The 2022 bear market has slowed to a trickle with the number of biotech companies going public. So why has precision cancer drug developer AUM Biosciences agreed to be acquired by a SPAC (special purpose acquisition company)?
“The private markets were getting very selective” just a year after AUM closed on a $27 million Series A financing, CEO and co-founder Vishal Doshi, MD, acknowledged to GEN Edge as one reason for going public.
But in a recent interview, Doshi emphasized that the SPAC reflected something besides changing market conditions, namely his and AUM’s confidence in the company’s ability to attract investors.
That confidence is based on the company’s ability to conduct clinical trials while containing costs, its access to non-dilutive capital, its pipeline of clinical-phase assets, and the experience of AUM’s top executives, which includes successful submissions of more than 50 INDs, more than 150 oncology clinical trials, and leading roles in developing several unspecified “currently marketed oncology treatments with annual peak sales up to $3 billion.”
“I feel very strongly that having a story which is more fundamental driven, and milestone driven, and execution driven, it could potentially be well received on the public market,” Doshi said. “The fundamentals of the business are very strong. AUM as a business has a very unique proposition that I feel very proud of.”
The numbers behind those fundamentals won’t become public until the company discloses financial statements that were not included in the public version of the regulatory filing detailing the SPAC transaction, filed October 20 with the U.S. Securities and Exchange Commission.
To date, AUM has disclosed two financing events—a $1.5-million seed financing completed in 2018, and the $27-million Series A. Leading the Series A were private equity funds that included Singapore-based Everlife, and SPRIM Global investments (SGI), a Madrid-based globally focused health sciences investment firm.
Make cancer affordable
Headquartered in Singapore, AUM focuses on developing precision oncology therapeutics designed to reverse cancer resistance through multi-faceted inhibition strategies. From its founding in 2018 by Doshi and Chief Medical Officer Harish Dave, MB ChB, AUM has aimed to develop treatments that are not only superior in safety and effectiveness, but less expensive than current pricey immuno-oncology therapies. Doshi’s Twitter feed features the slogan: “Making cancer affordable.”
AUM contains drug development costs, Doshi said, by applying digital health technologies to pinpoint patients most likely to benefit from a treatment, deciding early whether a pipeline drug is likely to succeed in clinical trials, then conducting those studies rapidly.
“I think that it will go down very well with investors that there is a team that understands how frugal and how efficient one needs to be in getting the clinical data readout as quickly and in the smallest amount [of time and expense] possible,” Doshi explained.
Merck & Co.’s blockbuster Keytruda, the largest-selling cancer immunotherapy with $15.487 billion in Q1–Q3 sales, has a list price of about $10,683 per dose when given every three weeks, rising to $21,367 per dose when given every six weeks. (Keytruda dosages are 200 mg, administered by injection every three weeks, or 400 mg every six weeks, with 100 mg/4 mL administered after dilution as an intravenous infusion over 30 minutes.)
AUM will use proceeds from the SPAC deal to advance its clinical-stage pipeline, as well as add to its headcount, which is now about 15 people, and expand its U.S. operations, now based in Bethesda, MD.
Biotech SPAC comeback
AUM is among a growing number of biotechs that have disclosed plans to go public via SPAC deal this year. As of November 4, seven of those biotechs, and another six that revealed SPAC plans in 2021, have completed SPAC mergers with blank-check companies formed to close those deals.
ProKidney’s acquisition by Social Capital Suvretta III, is the year’s largest SPAC deal to date that has yet to close, valued at $1.835 billion. Of the 13 SPAC deals that closed this year, two of them were completed November 1: OmniAB, which completed a $999 million merger with Avista Public Acquisition Corp. II; and Peak Bio, a $205 million merger with Ignyte Acquisition.
South-Korea-based Peak Bio, a developer of oncology and inflammatory disease drugs with U.S. offices and labs in Palo Alto, CA, arguably reflects the potential as well as the precariousness of the SPAC market. Peak Bio’s shares plummeted 41%, from $13.05 to $7.70, on their first day of trading November 2. But after sinking to $3.80 on Thursday, those shares have yo-yoed, more than doubling to $7.82 on Friday before retreating to $6.45 in early trading Tuesday as of 10:20 a.m.
The recent deals reflect something of a comeback for biotech SPACs, which shriveled to none in the first quarter from 17 in 2021—including the $17.5 billion SPAC merger completed in September by Ginkgo Bioworks, and the $500 million SPAC merger of Sema4.
Both the onset of the bear market and regulatory moves dampened investor enthusiasm for such mergers. The U.S. Securities and Exchange Commission (SEC) last year issued guidance advising SPACs to account for equity warrants as debt, and later advising SPACs to treat “redeemable” shares as temporary or “mezzanine” equity.
But as traditional initial public offerings (IPOs) have generated smaller proceeds, tumbling from amounts that peaked last year, several biotechs have announced plans for SPAC deals since the summer:
- Apollomics, a Foster City, CA, cancer drug developer that has announced plans to merge with Taiwan-based Maxpro Capital Acquisition Corp. The company expects to retain up to $105 million cash upon closing of the transaction.
- Estrella Biopharma, an Emeryville, CA, drug developer also focused on cancer, is set to become Estrella Immunopharma once it completes its merger with New York-based TradeUP Acquisition Corp., in a deal set to generate $45.4 million cash for the combined company.
- Ocean Biomedical, a Providence, RI, drug developer whose pipeline includes candidates for lung cancer, brain cancer, pulmonary fibrosis, and malaria prevention and treatment. Ocean plans to combine with New York-based Aesther Healthcare Acquisition Corp., which has secured two backstop agreements totaling $80 million toward the merger.
$400M Deal, Headcount growth
AUM has agreed to go public by merging with Mountain Crest Acquisition Corp. V, a SPAC based in New York. Doshi will head the combined company, which will trade shares on the Nasdaq Stock Market under the ticker symbol AUMB.
The SPAC deal—expected to close in the first quarter of 2023—values AUM at $400 million pre-merger and will provide the drug developer with approximately $69 million in gross proceeds, assuming no redemptions by Mountain Crest stockholders.
The company to be formed by AUM and Mountain Crest will operate under a Cayman Islands-exempted holding company, called Holdco for now.
“Depending on the capital availability that we have at the closure of this SPAC, I would think that we can expect at a minimum a 20–30% growth in the headcount as well,” Doshi said. “We definitely need more people. We definitely need good quality talent in order for us to expand to the next.”
The company bolstered its C-suite in May by appointing Scott Jordan as Head of Corporate Development, with responsibilities that have included overseeing collaborations with corporate and academic partners, capital raising, and facilitating AUM’s SPAC transaction.
Is that deal setting the stage for AUM being acquired by a larger biopharma?
“We always keep a lookout for new innovative technologies and any potential partnership,” Doshi said. “But our objective over the next 18 months or so is really to create value for the investors from the current portfolio that we have. Once we achieve that, I think the company will be in a very unique and attractive position.”
“One of the reasons why we’ve decided to go the SPAC route is it allows us to hit the milestones in the stock markets and gives us access to capital that might be challenging for a lot of companies out there right now,” Doshi added.
Doshi said AUM’s mergers-and-acquisitions (M&A) advisor Global Fund LLC recommended Mountain Crest to his company based on its track record of coming to SPAC merger agreements with four companies (AUM is the fifth) and completing SPAC deals with two of them. The two companies with completed deals:
- Better Therapeutics, a prescription digital therapeutics company focused on cognitive behavioral treatments. In October 2021, Better completed a SPAC merger with Mountain Crest Acquisition Corp. II that valued the company at about $187 million. The deal generated about $70 million in gross proceeds with access to an additional $40 million from a credit facility of Hercules Capital.
- Playboy Enterprises, publisher of the namesake adult magazine and lifestyle brand, which in February 2021 completed a SPAC merger with Mountain Crest Acquisition Corp. I that valued the company at $381 million and gave it access to more than $100 million of unrestricted capital.
Mountain Crest has also come to agreements with CH-AUTO Technology, a Chinese electric vehicle manufacturing and design service company valued at $1.7 billion, including some $460 million of debt; and ETAO International Group, a digital healthcare group providing telemedicine, hospital care, primary care, pharmacy, and health insurance, valued at $1.25 billion.
“There are enough SPACs out there which are basically doing one-time deals. I was very encouraged by the fact that Mountain Crest has a pedigree of doing SPACs,” Doshi said. “We were very particular about one thing when we started thinking about SPACs: What’s the sponsor? Having a sponsor with the pedigree of conducting SPACs—and more importantly, not just $270 million or $300 million SPACs—offered a very unique proposition compared to what we have seen in other SPACs.”
AUM’s pipeline is anchored by AUM001, a messenger RNA (mRNA) translation inhibitor that is designed to impair growth signals involved in cancer development, progression, and resistance to therapies. AUM001 is a selective and synergistic inhibitor of MNK 1 and MNK2 that blocks phosphorylation of eIF4E, thus interfering with CAP mediated RNA translation.
Inhibiting MNK kinases decreases the production of pro-inflammatory cytokines such as TNFα and IL-6—a finding that, according to AUM, suggests that MNK kinases and their substrates—not only eIF4E but hnRNP A1 and Spry1/2—play a key role in regulating the innate and adaptive immune compartment. That has the potential to turn “cold” tumors “hot,” and thus increase the proportion of tumors susceptible to immunotherapies.
By year’s end, AUM001 is expected to begin enrolling patients in a global Phase II trial (NCT05462236) assessing the drug both as a monotherapy and in combination with Keytruda in patients with microsatellite stable colorectal cancer (MSS CRC)—a study whose IND has been approved by the FDA.
Expanding the market
While Keytruda targets the up-to-15% of colorectal cancer patients that have consensus molecular subtypes one and four (CMS1 and CMS4), AUM reasons that it can expand the market to the remaining up-to-85% of colorectal cancer patients by treating patients with all subtypes of the disease, without introducing toxicities. The company cites positive results for AUM001 in two Phase I trials that showed favorable safety, tolerability, and target engagement as a monotherapy for the MNK inhibitor.
“The targets that we are looking at is what we call a chokepoint of multiple pathways. If you imagine an entry point at the freeway, and you see there is an entryway, and then all the cars merge into one single place, there is bound to be some jam around that. But without crossing that chokepoint you can’t translate from an RNA to protein translation,” Doshi said. “What AUM001 brings to the table is, it is impacting these stem cells directly. We feel that the uniqueness of this molecule is the selectivity towards the target as well. We’re looking at approximately 99.5% selectivity based on the kinase program that we have seen.”
“That means,” Doshi added, “that this drug is very selective, not toxic, completed two Phase I studies, good preclinical data to back it up, and creates a very unique opportunity for 80% to 85% of colorectal cancer population which does not have an effective treatment option right now, as well as an opportunity for a combination treatment.”
In addition to the combination with Keytruda, AUM001 is also the subject of a collaboration with Roche announced in May to develop the drug in combination with the Swiss pharma giant’s anti-PD-L1 therapy Tecentriq® (atezolizumab) across multiple solid tumor indications.
Also in AUM’s pipeline is AUM601, a highly selective, oral small molecule designed to inhibit both pan-TRK (TRKA, TRKB, and TRKC) as well as resistance mutations of TRKs, by blocking the mutations that occur within the binding site.
AUM plans to launch a Phase II trial of AUM602 early in the second quarter of 2023, with data expected to be read out in Q3 or Q4. The FDA granted AUM601 its Orphan Drug Designation in September.Doshi said AUM602’s advantages include its ability to treat both TRK fusions and TRK solvent front and gatekeeper mutations, the main sources of resistance emerging from TRK treatment; the absence of neurotoxicity concerns seen with other TRK treatment options since the drug does not penetrate the blood-brain barrier; and a superior PK profile with a 22-fold concentration in the tumor compared with plasma.
“This drug will most likely not have to be given twice daily. It will most likely be a once daily drug,” he said.
AUM’s two other pipeline drugs are both in IND-enabling studies. One is AUM302, a potentially first-in-class macrocyclic oral kinase inhibitor, a small molecule drug designed to combine inhibition of pan-PIM kinase, pan-PI3K and mTOR in a single treatment. The other is AUM003, a blood-brain barrier penetrating rRNA translation inhibitor designed to treat glioblastoma and sarcoma by targeting MNK 1/2.