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Exclusive: Decheng's Inside View of Merck's $2.75 Billion Acquisition of VelosBio

publication date: Nov 10, 2020
 | 
author/source: Richard Daverman, PhD

Decheng Capital had good reason to be pleased when Merck (NYSE: MRK) paid $2.75 billion to acquire VelosBio, a company formed in 2017 to develop ROR1 ADCs for cancer. In an exclusive interview, Min Cui, PhD, Founder and Managing Director of Decheng, told ChinaBio® Today, "We are VelosBio's largest shareholder because we backed the company from day one. It's a huge win for us and all the stakeholders, including Merck and cancer patients. We were the original firm who led VelosBio's seed funding and participated in the A round and the recent $137 million B funding. We were ready to IPO, but Merck decided they wanted to own the company."

The VelosBio deal is striking because of the $2.75 billion take out value. Founded in 2017, the company is just three years old and it had raised a comparatively small $202 million to date. It has one ROR1 candidate in two clinical trials, including the recently started Phase II test. To draw a $2.75 billion bid, VelosBio's prospects have to be very promising.

Dr. Cui said, "It is the largest acquisition of a private biopharma company this year. The largest acquisition of a private health care company was for Grail, which is also a Decheng portfolio company." In September, Grail, a pan-cancer screening company, was acquired by Illumina (NSDQ: ILMN) for $8 billion in upfront payment and future revenue sharing.

The relationship between VelosBio and Decheng started at the JP Morgan Health Conference. Peter Colabuono, Principal at Decheng, said, "Dave Johnson's previous company, Acerta Pharma, was acquired by AstraZeneca in 2016 for $4 billion upfront and $7 billion in total. We met with him and noted in our discussion that their ADC drug candidate VLS-101 appeared to be a highly promising drug candidate."

Dr. Cui continued, "When Dave and Langdon Miller, MD, Chief Medical Officer of VelosBio, visited us to make their pitch, Peter and I looked at each other about halfway through the presentation, knowing that we wanted to invest, that we wanted to be a partner with them. Dave is a very successful biopharma executive, and Langdon worked with Dave previously. We want to work with people that we believe are leaders and we liked the target, ROR1. Their preclinical data was very strong."

ROR1 is an interesting target. Usually, ROR receptors are expressed during early embryogenesis, a short period during which they play a critical role in neural, skeletal and vascular organogenesis. The presence of ROR decreases as the fetus develops. Except in rare cases, normal adult tissues lack surface expression of ROR1. However, it is expressed in invasive malignancies that revert to an embryonic transcriptional program. High levels of ROR1 expression have been found in multiple cancers, including both hematological malignancies and solid tumors.

VelosBio licensed the ROR1 technology from UC San Diego, where it was developed in the laboratory of Dr. Thomas Kipps, a research scientist at the Moores Cancer Center of UCSD.

VelosBio’s lead candidate is VLS-101, an antibody-drug conjugate targeting ROR1 that is currently being tested in a Phase I trial for hematologic malignancies including mantel cell lymphoma and diffuse large B-cell lymphoma. It recently started a Phase II trial for solid tumors including triple-negative breast cancer (TNBC), hormone receptor-positive and/or HER2-positive breast cancer, and non-squamous non-small-cell lung cancer  Merck said it was impressed with VLS-101 because it showed activity in heavily pretreated patients.

For Merck and VelosBio, the acquisition meets each company's needs: Merck builds its oncology pipeline with a novel candidate, and VelosBio has a strong partner with deep pockets that can take the candidate, if it proves successful, to global markets.

For Decheng, the transaction is part of what seems to be an exit-announcing roll. Over the last two months, the biopharma venture firm has announced three major exits: cancer screening company Grail, ReadCoor (a company with a revolutionary spatial sequencing technology) and now VelosBio. In addition, two Decheng portfolio companies, including Everest Medicine, had successful IPOs during the same period.

Asked if he saw Decheng's success as a sign of a strong US-China M&A market, Dr. Cui said, “A revolutionary technology means a strong product, no matter the fluctuations of the macro economy.” He believes VelosBio's first-in-class ROR1 candidate, with impressive underlying data, fits the definition of a revolutionary technology. Merck, having made its $2.75 billion commitment, apparently agrees.

See our other articles on Decheng.

Disclosure: none. 

 


 

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