Interview – Semma pulls off a near-miraculous series A

The venture financing climate in medtech has been pretty chilly over the past couple of years, with the little cash available going into later rounds for companies that tend to be, at a minimum, near to completing clinical development. But the stem cell company Semma Therapeutics has closed the third-largest series A round since 2010 without even testing its technology in humans.

“We are several years away from the clinic,” Semma’s chief executive, Robert Millman, tells EP Vantage. And yet the company has snared $44m to get its type 1 diabetes therapy to the proof-of-concept stage. Key to this, Mr Millman says, is the involvement of “strategic partners” – Medtronic participated in the round, and Semma also has a deal with Novartis. “Money is good, no money is bad, and strategic contacts are even better.”

Semma gain

The series A financing was led by MPM Capital with Fidelity Biosciences and ARCH Venture Partners taking part as well as Medtronic. The investment from Novartis came as part of a separate agreement, but Mr Millman considers the Swiss giant a strategic partner alongside Medtronic.

Many start-ups in biotech as well as medtech will be wondering how the company pulled off this coup. Mr Millman ascribes funders’ keenness to the “fanfare” around the stem cell research by Harvard professor Douglas Melton, which emerged to breathless press coverage last year and on which Semma’s technology is based.

Largest series A rounds in medtech, 2010-15
Financing Date Company Investment ($m)
October 2010 NanoInk 65.0
February 2014 GC Aesthetics 60.0
March 2015 Semma Therapeutics 44.0
June 2012 Global Blood Resources 40.7
April 2013 ElectroCore 40.0
Data sourced to EvaluateMedTech

“It was … a process of convincing people that we could take this science and translate it to clinical development,” Mr Millman says. “We had to show that there is sufficient data from animal experiments, plus others ongoing since then, to show to the investment community that we had a likelihood of success that outweighed the chances of failure.”

Another possible reason that Semma managed to drum up so much cash lies in the involvement of corporate VCs, though the terms of the pact with Novartis remain secret. The importance of corporate VCs, or to use Mr Millman’s preferred term, strategic partners, is that their involvement helps defray some of the risks that the other investors might see.

“If you have a partner who is eager and excited about the field, who has deep pockets, that could be a potential way of [venture funders] exiting the company in the future.”

As for an exit of Semma itself, Mr Millman is reluctant to say whether either Medtronic or Novartis is using its investment to stake a claim to a future buyout. And fair enough: when your product is still years from the clinic perhaps it is a little early to consider the endgame.

“We can say both strategic partners have a definite interest in this field for various reasons, and that either one could be a [development] partner,” he says.

Artifical pancreas?

Dr Melton has exclusively licensed his method of generating insulin-producing β-cells by the billion to Semma, and the company is now working on putting the cells into, as Mr Millman says, “some sort of device that can go into a patient”. Presumably these cells will also be able to sense blood glucose levels, as a healthy person’s β-cells can; if so, Semma’s product could be a new, and quite possibly superior, spin on the artificial pancreas.

It is still conjecture whether this will work in humans, and with research not having progressed past mouse studies it will be some time before proof is available. When clinical trials do begin in a few years, Mr Millman says the company will aim to prove that its device can safely transplant cells into the patient, and secondly that it can ameliorate type 1 diabetes.

This is likely to involve looking at biomarkers such as HbA1c, a measure of blood glucose control, but the ultimate aim will be to show that type 1 diabetes patients can become independent from exogenous insulin.

Before that, though, Semma will have to prove that a large enough number of cells can stay healthy inside the device and that the use of foreign cells will not induce an immune response.

No other companies are working to commercialise this kind of product, Mr Millman says, though he mentions one group that is similar: San Diego-based ViaCyte. ViaCyte’s technology is based on changing stem cells into β-cell precursors, which are implanted subcutaneously in a device. A phase I/II trial in type 1 diabetes began last year.

“It’s a different product, it’s a different cell type; we think we’ll gain great learning from what they’re doing, but I think we have a competitive advantage with the science,” Mr Millman says.

Pros and cons

On one hand, this is a small start-up with a technology unproven in humans and facing a number of profound technological challenges, and one that has a quasi-competitor already in the clinic. On the other, it has a market opportunity in the tens of billions of dollars and literal buy-in from both the world’s largest pharma and the world’s largest medtech company.

Semma’s proof of concept data will be keenly awaited, partly to see if its technology works, and partly because it will then have to raise more cash – and if it got $44m this time round, imagine the size of the series B.

To contact the writer of this story email Elizabeth Cairns in London at [email protected] or follow @LizEPVantage on Twitter

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