Pharma moves beyond Seres hangover in microbiome space
The dramatic failure of microbiome pioneer Seres Therapeutics Inc. a few years back scared some pharmas away — but large drugmakers are slowing inching back in.
Seres, the first publicly held microbiome-focused company, upped the excitement about microbiota as a tool for drug development when it took in more than $130 million across four rounds of financing from high-profile investors like Flagship Ventures and Alexandria Venture Investments, before raising another $134 million in its initial public offering in 2015.
But the company hit a wall in July 2016 when its lead product candidate failed in Phase 2. The failure dampened investor interest in the microbiome, admitted Pierre Belichard, CEO of French microbiome company Enterome Bioscience SA, in an interview with BioPharma Dive.
"The pharmaceutical companies were intrigued, a bit curious, and at the same time a little bit scared of the approach that was followed by companies like Seres, those developing live biotherapeutics — it was more complicated for them," he said.
Still, Belichard noted big pharma companies see the potential for the microbiome. He said the larger companies realize that microbiota play a role in disease and that modern humans don't necessarily have all the integral bacteria they need to promote health.
Drugmakers are still determining how to use bacteria to develop therapeutics, while researchers are trying to identify what the presence or absence of certain strains can mean for overall health.
Because of the field's youth, estimates on future growth vary. A report from Markets and Markets estimates the microbiome market could reach $635.8 million by 2022, while a different report from Transparency Market Research says it could reach $1.7 billion by 2024.
Dividing research approaches
Interest in the microbiome isn't new, though. Physicians have used fecal transplants for several decades to replace the microbiome of sick patients, often those that have had too many courses of antibiotics.
Seres' setback also caused the microbiome space to split into two distinct camps: those companies like Seres trying to use bacteria to create live biotherapeutics, and at the other end of the spectrum those trying to develop more traditional small molecule drugs that target the microbiome.
Many investors, particularly those from big pharmas, have shied away from the live biotherapeutics due in part to the Seres blowup, but also in part because of the unclear regulatory pathway for these products and the difficulty in normalizing a product across batches. Big pharma investors, instead, have turned toward more traditional small molecules.
Belichard noted the small molecule approach has allowed Enterome to differentiate — and distance — itself from Seres to attract investors. In fact, the French biotech just closed its Series D round of financing, bringing in $38.5 million, and has been one of the most prolific biotech dealmakers in the space, inking deals with Johnson & Johnson, Bristol-Myers Squibb Company and Takeda Pharmaceutical Co. Ltd., as well as developing a joint venture with Nestle Health Science SA that is focused on microbiome diagnostics.
At the same time, Belichard conceded that educating investors about the potential of the microbiome has been a major hurdle for the French biotech.
Continued pursuit of live biotherapeutics
Even after the Seres miss, the biotech and a few others are still pursuing the live biotherapeutic approach.
"We had a pretty good sense that this worked because there was some pretty solid data in fecal transplants. There is a pretty solid base of clinical evidence that this is going to work," said Rebiotix Inc.'s Chief Business Officer Greg Fluet, whose company has a microbiota restorative therapy in Phase 3 for the treatment of recurrent Clostridium difficle.
Fluet, like Belichard, believes the Seres' data "muddied the waters" for investors in the space.
"To some extent Seres was a bit of an overhang even before their data came out. They were this company that had done this multi-hundred dollar deal with Nestle, they were public, they were high visibility radar," he said in an interview.
"It was like 'How are you going to compete with them? They have so much more money.' And then they blew up and it went from 'How are you going to compete with them?' to 'Why are you going to succeed when they weren't?'" he added.
Rebiotix expects its confirmatory Phase 3 study to be completed in January 2019, according to the government database clinicaltrials.gov.
"There [are] ... a lot of different philosophical approaches to do drug development in this space. A lot of pharmaceutical companies and biotechs see that this is an untapped landscape to go out and find unique small molecules that fit a traditional drug development pipeline. That's just not our approach," Fluet said.
For its part, Seres remains committed to microbiome therapeutics as well, and is enrolling patients into a redesigned Phase 3 study of the same candidate that failed previously.
A tentative approach to dealmaking
Deal activity over the last five years shows that big pharmas are hedging their bets on the space. No deals of significant size have been struck with any microbiome startups and there have been no acquisitions in the last five years. But that doesn't mean pharma is dismissing the science altogether.
According to the Strategic Transactions database, there have been 67 microbiome-focused transactions since June 2013, including financings, initial public offerings, licensing deals and other research collaborations.
Some major multinationals are pouring money into early research and making investments in companies that focus on developing drugs based on our bacterial flora.
In particular, J&J, Takeda Pharmaceutical Co. Ltd., Pfizer Inc., AbbVie Inc. and Allergan plc have all shown interest in microbiome research with their wallets. J&J even created its own unit dedicated to the gut bugs dubbed the Janssen Human Microbiome Institute.
"J&J is essentially a bank disguised as pharmaceutical company for the microbiome space," said one microbiome company executive speaking on anonymity at the BIO CEO conference in New York earlier this month.
The big pharma has played a number of roles in microbiome-focused companies. It helped to seed Rodin Therapeutics in 2013, and struck deals with Vedanta Biosciences Inc., Enterome, and Second Genome Inc., as well as with the Icahn School of Medicine.
In 2015, J&J opted in to develop and commercialize Vedanta's lead compound, which was preclinical at the time, for inflammatory bowel disease. A deal with Enterome, struck in January 2016, involves development of therapeutics for Crohn's disease.
"In the case of the gut microbiome space, it has been absolutely necessary to try deals in the early days of the company because the pharmaceutical companies have [expressed interest sooner] than the financing community," Enterome's Belichard said.
While research deals for microbiome therapeutics are happening, the deal amounts remain small and are largely backloaded. For instance, Takeda paid only $10 million upfront in April 2017 to develop and commercialize preclinical candidate FIN524 for the treatment of inflammatory bowel disease and ulcerative colitis.
In another example, Allergan paid $50 million upfront in January 2017 to Assembly Biosciences for all of its gastrointestinal-related development programs, with the possibility of $630 million in development milestones, as well as $2.15 billion in potential commercial milestones.
Looking beyond the gut
Most deals related to the microbiome have been for therapeutics that treat illnesses of the gastrointestinal tract like Crohn's disease and inflammatory bowel disease. Yet, there is growing interest in how the microbiome can be manipulated to treat diseases in other areas of the body. Most notably, companies are taking a look at how the microbiome could be used in the immuno-oncology space, a particularly hot area of drug development at the moment.
Bristol-Myers Squibb paired up with Enterome in November 2016, paying $15 million upfront to develop drugs and companion diagnostics for cancer indications.
Nestle Health Science, while far from a traditional pharma, has done some significant deal activity. The unit, which was grown out of the food company Nestle Group, was formed in 2011 to address the intersection of nutrition and science — making the microbiome a natural fit.
Aside from the 50/50 joint venture that Nestle Health owns with Enterome, the nutrition sciences company was an early investor in Enterome and Seres. The company also licensed ex-U.S. rights to a C. diff. compound from Seres, paying $120 million upfront and agreeing to another $660 million in milestone payments.
Belichard said awareness of the field is rising, comparing his pitches from the J.P. Morgan Healthcare Conference in 2012 to the most recent, where he said his firm is seen not just as a niche microbiome company.
"There is probably less attention, on the positive side and the negative side, on the fact that we are in the microbiome space. We are just a company that develops drugs," he said.
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