After years of raising millions in capital and federal grant funding for Tetra Therapeutics Inc. — which was developing a new drug that could potentially treat Alzheimer’s disease and a form of autism — Mark Gurney in 2020 finally found the big money he needed to get to the end.
The Grand Rapids-based Tetra Therapeutics last spring sold to Japanese pharmaceutical company Shionogi & Co. Ltd. in a deal that could reach $500 million. Under the agreement, Shionogi & Co. acquired Tetra and its portfolio of drug compounds for treating Alzheimer’s disease, Fragile X syndrome and other brain disorders associated with cognitive or memory conditions.
The Shionogi acquisition provided the financial backing that Tetra needed to conduct and complete later-stage clinical trials, secure regulatory approval, and bring the new drugs to market in the years ahead. The company today operates as a Grand Rapids-based wholly owned subsidiary of Shionogi and without the deal would have had to raise millions more in capital to support the upcoming later-stage clinical trials.
“We now have the resources of a large pharmaceutical company behind us. That gives us greater speed and will still retain the same flexibility of a startup,” said Gurney, Tetra’s chairman and CEO who founded the company in 2011.
Tetra’s deal with Shionogi & Co. won a 2021 MiBiz M&A Deals of the Year Award in the life sciences category.
While specific terms of the deal that closed May 26, 2020, remain undisclosed, the total transaction value may reach up to $500 million if Tetra Therapeutics meets certain regulatory and commercial milestones. The deal followed a prior $35 million strategic investment Shionogi & Co. made in Tetra Therapeutics in late 2018.
Prior to the Shionogi deal, Tetra conducted research and development on its new drug compound, known as BPN14770, at the Southwest Michigan Innovation Center in Kalamazoo with the backing of capital from private investors and $27 million in federal grant funding.
Investors in Tetra included Grand Rapids-based Grand Angels and its Ka-Zoo Angels and Muskegon Angels affiliates, Kalamazoo-based Apjohn Group LLC, Traverse City-based Northern Michigan Angels, Ann Arbor SPARK, the Michigan Economic Development Corp.’s Invest Michigan fund, and the Bioscience Research & Commercialization Center (BRCC) at Western Michigan University, plus a number of local high net worth individuals.
One of the largest exits ever recorded for a Michigan-based life sciences startup, the deal generated a strong return on investment for West Michigan-based investors who backed Tetra Therapeutics early.
Investors in a $7.2 million Series A capital round Tetra raised in 2016 got a return of five times their original investment. Participants in an earlier July 2013 debt offering got an ROI that’s close to 13 times their investment.
“That was one of those exits that an early-stage investment fund counts on — that one out of 10 returns that covers the others. So, it was very successful,” BRCC Executive Director Stephen Haakenson told MiBiz last May. “This allows us to continue to put further funds out the door.”
The BRCC invested $450,000 in Tetra and received an ROI that was in the “many multiples,” Haakenson said.
Tetra has reported “quite encouraging” results from a mid-stage trial involving 30 patients at Rush University Medical Center in Chicago, where the company has worked with renowned researcher Dr. Elizabeth Berry-Kravis on its compound to treat Fragile X syndrome, an orphan disease that affects about 60,000 people in the U.S. Tetra expects to move into a Phase 3 trial involving upwards of 300 Fragile X patients in mid-202, a step that’s needed for seeking approval from the U.S. Food and Drug Administration that could come in late 2023.
While Tetra prepares for the Phase 3 trial for Fragile X, Shionogi is planning to handle an upcoming Phase 2b study on the company’s compound to treat Alzheimer’s disease. The Osaka, Japan-based Shionogi in a recent presentation on quarterly results listed the Tetra compound’s potential to treat Alzheimer’s and Fragile X among eight core R&D projects in its drug pipeline.
As he prepares to lead Tetra toward the final legs of a lengthy journey to market, Gurney said the best practice he advises other life sciences startups “is the same as voting — vote early and vote often,” a reference to the old Chicago tongue-in-cheek political expression.
“For dealmaking, you need to start early and you need to keep at it,” said Gurney, whose first meeting with Shionogi came in 2017.
“Doing a deal like this for the acquisition of your company … takes a while. People need to evaluate the science,” he said. “It’s very difficult to achieve an exit.”