Centessa merges 10 privately held biotechs under one umbrella

New Model Pharma

In February Centessa Pharmaceuticals launched a new kind of pharmaceutical R&D model with $250 million Series A Financing. The company, which was founded by Medicxi, described itself as a merger of 10 privately-held biotech companies with highly validated programs. Each of the companies within Centessa is led by specialized teams committed to accelerate development and reshape the traditional drug development process.

Financing was led by General Atlantic and co-led by Vida Ventures and Janus Henderson Investors. Additional blue-chip investors participated in the financing, including Boxer Capital, Cormorant Asset Management, T. Rowe Price Associates, Inc., Venrock Healthcare Capital Partners, Wellington Management Company, BVF Partners L.P., EcoR1 Capital, Franklin Templeton, Logos Capital, Samsara BioCapital, LifeSci Venture Partners and an undisclosed U.S.-based, healthcare-focused fund.

Each of the 10 private biotech companies (“Centessa Subsidiaries”) will continue to develop its assets with oversight from the Centessa management team. Each subsidiary will prosecute a single

program or biological pathway, with leadership provided by subject matter experts who are given a high degree of autonomy to advance each program. With a singular focus on advancing exceptional science, combined with proprietary capabilities, including structure-based drug discovery and design, the subsidiary teams enable Centessa to potentially develop and deliver impactful medicines to patients, according to the company.

“The vision of Centessa is to build a pharmaceutical company with a unique operational framework that aims to reduce some of the key R&D inefficiencies that classical pharmaceutical companies face because of structural constraints,” said Francesco De Rubertis, Ph.D., co-founder and partner at Medicxi and chairman of the Centessa Pharmaceuticals board of directors. “Our operations will be driven by an asset-centric approach, whereby each Centessa Subsidiary is solely focused on the execution of its programs with oversight from the highly experienced Centessa management team. The ambition of applying asset centricity at scale is to be able to deliver life altering medicines to patients with improved efficiency by boosting R&D productivity.”

The Centessa Subsidiaries are ApcinteX, Capella BioScience, Janpix, LockBody, Morphogen-IX, Orexia Therapeutics, Palladio Biosciences, PearlRiver Bio, Pega-One and Z Factor. The current Centessa Pharmaceuticals portfolio consists of four clinical-stage programs, including two that are in late-stage clinical development, and more than 10 additional programs spanning diseases with high unmet need across oncology, hematology, immunology, inflammation, neuroscience and rare diseases.

“With this first-of-its-kind model, we are bringing together programs with robust genetic and biological validation under one new pharmaceutical company that provides centralized resources to enable and empower asset-focused teams to advance highly impactful programs for patients,” said Saurabh Saha, M.D., Ph.D., Centessa’s chief executive officer. “This approach encourages an environment where scientific teams are incentivized to maintain an unwavering focus on advancing medicines to key go/no-go inflection points based on data-driven decisions.”

Centessa will have the flexibility to deploy capital by adhering to a “follow-the-data” philosophy and will support each Centessa Subsidiary with centralized capabilities that enable advancement of its respective programs. These include manufacturing, regulatory and operational support to enable and expedite scientific prosecution of programs by subsidiary teams. Each team is “uniquely incentivized to expeditiously interrogate key scientific hypotheses,” the company said.

How are stock market analysts viewing this unusual arrangement?

Goldman Sachs’ chief global equity strategist Peter Oppenheimer, who describes current conditions as “a stock picker’s market,” describes Centessa as a strong buy. He and his colleagues wrote that the small-cap biotech company uses an asset-centric approach to R&D, divides the research pipeline among a network of subsidiary companies, centralizes the administrative and infrastructure support and decentralizes the development programs, enabling more individualized approaches to the research programs.

They added that Centessa’s “pipeline contains 16 drug candidates, in various stages of development from pre-clinical testing to Phase 3 clinical studies. The leading candidate, lixivaptan, is undergoing a Phase 3 trial as a treatment for autosomal dominant polycystic kidney disease. Two other drug candidates are in late stages of development: SerpinPC is a specific inhibitor of activated protein C, to be used in the treatment of hemophilia and shows potential as a one-size-fits-all treatment, while imgatuzumab, a next-gen EGFT targeting antibody, is under development for multiple oncological applications. These latter two drug candidates are at the Phase 2 clinical stage.”

Goldman Sachs analyst Salveen Richter started her coverage of Centessa stock in the wake of the IPO, setting a Buy rating and a $42 price target that implies an impressive 89 percent one-year upside potential. She explained, “CNTA is creating a new biopharmaceutical company model, aimed at capitalizing on the primary strengths of an asset-centric approach (e.g. single asset companies focused on a particular asset or pathway) while maintaining the diversification and scale traditionally associated with large pharma companies. Through a curated portfolio of asset-centric companies (“Centessa subsidiaries”) under a central management team, CNTA is able to capitalize on a diversified pipeline of high conviction programs…”

Centessa stock has attracted three positive analyst reviews so far, making for a unanimous Strong Buy consensus rating. Trading suggested a very positive upside for the next 12 months.

Martin Tillier, a financial adviser writing for Nasdaq, said, “Pharma companies and biotech firms tend to fall into one of two categories. They are either huge and sprawling, or small and specific. For the large firms, the problem is that even with robust pipelines, it is rare that any one new drug moves the needle in terms of revenue and profit, especially as extensive analyst coverage means that the potential of that pipeline is usually priced into the stock, at least to some extent. Their stocks can appreciate, but big gains are unlikely. Big gains are much more likely in smaller companies, but that potential always comes with big risks. One therapy that fails or even falters in clinical trials can destroy their prospects, and its share price can limit the profitability of even a successful therapy, or of therapies concentrated in one space.”

He explained that Centessa Pharmaceuticals (CNTA), a recent IPO Nasdaq stock, has some of the advantages of both and limits the disadvantages in each case. He described Centessa as a holding company for multiple, research-focused companies, adding that there are ten subsidiaries, covering large and small molecules in multiple areas of specialty, including oncology, immunology, and neuroscience, with more than 170 patents between them.

Tillier added, “That provides the advantage of diversity inherent with big pharma stocks, but a major breakthrough in any one of the sixteen therapies currently in development will have a massive impact on the stock, making triple digit gains look within reach. That isn’t to say that there are no risks. Centessa is not just a young pharma company, it is a collection of them, so all of these potential problems are exaggerated. The period immediately before the launch of a new therapy is always a tough time for new drug companies, for example, with cash burn increasing as they ramp up for a launch. However, that is usually for one or two products in the early days, not sixteen.”

He concluded, “Still, post-IPO, Centessa has nearly $300 million cash in hand, with negative cash flow of less than $9 million at this point, so even if another capital raise is needed, it should be far enough away to be of little concern to early investors.”

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