM Health Sciences, and Janus Henderson Investors. All the existing backers re-upped, including CBC, Lilly Asia Ventures, RTW Investments, Casdin Capital, and Matrix Partners China.
Cao describes the investor roll call as a who’s who of the top healthcare cross-over investors in the US market, with their involvement suggesting an IPO might be imminent. He adds that the investment could also be de-risked, or even fully realized, sooner than might be expected of an early-stage biotech company. Big pharma’s step back from drug discovery is the key factor.
“Once companies have drugs in phase-two trials, they are getting upfront payments of $1 billion from big pharma, and much more if everything goes well. Those doing very innovative drug discovery can get sizeable deals even before they have a candidate. The de-risk stage doesn’t have to happen after the clinical results have been truly de-risked,” Cao explains. “Innovative drugs with good data can get acquisition offers in 3-4 years, so the timeline isn’t that different from the licensing model.”