Gene-editing solution Recombinetics raises $34M in Series A funding

The company focuses on gene editing in animals, for both human health and animal agriculture

Financial trends and news by Steven Loeb
August 21, 2018
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For years, people have done selective breeding with animals, like dogs and cattle, to get their offspring to have certain genetic traits, a process also known as artificial selection. If, for example, a farmer wanted to breed dairy cows without horns, they would have them mate with with beef cows. Then, over many generations, they would eventually get the desired result. It was far from a short process. 

Now it can be thanks to advancements in gene therapies. In fact, Recombinetics, a provider of gene-editing solutions for human health and animal agriculture, says it can cut the artificial selection process down to a fraction of the time it used to take, from 50 years to just two and a half. 

"If farmers wanted to have all the animal welfare benefits of having hornless cattle, they would have to take a beef cow and cross it with a dairy cow. It would take generations of back crossing to get back to the elite quality of the milk that you had before gene editing, since crossing what was elite beef with elite milk would take 20 generations. They did it through conventional breeding, there wasn’t a technology solution like this on the animal egg side, and it was so long to get to market that farmers wouldn’t give up 20 years of productivity enhancements for animal welfare," Tammy Lee, President and CEO of Recombinetics, told me in an interview.

On Tuesday, the company revealed that it raised $34 million in Series A funding. Of that, $4 million was in convertible debt and the other $30 came from undisclosed investors. The company has previously raised around $28 million in previous rounds, which were all common stock and family and friends rounds, so "this is the first time we’ve really gone out to capture institutional investment," Lee said. 

With this latest funding, the company is now valued at $260 million.

Founded in 2008, Recombinetics currently has three business lines, two on the human health side and one on the animal health side. The first is called Surrogen, which uses gene-edited pig models of human diseases for biomedical research.

"Whether it’s a heart disease or cancer related, if it’s Altzheimer's, we have all of these disease models that we partner with pharmaceutical companies or med device companies to get their products or pharma compounds or drugs more quickly to market," Lee explained.

The second business line is called Regenevida, which is Recombinetics' regenerative medicine business. The company partners with groups like the Mayo Clinic to grow human cells, tissues and, eventually, organ products in a pig that can then be transplanted back into humans.

The third business line is called Acceligen, and its Recombinetics' agricultural business, where it gene-edits animals to carry "elite health and welfare traits." That is the solution that would create the cows without horns, or, in another example, pigs that don't have to be castrated. 

"It’s one single technology platform, primarily based on TALENs, but we can use CRISPR as well. We can use any tool in the gene editing toolkit to create the animal or application of the animal, the phenotype that we’re looking for," said Lee. 

The benefits of gene editing

There are clear benefits each of the products that Recombinetics offers for its partners. With Acceligen, by growing a cow without horns, it solves the problem for the animal of having to have its horns removed, and saves the rancher from having to go through the dehorning process on the animal.

"All boars need to be castrated. Male piglets end up getting castrated because the meat quality goes down because of boar taint. Again, farmers don’t have to castrate their pigs if we can create a genetic solution through precision breeding," said Lee. "So we can solve problems that traditional genetics companies can’t by collecting natural traits to create embryos or semen straws for these animals to be sold through the commercial genetics companies."

With Surrogen, Recombinetics can cut down on the time and money it takes for pharma companies to get drugs on the market. 

"Pigs are genetically more similar to humans that mice are, so if we can create the exact condition in a pig, then the pharmaceutical companies can test their drugs, if they’ve already been approved for another purpose, on perhaps a different condition," Lee explained.

"If the drug is successful in the pig, it has a much higher likelihood of being successful in the human, so then you’ll want to put that drug through the expense of the pre-clinical trial. So, on the human health side, we accelerate getting cures to market faster, on the animal health side, we accelerate breeding in elite desirable traits into animal populations."

Finally, with Regenevida it can be used to make organ transplants more successful. For example, the company has partnered with the Mayo Clinic help children with heart transplants so they don't develop cancers and other diseases later on.

"Children that develop these chronic heart conditions and they’re on the waiting list, waiting for a transplant, if they get a heart transplant before they go through puberty they have to take all of these anti-rejection drugs and often end up developing all kinds of terrible cancers," Lee told me. "So Mayo’s vision is if you delay their need for a heart transplant by strengthening the heart with cardiomyocytes, then you can get them through puberty then do the transplant, they have much better health outcomes if they get the transplant as an adult. So that’s using regenerative medicine therapies to save kids from these nasty cancers or other diseases that are a complication from getting a heart transplant early."

On the pharma side, Recombinetics hasn't announced any of the partners that it's working with publicly, though it does have several of them interested in various solutions. The company has disclosed partnerships with genetics companies, including Semex, a Canadian-based genetics company and Hendrix Genetics. There's also the aforementioned partnership with Mayo Clinic, which also includes a deal to co-market and co-sell the dilated cardiomyopathy pig to interested pharma or med device companies outside of Mayo.

"They help us co-market and sell that to other commercial partners, but we haven’t released that list either," said Lee. 

Recombinetics plans to make its own long term revenues off of licensing and royalties. For example, the cost to mechanically dehorn a cow is $7.50. Dairy farmers buy semen straws to create their dairy herds and so the company might add the polled trait, or the naturally hornless trait, and have them pay an upcharge of $3 to $5.

"We capture half of that and the genetics company gets half, those seem like small numbers but the market size for the number of animals that are dehorned is very large, so you get smaller increments but very large volume. So that business can quickly grow to about $40 million with just one genetics company, with one trait, in a three or four year period," said Lee.

Gene editing vs. GMOs

One thing that Recombinetics makes clear is that there is a big difference between what it does, which is gene editing, and genetically modified organisms, aka GMOs. While "GMOs often take a trait from something that’s outside the species," Lee explained, "we take only traits that naturally occur within the population."

"We take traits from cattle and put them into cattle, we take traits from pigs and put them into pigs, so we are not going outside of what would naturally occur within the population to create the desirable outcome. This is gene editing; genetic modification is taking from outside of the species. We’re only taking traits that already exist in nature within that same animal and accelerating the breeding process through precision breeding."

The company makes sure to "be very careful" about explaining the difference "because GMO can carry a negative stigma with it" especially in the United States. Still, she acknowledges that countries outside the U.S. might still label what Recombinetics does as GMO, lumping the two processes together.

"In some countries, even though what were doing is natural and occurs within the species, they still characterize that as GMO because that’s just the language that they use around the regulatory process. For them it’s technical or scientific manipulation, and that makes it GMO. We draw a finer distinction on that, so there will be countries that regulate these animals outside of the U.S. as GMO."

The future of Recombinetics 

The new funding will go toward taking the products that are already proven into full scale commercialization, rather than developing new products, as those are fueled by competitive grants from organizations that include the NIH, USDA and Department of Defense.

"This money is really focused on commercializing the products that are already proven, that we’ve developed, that there’s a commercial pull for and getting those into the marketplace. We’ll also spend some additional funds building out the business development team, continuing to expand the intellectual property portfolio and really building out and scaling out animal facilities to support the business," Lee told me.

The company currently has 35 employees but will only be adding five to 10 more, as its various partnerships allow it to run with a small staff. 

"We don’t need a lot of additional talent because, on the agriculture side, we scale within the commercial genetics companies, so they provide the infrastructure and production systems to build that business, and with our Surrogen business we partner with pharmaceutical companies and large institutions."

The longer term vision for Recombinetics is to take all three of its products and, eventually, spin them off into their own companies, with the possibility of taking them public. 

"A couple of years from now, the company might grow to double what we are today. We could probably have three separate billion dollar businesses with a very small infrastructure because it’s built on a partnership model,Lee said.

"In the next few years, you will see us looking at opportunities to stand up each of these subsidiaries as independent businesses, and capitalize those. You might see one of more of those go to market for an IPO before we would do the parent. In fact, we might not take the parent public; we might take each of the subsidiaries public first because each of them has their own distinct competitive advantage. Now we’re really focused on building up each of the subsidiaries and financing those."

What will allow Recombinetics to  "be the leader in this space," she told me, is its intellectual property portfolio, which includes 22 patents issued and more than 300 patent filings on gene-editing methods, traits, and novel reproduction methods in animals.

"We are the only ones that really focus on getting broad IP around animal gene editing so we are in a really competitive advantage. And with this financing we are now going to go and establish partnerships. Nobody’s going to be able to replicate this because they don’t have the intellectual property protection that we do, and freedom to operate."

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