Greg Mayes is CEO of Reunion Neuroscience, a company developing a psychedelic drug, called RE104, to treat postpartum depression and mental health distress related to cancer. Reunion was formerly a public company, but after current CEO Greg Mayes took over, the company went private and raised a $103 million Series A financing, which it announced in May of this year. The round was led by MPM BioImpact and Novo Holdings.
The financing was transformative for the company, supporting the ongoing “RECONNECT” Phase 2 clinical trial for RE104 in postpartum depression (PPD) and expansion into other psychiatric indications of high unmet need, including adjustment disorder in cancer and other medical illnesses (ADCO).
Life sciences companies like Reunion have different financial needs compared to other startups. While a software company might build a minimum viable product to launch and iterate on, healthcare companies operate according to drug trial timelines and processes. That means different sorts of capital needs, and a distinct fundraising process.
And even among life sciences companies, Reunion’s take-private acquisition was unique. We sat down with Greg to hear more about the process.
Highlights:
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Navigating a take-private acquisition and fundraise
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De-risking the investment
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Dispensing with psychedelic stigma
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Keys to a biotech pitch deck
CARTA: I’d love to dig into that decision to take Reunion Neuroscience private and raise a Series A. What were the reasons behind this move?
GREG MAYES: There were a couple advantages of returning to a private company. First, it's much easier to operate and manage a private company, and it's also less expensive in terms of the administration and compliance costs of a publicly traded company. And it’s a different situation for raising money. The public market financing merry-go-round can become a major distraction to leadership teams. So instead of living off of public financing follow-ons that can be highly dilutive, if we went private, we could raise venture funding that would support the company’s objectives. The ability to be taken private and to do so with very strong institutional healthcare investors that know the marketplace and the research very well was an excellent opportunity.
It also gave the company a chance to reset and to allow the management team to really focus on the near-term catalyst and milestones that are before us, which in our case is the generation of Phase II proof of concept data through our RECONNECT Phase 2 study in PPD.
What does that process and timeline look like, when you’re raising a Series A, while in the process of taking a company private again?
First things first, it was imperative to close on what we call a “take-private acquisition.” While companies are taken private across industries, I’d say it’s more unique than common in the biotechnology sector, that’s for sure. I remember asking the lawyers and the accountants that were involved in the transaction early on if they'd ever been involved in a take-private acquisition, and the answer was no. The timeline was that we announced the deal on June 1 and we closed on August 1. So we were able to appropriately compensate existing public shareholders and be converted to a private entity in about 60 days.
Then after we became private, we were in a position to launch a Series A financing that was largely anchored by MPM BioImpact, who had taken the company private, and they became an excellent cornerstone to approach other investors. We needed to raise further funds; we certainly could not have moved forward with the robust clinical development plans we had without expanding the round and taking on more funding. So beginning August 2023, we started to reach out to other significant institutional healthcare investors and let them know about Reunion Neuroscience and RE104.
The fundraising was initially challenging because prior to mid-2023, there was really an absence of solid institutional healthcare investors that were investing in psychedelic therapeutic companies. Interest among blue chip investors is improving ahead of meaningful Phase II and Phase III datasets coming out for various treatments.
But there are still a significant number of institutional healthcare investors that are going to look at the development of psychedelics for neuropsychiatric indications as a little bit of a show-me story. Are they safe and effective? Is there an intellectual property protection that significantly will protect the product?
Despite macroeconomic and sector challenges, we still got the fundraising done in roughly nine months. And we actually started out with a desire to raise $80 million and it was oversubscribed to $103 million based upon demand and interest and our ability to generate more robust clinical development programs with the additional capital.
So what did that nine months look like? What sort of strategy and process did you run to find the right investors?
This is the third venture-backed company that I've been the CEO of, so I wasn’t starting from scratch. With any fundraise, you’re going to have different tiers of investors, including some that you don’t have a personal connection to. But at this point in my career, a lot of the investors I’m approaching I already know.
In this case, timing was paramount. We certainly wanted to reach out to investors with the excitement of the take-private acquisition. So beginning in the fall, we started to work through planning for the January JP Morgan healthcare conference, and then beyond, and the idea was first to get investors interested on a non-confidential basis. And then, where there was further interest, we would move them into our data room, and assist them with their due diligence.
A lot of this is specific to our situation. The capital required to develop and test a drug is different from other startups. But there are some lessons that I think apply for any fundraise. And a major one is to identify potential milestones that would further de-risk the opportunity along the way.
For us, a major milestone was the approval of our investigational new drug application with the FDA. Since our drug was initially investigated in Australia, we needed to get this, and it actually came through while we were in the midst of due diligence. So it's nice to have that sort of milestone emerge while you're in the course of fundraising.
Of course, you're not going to be able to totally de-risk the asset or the opportunity. They wouldn't call it venture if you could. But that was an important example of being able to generate more interest and awareness of what we were doing.
As you mentioned, biotech and medical research has some pretty specific quirks compared to other fields, and you’re developing a very specific, emerging sort of treatment. Was it important to you to raise money from firms with this sort of specialization, versus more generalist healthcare investors? How did you communicate the opportunity?
Even among institutional healthcare investors, there was a pretty strong learning curve for the development of psychedelics for the treatment of neuropsychiatric indications. This is a new tool for the psychiatrist toolbox. So you had to basically walk people through the anticipated mechanism of action of psychedelic therapy, why do we believe it can be safe and effective, and how does it work and what's your approach to bringing it forward.
Even in the healthcare space, while I think people are aware of the advent of psychedelic therapeutic clinical development, we certainly had a lot to educate them on in terms of the different investigational assets that are across the spectrum, how ours differed and where ours sat.
So we’re sort of adjacent to the psilocybin category, but we could be rapid-acting. The time for the administration of this treatment is about half that of other psilocybin-like drugs. That was an important differentiation. So pointing that out and then also pointing out that we had significant intellectual property protections, with composition of matter patenting, for example, that was important as well.
What do you think was the most important part of the pitch? I’m curious what your pitch deck looked like, and what resonated the most with potential investors?
To start the pitch, you obviously have to identify the unmet medical need. Which in this case is quite apparent. There's been a lack of innovation in the neuropsychiatry area for five decades, but yet the mental health crisis post-pandemic has accelerated in a very unfortunate way. In fact, 20% of Americans report having experienced a major depressive episode in their lifetime.
So it was relatively easy, I think, to inform the audience that we have a mental health crisis in the United States and across the globe, and that there's been a dearth of new treatment options, particularly ones that are going to be fast-acting and may not require taking a pill every day.
So in the pitch deck, we're going to highlight the unmet medical need. We're going to show how we believe the mechanism of action works. We clearly highlighted our Phase I data from a 48-patient study in Australia, and then we identified the clinical development programs that we're pursuing.
We also highlight the trial schema, the trial design the FDA has approved, and the study design for our first indication. And we laid out the timeline, and the use of proceeds, so basically how we’re going to allocate the money. And I think in our case, it was appreciated that we said we thought we could complete two Phase II data sets within the financing period.
We also made sure to highlight how we anticipated overcoming challenges or what are perceived challenges to how these products are going to be prescribed, distributed, and accessed by patients and then ultimately reimbursed. The cornerstone of that process is to get FDA approval.
One thing we were able to leverage during the process of the fundraising was the success of Spravato, a Johnson & Johnson product in the mental health area with esketamine. They’re projecting the product will do over a billion dollars in sales through a very detailed and novel distribution scheme that involves specialized treatment centers. This is important because some of that infrastructure will be established by the time we get to the completion of our clinical trial program and we're ready to file a new drug application with the FDA.
For us, there’s the opportunity to be what I would call a fast follower with significant intellectual property protection and meaningful product differentiation from other psychedelic treatments in the mental health area.
It’s been a long time since there’s been substantial advancement for the tools psychiatrists can use to help treat mental health disorders. We’re excited to be part of a wave of new treatments that may help address the mental health crisis our world is facing.
