20 – 2 – 35
That’s not a lock combination, but those are important numbers for Mark Rothera, president and CEO of Orchard Therapeutics, a biopharma developing gene therapies for rare disease patients.
What do those numbers represent?
Here are some other numbers you need to be aware of: 5 - 180 - 1.7
From a little-known privately held company founded just four years ago, Orchard today is not only public, but also has a majority of its shares held by institutional investors, which tends to indicate a certain degree of credibility in the investment community. And while some might think Orchard’s whirlwind rise to be a bit of luck and good timing, the reality is it involved an extremely well-executed plan — and maybe a small dose of good fortune.
BUILDING A GENE THERAPY PORTFOLIO — EXECUTING THE GSK DEAL
Six weeks prior to Rothera joining Orchard, GSK announced plans to exit rare disease drug development as part of a new R&D revamp. To Rothera, that was one of those “wow” moments. After all, Orchard is an ex-vivo lentiviral gene therapy company, and GSK was looking to part with ex-vivo lentiviral gene therapy assets. “It was like a starter’s gun going off, as those assets looked to dovetail perfectly with our existing portfolio. We were determined to get them.” But Orchard had only 35 employees and not much cash on hand. “We knew that if we could pull off the GSK deal, it would take us from two clinical-stage assets to five, plus a commercial asset, and a pipeline of 10 preclinical programs, which immediately put us in a completely different place,” Rothera explains.
Orchard had the advantage of three of its leadership team having come from GSK’s rare disease unit. “Within a week of the GSK announcement, we were on the phone with the company’s BD team and every week from that time onward,” Rothera explains. Before the end of September — just weeks after Rothera had joined the company — Orchard submitted its term sheet to GSK. “It probably didn’t go into the minutia, but it was more about providing an initial shape to a deal that would evolve through future dialogue,” he explains. “We wanted to be the first term sheet GSK received, as we felt that would give us first-mover advantage.”
The goal wasn’t to just be first, it was to create an initial proposal the Orchard team believed would meet GSK’s needs. This is why they proposed early on that GSK take an equity stake in the company. “I think that definitely piqued their interest because though GSK was intent on exiting the rare disease space, they wanted to ensure the company they chose was committed to bringing these gene therapy medicines to patients and have the wherewithal to do so,” says Rothera. Providing an equity stake gave GSK the necessary influence to help make sure those things actually happened. While demonstrating nimbleness and being first to submit its term sheet may have proven a bit of a differentiator, Orchard did other things to set itself apart in the eyes of GSK.
According to Rothera, when some companies engage in these types of transactions, they send in their BD people to talk through the offering. Instead, at the first pitch, Orchard took the CEO, the entire executive leadership team, and members of the board. “We wanted to demonstrate our ‘all in’ level of commitment to the deal.” Orchard learned after the fact that there were a number of companies interested in GSK’s rare disease portfolio and more than a few term sheets submitted.
On April 12, 2018, GSK and Orchard Therapeutics announced a strategic agreement, under which GSK would transfer its portfolio of approved and investigational rare disease gene therapies to Orchard. “We ended up giving GSK £10 million up front, a 19.9 percent equity stake, plus some back-end royalties and milestones,” Rothera says. What won Orchard the day? “For starters, we have a profound understanding of what this technology’s all about, and it’s our singular focus,” he attests. “I think we demonstrated having the expertise to not just bring these assets through development, but all the way through to commercialization.” Providing an equity stake also provided GSK with a board seat so the company remained an active part of Orchard’s journey.
Another area that differentiated Orchard was manufacturing. “We have a lot of expertise, not just from a clinical point of view, but how to make this work, from manufacturing drug product through to patient delivery,” he explains. (See sidebar — “What’s Required To Be Successful With Rare Disease Gene Therapy?”)
Once the deal was completed, the real work began. The agreement stipulated that the two companies form a committee to facilitate knowledge and information transfer. During the first nine months, Orchard worked to absorb all of GSK’s data and know-how from an eight-year period. “That involved about 25,000 documents, four clinical programs with a lot of ongoing studies that we had to change, new contracts, and also getting marketing authorization transferred with regulators for a commercial product,” Rothera recalls.
Temporary staff was hired to help with the knowledge transfer process, and once the deal closed, many of those staff were offered permanent positions. “From there it was a continuous documentation, filing, and quality control effort to understand what we were taking on.” Rothera takes pride in the massive integration effort executed by the Orchard team and the continued partnership with GSK. “We are a pretty valuable investment for them thus far,” he says. Consider this: At the end of 2018, Orchard Therapeutics was valued at $320 million, while today it’s a $1.7 billion company.
CREATING A LEADERSHIP CULTURE
Beyond executing the GSK deal, Rothera knew he needed to quickly establish a leadership culture. He surprised a lot of people when, during his first two days at Orchard, he spent much of his time talking about leadership and how the leadership group would work as a team. “This is the fifth company I’ve been involved in building, and being in the building stage provides an opportunity to create a unique corporate culture, one that’s focused on the mission,” he says.
During that first week on the job, Rothera also was working with a leadership coach he had previously worked with at Shire. His goal was to lay the foundation for building team cohesiveness at the leadership level. This was followed by a companywide effort to define Orchard’s culture. “Though a company’s culture will grow and evolve, it’s best to be explicit about it,” he advises. “We got everybody involved in specifying the attributes, behaviors, and values they wanted in Orchard.” This was done through a variety of means, including employee focus groups in Europe and the U.S.
While Rothera was simultaneously involved in executing the GSK deal and creating the company’s culture, he also was building the leadership team. The company had no CFO, chief commercial officer, head of communications, or head of investor relations. “We didn’t even have a head of HR or legal,” he laughs. “But we were in the throes of massive change, so we needed people who could jump right in and not need a lot of hand-holding.”
But there also had to be alignment on values and culture, such as people truly excited about being in the rare disease field and having the opportunity to potentially transform patients’ lives through innovation. “We were looking for people who don’t mind all the ambiguities that come with working in a less-evolved structure but thrive on it because they want to help shape it,” Rothera says.
A recruiter was brought in to help define some of the key attributes Orchard sought in its employees. That list was eventually refined and shortened through interviews with current and potential employees. “Even today, every person on the leadership team is helping us find the right people who fit our culture,” he explains. “You can tell someone has more of a builder mentality from their track record, but you also want to hear them articulate that,” he continues.
Rothera points to the company’s “Roots and Shoots” award program as an example of the leadership culture Orchard has been striving to create. Anybody in the company can recognize anybody else for this award, which is often done during a monthly all-hands call where somebody shares a story of why they are proposing a person for the award. “The roots are the values, and the shoots are what comes from those values,” he explains. Though there is a small token of appreciation that comes with receiving the award, Rothera believes the value for the recipient resides in being recognized for a job well done.
EXECUTING ORCHARD’S IPO
As if Rothera and his team weren’t busy enough, they still needed to figure out a way to raise additional money for the company. “We had increased our pipeline significantly by landing the GSK deal, so whatever budgets we had previously imagined were no longer the right fit.” The company kicked off its fund-raising roadshow for a series C in May 2018, with a target of $100 million. They raised $150 million, which included a lot of new investors. They quickly realized, though, that the $150 million wasn’t going to be enough to get the company where it needed to go. “We knew we’d need to invest in a new manufacturing facility, and that’s an $80 to $90 million capital investment,” Rothera explains. “But gene therapy has such transformative potential that it really gets investors excited, especially when you have data like we did with some of our programs showing durability of treatment over eight years.” The series C ended up really being a crossover round, with Orchard opting to have an IPO in either the fourth quarter of 2018 or first quarter of 2019.
The IPO process was a combined effort primarily involving Rothera and CFO Frank Thomas. “This was my second experience of taking a private company public, but this was Frank’s third rodeo, so we knew certain things we wanted, such as working with banks that had a good understanding of gene therapy, rare diseases, or both, along with how to work with a foreign private issuer interested in listing on the NASDAQ,” he shares. They were also looking for some good chemistry because when doing an IPO, companies and banks tend to work together quite intensively. Orchard eventually chose J.P. Morgan to be its lead, Goldman Sachs second, Cowen third, and then Wedbush Securities.
There were a lot of important decisions to be made along the way beyond just the lineup of banks. “How much to raise? What’s the price range, the valuation, and all the things we had to work through, such as filing our SEC Form F-1 [a form required by the SEC for the registration of certain securities by foreign issuers],” he relates. They made the decision to have an IPO in Q4 2018, but the markets turned choppy that October, and some began to question whether Orchard should continue to go forward. “When we were out on the roadshow, I think four of six days were down days in the market, and we saw other planned IPOs begin to pull,” Rothera recalls. While the bankers expressed concern, as the market didn’t seem all that friendly, Rothera felt Orchard’s story was still robust enough with a lower risk profile. “Though we had proof-of-concepts and considerable efficacy and safety data, the internal debate on whether to proceed or pull the IPO needed to be had,” he relates. “We opted to stick to our guns, because who’s to say if we postponed to Q1 2019 it was going to be any better.”
The company ended up raising $225 million at a $1.15 or 1.2 billion valuation (before the IPO proceeds), which leads to a $1.3 to $1.4 billion postmoney valuation. This places Orchard’s IPO in the top 4 percent of the last 150 IPOs for both the size of the raise and the valuation.
“I feel very proud of the decision we made,” Rothera conveys.
Anyone who has worked in gene therapy knows that the key to success is being able to manufacture. “One of the great things about executing the deal to acquire GSK’s rare disease portfolio is that it came with a relationship to MolMed, S.p.A., a medical biotechnology company based in Italy,” says Mark Rothera, president and CEO of Orchard Therapeutics. MolMed had invested millions of dollars to make sure its manufacturing capabilities were at a commercial level and had already passed inspection by the European Medicines Agency. “But as we looked at our portfolio for the long term, we knew we’d need manufacturing in the U.S.” Rothera claims the company’s chief manufacturing officer probably went up on 50 roofs of potential buildings before landing on a site to lease in Fremont, CA. Described as a premium build out of 150,000 square feet, the Fremont facility will allow Orchard to do vector and drug product manufacturing that will complement what the company already had in place with MolMed and other CMOs (e.g.., Oxford BioMedica). “While we felt we were covered for the first three product launches, knowing lentiviral vector manufacturing to be a bit of a bottleneck, we knew we wanted to proactively manage capacity for the long term,” he adds.
A key to enabling gene therapy manufacturing is having expertise in cryopreservation. Though Rothera notes cell cryopreservation isn’t anything new, it remains an important ingredient. “Some of the earlier work in this field only used fresh cell product where the stem cells are taken out, and while still fresh, they are transduced with a lentiviral vector or vectors,” he says. “Those gene-modified stem cells are then being given back to the patient within hours.” Cryopreservation enables a patient to go to a local specialty hospital where the product can be shipped and thawed, and the patient conditioned for being given an infusion of their cells, simplifying their life. This is why all of Orchard’s future programs will involve cryopreservation.
Another area of focus for Orchard was the build out of a commercial infrastructure to facilitate coming launches. “We now have a chief commercial officer, and heads of U.S. and EU operations in place, and they are actively building the teams underneath to focus on things like market-access preparation, patient identification, and the ‘white-glove service’ required to launch therapies derived from a patient’s own stem cells that are being transported, transduced, frozen, quality-controlled, and shipped back,” Rothera explains. “As our first two regulatory submissions are slated for 2020, we need to be ramping up to make sure the whole process is seamless.”