Josh Baldwin: Welcome to the RTW Podcast. I'm Josh Baldwin, Managing Director of Communications at RTW. And for this episode, I'm joined by my colleague, Joshua Kennedy-Smith, Managing Director, Research Analyst at RTW. And we'll be speaking with Mark McKenna, Chairman and CEO of Prometheus Biosciences.
In this conversation, we'll explore Mark's background and the story of Prometheus, its recent acquisition by Mark, and the relationship between a CEO and investor. Hope you enjoy the conversation.
Welcome. Thank you, Mark, for being here. Appreciate it.
Mark McKenna: Pleasure. Glad to be here.
Josh Baldwin: Josh, thank you for co-hosting with me, generously.
Joshua Kennedy-Smith: Of course.
Mark McKenna on his career trajectory
Josh Baldwin: So, we've got a bunch of things that I'd love to talk to you about. I think maybe we start out with your career, get a little bit of your background and sort of understand how you came to be where you are.
Mark McKenna: Yeah, sure. Again, thanks for hosting. Josh, great to be with you again. So again, Mark McKenna, Chairman and CEO of Prometheus. I spent a better part of 20 years in healthcare. And started with Johnson & Johnson in the device world. Worked with Bausch & Lomb for over a decade. My last position there was running the U.S. franchise.
Then I had a unique opportunity to pivot over to pharma, where I ran a company called Salix Pharmaceuticals. And then, if that wasn't enough – transition and change from consumer health device to pharma – I got a phone call from a guy named Tachi Yamada, who passed away a few years ago, who was a friend and mentor. And he said, “Hey, I want you to take a look at this platform and this early technology out of Cedars-Sinai.
And my first instinct was, “Well, I'm not a preclinical guy. I'm running a $2 billion business.” I had other aspirations. But the more and more work I did on this, the more and more conviction I had. And not only did I want to actually invest in this personally, but invest my time. And so, we burned the boats and moved to San Diego for what was a pretty remarkable journey, but pretty humble beginnings that I'm sure we'll get into today.
Josh Baldwin: What was that transition like? Talk a little a bit about going from the big pharma, big company – lots of resources – to a startup.
Prometheus’ humble beginnings
Mark McKenna: I think if you were to ask a lot of people that I work with, the hallmark of my career has been being able to... learning agility and just asking questions to better understand. Putting yourself out there, that's when you grow and learn the most. And having had the experience going from consumer health to device to pharma, I had a really good backbone around how the business operates.
There's some nuance to pharma that's different than device, but some of the business principles are the same. You know, preclinical is very technical. And I knew that if I was going to be talking to investors, I had to know it as well as my scientist. And so, job one is getting up to speed and understanding all the nuance that goes into the business from the assays that are needed to submit for your approval with the FDA to the clinical strategy. And even if you don't have every element of it covered, you know the right questions to ask to get to the most important aspects of it.
Look, I think that this was an incredible opportunity that I felt a lot of patients could benefit – from this technology. IBD is a heterogeneous disease, 5 million people globally. And unfortunately, a lot of patients are getting suboptimal care today. And we believed at Prometheus that this was the best hope for those patients. And so, it was partly with that conviction of addressing that unmet need. And then secondly, the business opportunity of really creating substantial shareholder value.
When I first got there in mid-2019, it was a $50 million company. That was the valuation. And there was a lot of nuance to the business with regard to – it had a diagnostic business, a commercial stage, LDT, commercial business. And then it had this great technology on the therapeutic side with a novel target and data that would allow us to build out a portfolio of programs throughout I&I. But the early days were pretty challenging.
When I first got there, we thought, “There's about 18 months’ worth of capital.” Turned out, there's about seven or eight. And I remember going into my CFO's office at the time and saying to her, “What happens if we can't raise the funds?” It may seem self-evident now, but in the moment, it was like, “Okay, what are the options?”
And she was very matter of fact: “Well, we'll just file this bankruptcy form, we'll start laying people off. We'll shut it down.” I was like, “Wow, that is not a good option.”
Josh Baldwin: What does – talk option B. What does plan B look like?
Mark McKenna: And look, there's a lot of amazing things to the science here. The business model needed some work. And one of the things that was a challenge is that we didn't have any professional investors. It was a Cedars-Sinai spin out. And so, it took some time for folks to understand the opportunity: what is the right business model?
Given that we had the diagnostic side and the therapeutic side, we got greater clarity as we advanced. And Cedars-Sinai, this was a unique bet for them. It obviously paid off in a big way, $1.3 billion. But they had to double down. And I remember driving up to Los Angeles and having dinner with their CFO and saying, “Look, here's what I think we can do. I'm more convinced of it than ever before. But we need more time to be able to advance the science, advance the programs and attract the right investors.”
We had, at the time, term sheets from other investors. They just weren't attractive. And we were on the cusp of a couple of different milestones that were forthcoming; that would provide greater clarity to the business model as well as de-risk the program a bit.
And so, that was the journey. And up until that point, it was, call it 24 people on the therapeutic side, all punching above their weight, rolling up sleeves and believing in the greater good that we could create here. And then a few investors saw the opportunity of what we were building.
Joshua Kennedy-Smith: Yeah.
The search for investment capital
Josh Baldwin: Can you talk a little bit about that? Because I'm curious about – you're going from big pharma device in big companies where you were not involved, I imagine, in investor communications or raising money in any way. And getting in and that being a big part of the job, I would imagine. What was that like?
Mark McKenna: Yeah, I had pretty good visibility and exposure to the IR side. I ran the biggest business at Bausch Health, Salix. It was a $2 billion franchise. So, I spoke at various debt conferences. I interacted with investors there, but it's a different phenotype than the biotech investor. And in terms of raising capital, no, this was the first time I had an opportunity to do that.
And it was much more challenging than I thought, partly because of COVID, partly because of the fact that the business model wasn't ready. It took the right investor to see the opportunity to really maximize this. And with any novel science, there is an inherent risk. It's very easy to make a bet on the fifth MOA. The upside is not as high.
But I think that that's where you got to combine – from on the other side of the table, the investor has got to have the right science and they have to have the right understanding of, "What's it going to take to make this commercially viable?” And I think that that's where I see a big difference in the market with a lot of investors is that some of them really are methodical and really deep on the science, but they miss out on what could be. And then what limitations are you going to face as you go, to try and get reimbursement?
So, putting the pieces of the puzzle together, I think it’s really important, you can't just do one. And the other thing I would say is that, over and over again, what I've heard from investors is that the value that we place on the team has exponentially gone up, based upon your story and other stories, based upon the fact that great science only comes to light with the right people executing against it.
I think that you’ve got to have confidence in the people that you're investing in. It's the science, it's the business model, and it's the team.
The power of partnership
Josh Baldwin: So, maybe this is a good opportunity to get Josh in here. Josh, can you talk a little bit about the early days of – how did this come across your plate – the opportunity with Prometheus and what was that sort of exploration like? What were you looking for? What did you see?
Joshua Kennedy-Smith: It's funny. I went back in my notes today and I looked up the date of our first meeting and it was May 12th, 2020. So, it was in the dead of that first wave of COVID where everyone was still probably in shock. And so, I just want to tell one anecdote, which is one that always sticks with me.
At that point in time, we had a six-month-old and we were fighting our way through this by ourselves. Just two parents. I was pretty disheveled, and I'd wake up, put on some pajamas and sit down, and I would work at a laptop that was set up on a card table.
And so, I get this introduction. "Okay, I'm going to meet with Prometheus.” And you get a little bit of background on the story, but you don't really know what you're getting into. And along comes Mark onto the screen. I was like, "Wow, this dude is really put together. He looks great.” And I'm sitting there, embarrassed. I have a castaway beard, and I haven't had a haircut in months.
But no, in all seriousness, I think the first impressions of the company really were, they were able to ask a provocative question, which is, “In IBD, how are we going to make a step change, some kind of quantum leap?"
And Mark, looking at my notes, that story that they were telling is ultimately what was delivered. Right, three years later. And so, there's a lot that happened in between. But I think where we started was just basically saying, “Here's some science that is interesting.”
The thesis that they have, which kind of became our thesis as well – it was this question they were asking, “How do we improve things way beyond where the standard of care is?" And so, when you're interacting with teams and they're telling you that, and they're just saying that that's one thing. But there was a roadmap that was kind of painted for us that says, “Here's a target where there is some clinical validation.” And then behind that, there's all this genetic evidence.
And so, as Mark was kind of alluding to, there were multiple parts to the business. It became super interesting in that respect because it was something that looked and felt different at the time. It was something that you weren't used to seeing when you were approached by an immunology company or you were pitched by an immunology company.
It felt different and that that's the one thing that – going from that time point in May until we closed the crossover later in the fall, where you were able to kind of hold on to that, and work down that path of saying, “I know that there's something special here and I have to go and do the work now to unpack all of it, so that we can get more confident, and we can believe.” Again, in the story that they're telling and that they're going to be able to execute on it.
A competitive landscape
Josh Baldwin: You mentioned we came in at the crossover round, and we invested again at the IPO. And then there was a big Phase 2 data readout late last year. All opportunities where we could have gotten out, we could have made a good deal of money.
Looking back, it's obvious why we did that. It was a great move. But at the time, there's probably that question that comes up. And I'm sure a lot of other investors would have maybe taken that guaranteed check and said goodbye.
Joshua Kennedy-Smith: Well, some did. And I think Mark can probably speak to this better than I can. This story is not a perfect one. It wasn't – even though, if you reflect on it, you look at the stock chart, it almost looks like it's a straight line up. But there were points even last year where things got choppy and that's not, that wasn't their fault. That was the market. And then it was Pfizer.
There were so many people that were paying attention to the Prometheus story. But to do that, you had to pay attention to the landscape. And we had this competitor that was out there talking about the program, and that benefited them immensely.
Probably the greatest pain that we all saw as investors was a moment in time, in the early part of 2022, where people were just unsure if all the commentary that was being made by the senior management at Pfizer was aligning with what some of the less senior people were saying. And there were points of time where it was a little scarier.
Josh Baldwin: Yeah.
Mark McKenna: I think that every firm has their own risk tolerance. And I think that one of the biggest challenges to this story is that the stock was moving in the right direction to your point. There were gains to be had. And depending on macro factors of the funds in the market, certain investors had to make certain decisions.
I think that Josh didn't stay with us blindly. It was a thoughtful decision with him and Rod and others in the team that said, “Look, they've outlined a playbook. They've executed against that playbook and the science continues to deliver.” And I think one of the hardest things in this space is finding companies like this: that are novel, that have the opportunity to be ten billion or more. There's just not a ton of them out there.
Yes, you can take a 5x return on your investment pretty quickly, following the IPO. But the other aspect is RTW was really helpful in helping with the strategy – to the extent that you can do that as a public company – “Have you thought about this or that? Have you seen what this other company is doing here? How are you thinking about setting expectations with investors?” All these types of things, that’s what you're looking for.
There's plenty of capital out there. What’s different though that I saw with our relationship is, one, the early bet. Both RTW and Joy Ghosh saw the opportunity together. We were able to build a really incredible syndicate that, by and large, all stuck by us. We had incredible investors in that crossover: Cormorant, Point72, Cowen, Perceptive.
But it took the courage of RTW and one other investor to say, “Hey, we're going to put pen to paper and we're going to put our necks out there and make a bet.” And that was a long process to get to that point. A lot of tire kicking, a lot of pressure testing the assumptions.
So, I think just to wrap up this section, I would say that there were many opportunities, but this is about making the right bets, but they’ve got to be informed. And I think that having clear communication between management and investors in an appropriate way is what it takes to have people stick with the story throughout the journey.
Two hats: CEO and investor
Josh Baldwin: You touched on it a little bit, but I'd love to dig a little bit deeper into the relationship between investor and CEO. Once you’ve got the deal signed and we've invested, what does that look like on a day-to-day basis?
Mark McKenna: Kick your feet up. Just hang out a bit. No, we did 85 red eyes in four years.
Joshua Kennedy-Smith: Wow.
Mark McKenna: And because there was education that needed to happen in order to broaden our investor syndicate, we felt like Avis, and we had to try harder. And so, we were out in front; we probably did 300 different investor meetings last year. And that education, those investors also looked at who were the early supporters, who put their neck on the line, what work did they do? But also, it was a process setting expectations and delivering on them and being reasonable.
One of the biggest things that we put our neck on the line was around our Phase 2 timelines. If you ask most investors, most were banking on some type of delay because we put some aggressive timelines out there.
But internally, we had confidence that we could deliver them. And it was important for our credibility with investors that we did. And I think that we surprised a lot of people, not only with the data, but also with the level of execution.
Competing for mindshare
Josh Baldwin: What's that like, Josh, from your side, working with a CEO and management team between rounds?
Joshua Kennedy-Smith: To Mark’s point, you don't kick your feet up. You continue to work, and you continue to pull on those loose threads to figure out what can continue to go right and what can go wrong.
One of the things we were really impressed by was that, as we continued to dig in, everything that we encountered or would talk about, we could go back, and we could find data that was supportive of everything. And so, it helped over time.
You don't just build this confidence and then say, “Well, we invested" – whatever it is – “$50 million. I hope one day that turns into this...” You're actively digesting it constantly and thinking it through and reworking those things, checking the math.
And so, I remember a lot of these early conversations – this is even before we closed the crossover – “I have to check this box now.” This from the standpoint of, they just said that they have all these backup plans for enrollment that are going to keep them on time, “Is that real or is it BS?"
And we were able to put pen to paper and start to work this stuff out. You do the math, and it all makes sense: “This is real, and I believe them.” It’s being able to step through those things to build up the story, build up your confidence that as you're heading into these events that again, we looked at it at first and it was, “Well, Pfizer started this study way before you guys, is it even possible to catch up?” And it's, “Well, this is how we're going to catch up. We're going to do it this way.” And then you go and check all of that. And he was like, “Sounds like they actually are.” And they did.
Mark McKenna: One other thing I would add to this discussion is that there's over a thousand public biotech companies. Thinking about it from a company's perspective, and back to your question around what the role of the dialogue between management and investors as a public company is. Obviously, you're going to be presenting at the conferences. But also, you’ve got to be out there and be visible and sharing the story because you're competing for mindshare.
There's plenty of places for people to put money – why are they going to put it with you and your team? And so, I think that was part of our strategy. One, we had the plumbing internally to execute. We had a great team punching well above their weight. And we're all coming largely from big pharma. People that had an entrepreneurial spirit and wanted to build their own company. So, the plumbing was there to do that. And then we had a great team in IR. That was an area that I absolutely love – the interaction, the relationships that were built when being out there.
It wasn't always pretty. We got a lot of white-knuckle moments: “What is Pfizer going to say this morning?” It can have nothing to do with what we do; it has everything to do with what's happening in the broader market and with specific companies that are competitors that impact our stock. And we would game theory those things.
But at the end of the day, our internal plan was, we knew we had the better mousetrap. We knew we could move faster, and we did.
Life or death and Prometheus
Josh Baldwin: One thing I wanted to ask you about, you just sort of touched on this, with any successful company, especially startups, there comes at least one sort of near-death experience. When you think about that and Prometheus, what comes to mind? Was there one big thing or is it more of a series?
Mark McKenna: I think that this is a tale of two stories, the first two years and the second two years, right? The first two years is all about, you know, early science fundraising. The second part of the story was around execution and M&A strategy. The second half of the story being much more fun.
Look, there were a lot of white-knuckle moments as we were thinking about this whole question around solvency and how much money do we have to actually execute against it. You've got to prioritize in making various decisions.
I'll tell you one story. Before we did the crossover, we did a deal with a European company on our second program. It was a collaboration. We gave up European rights on that second program.
What most people don't know is that that was life or death. That capital that we raised, not only did it sustain us for a number of quarters, but it actually was the validation that helped us get the crossover done.
Even if it wasn't a major multi-national, it was still a third party that was an expert in the GI area that said, “Hey, this is really interesting what they're doing." But that was life or death. And that $20 million that we raised funded the entire second program. Initially, it funded the entire company.
But if you just take a step back, it funded the entire second program, which was part of the rationale why Merck was so excited about our company, is that it wasn't just a one-trick pony. It was a full portfolio of assets. And so, that was one of the near-death experiences that played out well by being creative with how we out-licensed certain rights while preserving all the value on our lead program.
A deal with Merck
Josh Baldwin: Amazing. So, speaking of the second half of the story, more exciting, it sounds like with the Merck deal, a few other players involved.
Going through that process, what would you say are some of the things that you did, and your team did, to really maximize the size of the deal, the success of the deal?
Mark McKenna: There were a number of factors that led to the outcome that we got. Obviously, great science is the key to everything. But behind that is creating the right backdrop to maximize shareholder value. And I think this was a pretty good case study. When you think about where we started from $50 million to $11 billion, that second half of the story was all about one, execution; two, the right strategy.
We were painting a vision that was much grander, then it wasn't about a single asset. It was about completely disrupting and transforming an entire category. Now, did everyone get there day one? Did we have some skeptics? Absolutely. But how do you get to an outsized return for investors on an M&A transaction? Well, it's having the capital to proceed on your own, where you don't need them. So, following our data we raised $500 million.
That was our sign to the market that we don't need the strategics. We're ready to go if we need to. And I think some investors were questioning that because of, “Why are you diluting that much? You don't need that much capital.” But it was a position of strength for us as we were having those negotiations. We also started – this is all in the public domain, there's nothing that's not public here – but I would just say that we started a partnership process in October of 2022 with the idea of educating.
And depending on the outcome of the data, we would know if, “Hey, that's an appropriate pathway.” So, as disclosed in our 14D-9, we had 17 parties that were under CDA, getting educated. And when we got our data, I think we got the data on Thursday or Friday. On Saturday morning, I'm calling the CEOs of these companies and heads of BD and saying, “Hey, based upon the data, a partnership does not make sense. There's not an offer you can put on the table today that our investors would think would be a good idea, and or abort.” And so, that was yet another – “And by the way, we're going to raise $500 million.”
And so, a lot of them appreciate the fact that we weren't going to force them to do diligence calls over the holidays, but also there were some that were pretty upset about it because they really wanted in earnest to do a partnership, as did we, depending on the circumstance, and structure, and economics.
Following that, at JPMorgan, there were obviously a lot of discussions going on at that point that were not public at the time when a lot of interest; people wanted to – it was a competitive process. They knew that there was a lot of interest here. This was the largest unencumbered asset in biotech. And it was a process of playing a little hard to get. Being open to a conversation, but also, being confident in our path forward.
The last thing I would say is having good advisors along the table. We were thinking through every detail, what was communicated and when. We had both Centerview and Goldman Sachs. Goldman Sachs led our equity financing. Centerview was running with the M&A strategy. And I think that with those two banks at work and the relationships that we built over the last couple of years with these pharma partners. I think that those were very helpful in getting a deal done and having multiple bidders at the table because of the fact that, one, they were educated, two, they had a direct line to me.
And in closing here on this topic, a big part of our calculation, obviously, is value. It is our job to maximize shareholder value. Maybe this gets me in trouble, but getting this drug in the right hands is really important. Going back to the whole reason why we actually came to Prometheus in the beginning, which is trying to transform the lives of patients. And I'm confident that Dean Lee and Rob Davis, Mike Klobuchar, and that team over there is fully committed to maximizing the value for patients here.
And it’s bittersweet being here because as I look at other companies, there's just not many Prometheuses out there. And this was truly special. And I think that part of it was the science, part of it is the amazing team that we had. It's a tough hand on the baton off to Merck, but I think it's absolutely the right thing to do as we think about several hundred million dollars of investment required to get through Phase 3 and all the other indications that can be explored here. In light of IRA, you need to start these programs in parallel much earlier than you did before.
Future opportunities and biologics
Josh Baldwin: Well, an amazing deal. And congrats again on getting it done. With that in mind, how do you think about what's next for you?
Mark McKenna: What's next for me is I'm taking two weeks in the Caribbean. I leave tomorrow for that. And I started off; I think I told Josh I was going to take the balance of the year off. And then, my tune changed a bit, and it was, “Okay, I'm going to take the summer off.” And so, now it's going to be July. I'm holding to July.
Look, this is one chapter closed. There are other chapters of the book. And I think that there's still a heck of a lot of unmet need out there. And in the fall, there'll be more to come – with what's next.
But where my passion is, is company building. There's still a lot of unmet need out there. And I think that going forward, chapter two of the book would be a lot easier than chapter one; some of the challenges that we faced with the really early science not being capitalized.
I think that on the next project, we have the team, we have capital to deploy through our investors who are committed to helping to support us. And I think there is also a lot of opportunity on the consolidation side. Thinking about different biotechs where there's synergy as well as mid-stage commercial companies. So, I'm excited to share what's next in the fall.
Josh Baldwin: Well, we'll be anticipating an announcement. One of the things that we like to ask is an example of a paradigm-shifting innovation in the life sciences. Is there anything that comes to mind for you, Mark? And then I'll ask Josh as well, one that you've seen that's a favorite of yours.
Mark McKenna: That's 2.0. Maybe just talking more generally, I think the biggest thematic change over the last decade has been the fact that today, as I mentioned earlier, there's over a thousand public biotech companies.
If you look back 20 years, there's probably a handful of companies working on earlier stage science and probably 70% of those are working in oncology? And that's going to change over time as immunology and cardiovascular disease become bigger. But let's just say half of them are working in oncology. I think that we're going to see, in our lifetime, a major shift in cures and finding therapies for these chronic diseases, in a way that we haven't seen before.
This is going to be the healthcare revolution, in the same way that we saw the Industrial Revolution of the 1900s. And I think that this level of innovation that's happening in biotech companies today is going to do what big pharma can't do, the risks they're not willing to take. That is the role of the biotech ecosystem is to take these ideas and move them faster, take different levels of risk than what a big pharma company would do and remove the bureaucracy.
So, I think the biggest paradigm shift is going to be the market backdrop and how many companies are working on new therapies and new targets that are going to change the lives of a lot of patients. That wasn't happening 20 years ago, to the same extent as it’s happening today. I think for me, there's just so much opportunity here. There's plenty of Me Too and Me Better programs out there.
The role of biotech is to advance new science. And I think that it's important that the U.S. reimbursement system, remain open to that. And they're not squashing innovation but rather encouraging it. If you want to solve the cancer moonshot, what I'd be doing is finding as many of these early-stage ideas as you possibly can, knowing that one of these ideas could be the key to unlocking cures in melanoma and gastric cancer and other areas.
Josh Baldwin: Before I go to Josh, I want to double click on that a little bit. And you mentioned the IRA as sort of changing the way you look at drug development. What other things from a policy perspective do you think about that would be priorities or things to change? To really power innovation, push innovation forward and encourage it?
Mark McKenna: I think that there's a couple of things that I'd point out, and I don't want to go too far down the path there. I’m going to get myself in trouble. But look, the health care system in the U.S. is broken. How is it broken? Well, you have an insurance system that you have a lot of middlemen in the process, and that are extracting value, but not necessarily adding to it from my perspective. You've got to remove the incentives where they're encouraging higher prices because they benefit from that.
What a lot of people outside of our industry don't understand is that most of these drugs, they set a whack price, and they pay a 50 to 60% rebate below that. The net price back to the pharma company after R&D cost and manufacturing cost is kind of value based.
And of course, there are the bad actors and outliers out there. But in general, we need to reward innovation, not penalize it.
And so, I think that needs to be reflected in our policies. We need to think about how we fund earlier innovation. And I think you're seeing a lot of these ideas coming out of academia. We're starting to see a better bridge between the investment world and academia.
That science is actually moving into companies, and to the extent that it wasn't happening before. But I think that on the regulatory side, IRA is a challenge, and it is forcing companies to make different decisions about their portfolio. And it goes beyond just the surface level stuff of like small molecule versus biologic. There are significant downstream impacts that people haven't fully processed yet, because some of that are still unknown.
But the fact of the matter is that you're going to see people working on treatment for younger patients. You're going to see them working on biologics. You're going to see them stacking indications earlier. And you're going to see pharma make some different decisions with regards to M&A because of it.
I don't believe this is going to change. I think that we need to learn to operate within the system. And I think we need pharma and other advocacy groups to help make sure that our government officials understand. There's no cancer moonshot if there's no biotech.
The last thing I would say is that the FTC is taking a very hard line on consolidation in this space. And here is another area where it's, in my opinion, very different from tech. Our ecosystem requires there to be substantial M&A. In the absence of M&A, no one is funding these higher risk projects. I think that you’ve got to bifurcate the different sectors and understand the dynamic that's going on, that we need consolidation here.
And it should be encouraged, because a lot of these Phase 3 programs cost a billion dollars. It's almost impossible for a lot of these companies to raise enough money to do that. So, what happens? Well, those drugs take much longer to get to market and never realize their potential for patients. And so, I think that addressing those issues would go a long way in terms of making a better experience for patients and for the biotech ecosystem.
Josh Baldwin: That’s great. All right, Josh, your favorite paradigm-shifting innovation in life sciences.
Joshua Kennedy-Smith: I think that the thing we like to talk about at RTW the most is just this explosion of new therapeutic modalities. I wouldn't necessarily talk about anything specific as much as I can point my finger at the time that I've been here. Seven plus, almost eight years, I guess.
We've seen approvals for cell therapies, for gene therapies. We have protein degraders in the clinic now. We have gene editing in the clinic now. The way that I like to think about this and talk about it is, you have to pay attention to all of this stuff, but it's in those increments of being here and seeing it and being ready to kind of pounce.
That's actually what I’m most excited about, I don't know if I’m actually calling out anything that's a paradigm shift as much as, if you do the work to understand cell therapy, then maybe you're there and you're ready when it becomes prime time to use it in immunology for instance.
So, that's something that is coming. Then similarly you can look at a story like Prometheus and you can say, “Oh, it was really easy for us to get involved," because having a companion diagnostic wasn't this foreign crazy thing, it was, “What are these crazy people doing? Talking about how they're going to increase the remission rate in this super hard disease with a genetic biomarker and a tool. That's crazy!”
That's not crazy at all because we'd seen that in oncology and we knew the potential of being able to use it. In many respects, it's really just being able to kind of key in on those things that actually are tangible from the standpoint of them. Again, having the potential for that paradigm shift, that's the thing that gets me most excited is that you're actually closest to it. And you can almost reach out and touch it; you just have to know when to then transact. It serves as a perfect example to talk about Prometheus and use it as a thing that actually is super exciting.
We didn't even get to talk about, and – that's the one thing I’m sad about, as Mark alluded to – we're not going to get to see the third and the fourth and the fifth inning of Prometheus, because it's going to be kind of almost behind this curtain of Merck now. That's all fine and good, from our standpoint as investors, I guess, in some respects. But as a scientist, it's disappointing because one of the key catalysts that was going to be coming up for them was actually the diagnostic cohort readout. We were expecting that this quarter.
As to whether or not we ever get to actually see that, we don't know. But then it was going to be the second program. And then they were going to unveil the third program at the end of the year. These are all these things that I was saying, a scientist, we lose out on that.
There's a tough balance there. I think we're pretty happy with the result, all in all.
Josh Baldwin: That's a very interesting take, though. And it shows that at heart, you are a scientist, and this is what gets people here excited about these things is not necessarily just “How much did we make on this deal?” But watching the science progress and getting to be a part of each of those steps or innings for a company.
Joshua Kennedy-Smith: It would be amazing to be here for another decade and see companion diagnostics come of age in immunology. I think about some of the early slide decks that I saw that Mark and the team presented, and it was this big group of people that were all different colors. And it was, “Here's subset of IBD1 and subset 2 and 3 and 4 and 5 and 8 and 10.” And we’re going to be able to interrogate all of this and go after it and get it from this disease, where you're only, again, putting 10, 15% of patients into remission. And getting that up to something that that we're used to seeing in a lot of these diseases, where you can actually treat, like in psoriasis, you can treat all these people super well.
It's going to be in increments and in steps, but we'll get there. I'm in a very fortunate position to be in the seat and get to see this stuff and interact with people like Mark on a daily basis. And then, in these instances where we're fortunate enough to be able to finance these companies and work with them over these periods of time. It's fantastic. And it's reflecting on the last three years, in some respects, it feels like ages. And then in other ways, it just feels like literally like this blink in time.
The emergence of AI tools in medicine
Mark McKenna: The only other theme I would talk through, which was really consequential in the Prometheus story, which is the role of data and AI in helping to unlock new opportunities for science. We were Cedars-Sinai's spin out. And Cedars-Sinai over the last two decades has built this amazing data set, 20,000 patients, 200,000 samples. And only through that data set, can you start to really find new and unique targets like TL1A. And then be able to develop diagnostics to identify the subset of patients.
But this is happening all over medicine. And data, along with the ability to interrogate using AI in new ways, is going to also play a big role in reshaping care for patients. I know that there's a lot of investors that are raising funds around AI, and I'm sure it's a decent portion of your portfolio here at RTW. But I think that is going to be critical in terms of solving the moonshots on cancer and other areas.
Josh Baldwin: How do you think about that, Josh, and the impact of AI on development or discovery?
Joshua Kennedy-Smith: Given my background and experience and having spent time at Schrodinger, which can be classified as an AI company, there's a spectrum with which you can do it.
And I think on the one hand, you can wield a sword or a tool or whatever it is. But it really is the people that kind of sit behind that instrument that ultimately are going to be the ones that can make sense of, make the inference, if you will, to wield that technology appropriately.
And so, Schrodinger is an example. They purposely built a platform that enables medicinal chemists to work more efficiently. That was one of the reasons: “It's a no brainer. I want to go work there; they're doing cool stuff that helps me do my job better and more efficiently. That's smart.”
You can then stretch that further and say, “We're just going to interrogate and solve biology just by clicking buttons.” That's the tech attitude towards biotech, which I think is 100% fundamentally flawed.
But if you think about data and having to truly make these connections, it's not always easy, and it's not always true that a computer is just going to be able to see that. There is a balance there. I am a true believer in experienced management teams that know how to execute and write. A computer is not going to be able to tell you what the metrics are for IBD trials and how many patients are going to be able to enroll at the site if X, Y, Z goes wrong or COVID happens. Maybe they can. I don't know.
But it serves to represent the experience we had here. It’s always nice to be sitting next to that and know that it’s out there and follow it. For certain things, it's completely relevant and applicable.
Schrodinger has been around for almost three decades, three decades plus. They know what they're doing. These other companies are younger and maybe overpromising and underdelivering.
You never want to say no to a piece of technology, you just have to pay attention to it and see what the true application of it is, in that moment. And then over time it grows.
Josh Baldwin: All right. Well, we're running up on the end of our time here. Mark, I really appreciate you being here. This was great. Good to hear more from you and learn a bit more about your career and Prometheus. And we look forward to seeing what comes next for you.
Mark McKenna: I appreciate the opportunity and all the support, Josh and the team here at RTW. I can honestly say that without great investors, this outcome for patients would not have happened.
Joshua Kennedy-Smith: Awesome.
Josh Baldwin: Awesome. Thank you.
This interview was given by Mark McKenna, CEO of Prometheus Biosciences, and moderated by Josh Baldwin and Joshua Kennedy Smith, Partner and Research Analyst at RTW Investments. Statements reflect RTW's views and opinions as of the date hereof and not as of any future date. All expressions of opinion are subject to change without notice and are not intended to be a forecast of future events or results. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent.
