Dallas-based cancer drug developer Peloton Therapeutics got on the radar of Merck when the two talked about teaming up for a clinical trial. The clinical trial didn't happen, but their talks manifested in another way: The pharmaceutical giant bought Peloton in May for up to $2.2 billion.
Peloton's former CEO John Josey shared details about how the clinical-stage startup became an attractive acquisition target Thursday at an event hosted by Health Wildcatters, a Dallas-based accelerator that funds and mentors health care-related startups.
Peloton was born out of UT Southwestern's research of a problematic protein called hypoxia-inducible factor (HIF)-2alpha. People with genetic mutations of the protein are more likely to develop kidney cancer and other tumors.
UT Southwestern's discovery led to the development of a pill that has shown promise for fighting advanced kidney cancer and a tumor-causing genetic disease called Von Hippel-Lindau syndrome. It's been tested in clinical trials across the country. The medication could also help treat other conditions, including glioblastoma, the most common and lethal kind of brain cancer, and inflammatory bowel disease.
Merck bought Peloton the day before it was scheduled to debut on the stock market. It paid $1.05 billion in cash now, plus $1.15 billion in additional payments based on how Peloton's experimental drugs progress.
Josey, who joined the company in 2011 as its first employee, went from Peloton's chief scientific officer to its chief executive officer.
Along the way, he said Peloton had to overcome numerous challenges. It grew a team in Dallas, a city that's not a well-established biotech and pharmaceuticals hub like Boston or San Francisco. It persuaded investors to fund the company, even when it couldn't commit to a timetable or predict the payout. And it coped with the inherent uncertainties of discovering and developing new drugs.
Josey said to succeed it needed three main ingredients: an idea that would stand out in a competitive marketplace, a team of seasoned employees and sufficient funding.
But in reality, he said, it needed multiple strong ideas. It began with three different drug development programs.
"When the company started, I told the investors, 'This is what's going to happen: We're going to work on those three programs. One is going to go down in flames in the first six months. One of them we are going to beat our head against a rock for three years, and then it's going to go down in flames. And then if we're really, really lucky, the third program is going to be successful.' And that's exactly what happened."
Peloton raised over $300 million in venture funding before it was acquired by Merck. As CEO, Josey says he had to learn to woo investors.
"You get into this as a scientist, and you're all excited about the science and the medical piece of it," he said. "But the reality is you go to the investors and they're like 'I'm going to put this money in. When am I going to get a 10x return?'"
He said Peloton had an edge in those conversations. There was no competing drug on the market, and clinical trials indicated the pill had minimal side effects. The pill is considered an "orphan drug" because it treats a rare, genetic disease. That means it can qualify for an accelerated approval process with the Food and Drug Administration.
In the clinical trial Peloton and Merck had discussed, patients would take Peloton's pill and Keytruda, a blockbuster drug from Merck that helps turn the immune system against cancer cells.
The deal is expected to close in the third quarter, and the companies haven't announced any combined therapy trials.
