Kineta: Creative Financing Bridges the "Valley of Death"

At a time when burst bubbles have created uncertainty for investors in the biomedical realm, it’s smart for a drug company to make use of new legislation and emerging trends in venture capital. This is particularly true in spurring confidence in that translational area of drug development many deem the “Valley of Death”. PharmExec caught up with a key emerging biotech CEO, Kineta’s Dr. Charles Magness, to understand how the JOBS act helps small biotechs, and how a company with a focus on translational medicine can compartmentalize its programs and funding opportunities to allow for optimal success in bridging financing and capital flow from the conceptual stage, to full commercialization.

Kineta, a small biopharmaceutical company started back in 2008, has focused on autoimmune, viral disease and chronic pain therapeutic areas. Its enterprising founders, Drs. Charles Magness and Shawn Iadonato, have jointly started three biotechnology companies, including Illumigen Biosciences, acquired by Cubist in 2007. Their entrepreneurial know-how, particularly in realizing the potential of promising mechanisms of action has been central to fueling their business plan. But equally notable is their success despite investment headwinds that demand resourceful strategic focus; best characterized by knowing not only who to partner with, but more importantly when.

“We’ve been successful at positioning across different legs of our funding stool for private equity, foundation sponsors, and NIH support for research,” Magness mentioned. He brought up their current project SHK-186, a small peptide derived from a sea anemone that was in-licensed from University of California Irvine in mid-2009. The drug’s basic mechanism of action as a potassium channel blocker positions it for treatment advances on any number of autoimmune diseases. The many potential indications of the compound is an example, Magness noted, of how a biotech must consider juggling multiple funding sources.

In considering such an array of funding channels, Kineta asserts that compartmentalization of assets as investment opportunities is a vital trick of the translational trade. Magness explained, “We isolate our programs into subsidiaries that allow us to direct funding into each program and provide a discrete investment opportunity that can pay back the investors as soon as it gets over the translational step.” This siloed approach to financing opportunities also allows for patient organizations to allocate funds to a drug with particular promise to the disease area they commit to combat. Additionally, with NIH providing support for preclinical research, and Kineta looking to partner with larger pharma companies in late-stage clinical work and beyond, the company is able to isolate the step in which most companies need help from private investors: the proverbial “Valley of Death.”

With timing a critical factor in the investment game, Kineta, like other small biotechs, is expecting the SEC rollout of The JOBS Act to ease restrictions on relations with investors, and give small biotechs more leeway to raise money for promising therapeutics. Magness praised the Title II and III provisions that address accredited investors and crowdfunding, respectively. “Kineta has been focused on more non-traditional sources of capital outside of just VC groups, and as such, the law makes it easier for companies like ours to reach out to smaller investors who want to contribute directly to drug development programs.”

Crowdfunding, he said, carries a double bottom-line: providing financial as well as social returns in uniting many investors toward a common goal. However, Title III, the provision that legitimizes securities crowd investing in the eyes of the law, is still subject to modification; it remains open to public comment and could be as long as six months until the final rule take shape. Akin to Kineta’s strategy, Magness maintained a simple philosophy: “Open it up to patients and people with a genuine interest in the disease space who want to make a smaller investment, but do it in a way that has a regulatory structure that will protect investor exposures.”

Overall, The JOBS Act is a nod to the rising trend of venture philanthropy. Magness pointed to the burgeoning number of conferences and funding opportunities for companies to attract angel investors, some of whom need to understand that pressures on the American health care system call for collective action. “The whole point here is that we can do better. But first we need to make everyone aware they have a role to play in making the system better. Not just patient groups and payers, but also those outside of the system who don’t know how to invest.”