BMS Buying Padlock For Up To $600 Million

Two years, $18 million and a big pharma buyout for up to $600 million? That's a great return for investors in Padlock Therapeutics Inc., a biotech firm that raised a single venture capital round in late 2014 to develop novel treatments for autoimmune diseases before Bristol-Myers Squibb Co. agreed to buy the company.

Cambridge, MA-based Padlock is focused on the development of drugs that inhibit protein-arginine deiminase (PAD) enzymes, which turn healthy proteins into neoantigens known as citrullinated protein antigens, triggering an unnecessary immune system attack. PAD enzyme inhibition could be an effective way to treat autoimmune diseases, such as rheumatoid arthritis (RA), before severe disease progression. Bristol-Myers executive vice president and chief scientific officer Francis Cuss, MD, said in a statement that Padlock's approach could "transform the lives of patients."

Padlock CEO Michael Gilman, PhD, says the company was not necessarily looking to be acquired, "but the name of the game in this business is optionality – keeping as many options open as possible."

The company was talking to investors about a Series B round and speaking with potential partners about all kinds of transactions when a Bristol-Myers acquisition became a possibility. "This turned out to be the best deal," Gilman says. "For me, the long game is making sure the programs find the right home. BMS has had a long and strong presence in immunology and I think they will do a great job with it."

The Padlock assets will be added to an early-stage immunoscience pipeline at Bristol-Myers that includes "several novel compounds that offer first-in-class and a best-in-disease opportunities targeting long-term remission," according to the big pharma. BMS said that it is seeking "entirely new mechanisms" for RA and other autoimmune disorders that have significant unmet medical needs.

Bristol-Myers will pay Padlock shareholders up to $225 million in up-front fees and payments tied to near-term milestones plus up to $375 million for the achievement of certain development and regulatory milestones. [See Deal] That's at least 12.5x return on the $18 million in venture capital that Padlock has spent to date and up to a 33.3x return if all of the deal's milestones are achieved.

Gilman has been passionate about the potential for PAD enzyme inhibition since the company's founding in 2014 based on the work of Padlock's scientific founders Paul Thompson, PhD, of the University of Massachusetts Medical School along with Kerri Mowen, PhD, and Todd Huffman, PhD, of The Scripps Research Institute in San Diego. Padlock kept its headquarters in Cambridge, but opened a San Diego office in January where Mowen signed on to be the company's director of biology.

Given Padlock's short history and its recent expansion – the company hired five of its 10 employees since the beginning of 2016 – the deal with Bristol-Myers is bittersweet in a few ways. First, Mowen died unexpectedly in February, about a month before she and her colleagues saw their work validated by a pharma company willing to invest hundreds of millions of dollars to advance their research.

Second, Gilman notes, Padlock really was just getting started. The company advanced PAD enzyme inhibitors quickly with plans to take at least one of its therapies into the clinic in the second half of 2017. Targeted diseases besides rheumatoid arthritis include lupus and multiple sclerosis.

The portfolio includes compounds based on the work of its scientific founders, molecules from screens done with Evotec AG, monoclonal antibodies developed internally, and assets based on PAD technology acquired from GlaxoSmithKline PLC in exchange for an equity stake in the company. [See Deal][See Deal]

"GSK were shareholders; they will get a nice cash payment," from the Bristol-Myers deal, Gilman says. "They managed to reanimate a dormant project. For the scientists at GSK, I think they're very happy about that." Even so, he noted, an acquisition always is somewhat poignant, especially for a company that made so much progress in such a short time after Padlock closed its Series A round in December 2014. [See Deal] "This has been really great fun. We stumbled into this biology that was way more interesting than we understood when we first started looking at it," he says.

Even so, Gilman notes that the transaction with Bristol-Myers is a good outcome for Padlock's shareholders, which include the company's employees and its venture capital investors – Atlas Venture, Merck KGaA's MS Ventures, Johnson & Johnson Innovation and Index Ventures.

The deal also is a notable repeat performance for Gilman, who got Stromedix up and running then sold it to Biogen Inc. for $562.5 million in 2012. [See Deal] Both Padlock and Stromedix were backed by Atlas, which would be happy to have Gilman back as an entrepreneur-in-residence.

The Padlock CEO hasn't made a long-term commitment to any employers or investors, but he said he may not be ready to give up on entrepreneurial biotech ventures just yet. "That's what I like to do," Gilman says. "I like being close to the work."

This article is adapted from Scrip. START-UP brings selected complementary coverage from sister publications to subscribers.