Sutro Biopharma, Inc. (STRO) Earnings Call Transcript & Summary

Hello, and welcome to the Biotech 2050 podcast. Biotech 2050 is a think tank chronicling the disruptions changing the biotech industry over the next several decades. Check out our website at biotech2050.com. I'm Rahul Chaturvedi, today's host. I'm also the founder and CEO of Clora. Clora is organizing the world's life sciences expertise and is a place to discover, build and manage on-demand life science teams. I'm thrilled to welcome Bill Newell, CEO of Sutro Biopharma. Bill, wonderful to have you on today.

Thanks very much. It's a pleasure to be with you.

To start off, we'd love to learn a little bit more about your background and how you got to where you are today.

Thanks. Well, I'm -- as you mentioned, the CEO of Sutro Biopharma, and I'm probably a bit atypical as CEOs go in that I was not trained as a scientist. In fact, I was trained to be a lawyer. I practiced corporate law for about 15 years. And then in 1998, I decided it was time for a career change. For a lot of personal reasons, I was drawn to the biotechnology industry. And I came to understand that somebody with a solid business background and a legal background could be very helpful to establishing and building companies that were working on novel therapeutics. And so in 1998, I joined this industry. And in the course of my career since then, I've had occasion to work in a number of managerial positions. And in 2009, I was asked to step in and be CEO of Sutro Biopharma. So for the last 12 years, we've been building out this really unique company. I was the 19th employee. Today, we're over 200 employees. We have a very unique and novel technology that we think allows us to make very significant improvements in the quality of cancer medicines that are delivered to patients. And I'm pleased that we have a number of programs ongoing, and we have 4 programs in clinical development today. So it's been quite a journey and a very fulfilling one for me to see this company really grow from the seed of an idea to a company that is actually benefiting patients.

Great. Thanks, Bill. For those that are listening that are thinking about a similar pivot, how did you initially get into biotech? And are there any lessons learned in terms of someone who's looking to apply their legal background to the biotech industry?

That's a really interesting question. I think that when I was practicing law, I viewed myself fundamentally as a problem solver for my clients. And it didn't matter what the problem was, they often had legal components to it, but they often had business components as well. And I viewed myself as an adviser to management teams on how to move their businesses forward. After 15 years of doing that, I decided that instead of advising, I wanted to see whether I had what it takes to actually take my own advice, if you will, and put it to practice and see whether or not I could practice what I was preaching. So that began my long career in leadership in this industry. I think the ability to listen to people who have different ideas, the ability to assimilate that information, to draw conclusions and build bridges are all important skill sets to being successful as a leader in any organization. And I view our business, the business of science, today, the business of cancer therapeutics, as a business that it's very helpful if you can bring a problem-solving mentality to the table because you never know on any given day what problem is going to present itself. My job is to find ways to keep the company funded, to have a strategic vision that we can pursue and to really unlock the potential of our team in terms of developing new cancer therapeutics.

And many of us in biotech are obviously quite drawn to the industry for its potential impact on human health. Would love to understand your own personal motivation as you work in a space where millions of Americans are impacted on an annual basis?

Yes. The reason that I got into this industry was exactly that. We're here adjacent to Silicon Valley in the South San Francisco area. And there's a lot of exciting innovation that goes on in the tech world. I love the new gadgets that they produce. And they certainly are a great assist to me in many aspects of my life. But what we do in the biotechnology industry fundamentally affects patients and well-being in human health. And so when the time came from me to transition, I was drawn to this industry. In part, I was drawn to this industry because I think there continue to be amazing novel platform technologies that give science an opportunity to make a broad impact in many different ways and in many different disease states. Sometimes, it's great to have discovered a single molecule that has very direct and specific application. And that's a very important aspect of what goes on in our industry. But if you have a technology that is broadly applicable, now the fun starts because you have to figure out what is this technology capable of doing? What is it not capable of doing? Once I know what it's capable of doing, I have to ask the question, what should we be doing? And why should we be doing it? And when you're asking those questions, you end up making choices, and those choices have many consequences. They have consequences as to the funding. They have consequences as to the skill sets that you're going to need. They have consequences to the diseases that you might be interested in working in. And so for me, as I've moved through my career in the industry, I've been much more attracted to platform companies because it allows for more creativity in terms of scientific innovation, in my mind. It allows for more creativity in terms of fundraising because different opportunities may appeal to different investors. It allows for more creativity in deal-making because you can approach a company and there may be many aspects of what you do that could be of interest to them, and you find the one that is overlapping in interest. And it allows you choices in terms of where you want to go. And so at Sutro Biopharma, when I first joined in 2009, we were agnostic as to what we were going to work on. What we are working on at that point was our technology. And it was important to answer those first 2 questions. What can we do and what can't we do. In 2010, late 2010, our Chief Scientific Officer joined us, and it was then that we could start to ask the question, what should we do? And that's been an exciting journey. And now we're definitely focused in cancer. And that's for a lot of reasons, but we decided in early 2011 that we were going to focus our technology and our efforts on the development of novel next-generation cancer therapeutics, and that's the journey that we've been on since that point in time.

And you guys have a unique platform and process. I would love to unpack that a little bit more on what's going on at Sutro and where things stand from a development perspective?

Well, it's been quite a journey for us. Part of the reason that I was attracted to Sutro was that the technology that we have is unlike anything else in the industry. Our founder, who is a professor at Stanford, Jim Swartz, had been in the industry at Genentech. And he knew a lot about how to make large molecules, antibodies, in particular. And Genentech makes very many of their therapeutics in CHO cells. That's a very traditional approach to discovery and development and manufacturing of cancer therapeutics and other therapeutics as well. Jim wanted to explore a different path of discovering and making large molecules. He wanted to develop a technology around cell-free protein synthesis, sometimes known as in vitro transcription and translation. Now that's a technology and a concept has been around for a long time. But Jim's notion was to take it from a mere lab scale, interesting from a scientific curiosity standpoint to answer a narrow question, to a robust technology that could manufacture next-generation therapeutics in a way that has never been done before. And so the company that I joined in 2009 had begun in 2003, and we were trying to do 2 things at the same time. We were trying to understand what we could make and what we couldn't make. And to the extent that we couldn't make something, could we manipulate the technology platform in a way that allowed us to make eventually what we couldn't make previously, and that was a very important bit of technology building. And then the second thing that we had to do was figure out how to make these molecules at a scale that would be predictive of our ability to make clinical trial material and commercial quantities of material. Because no one in the history of the industry had ever been able to achieve that. And so when I joined in 2009, we were just at the beginning of that quest. We had done a fair amount of scalability, enough to give us confidence that we could scale to a level that would allow us to manufacture under GMP conditions for both clinical development and commercial scale. And today, I'm pleased to say that we now have a GMP facility in San Carlos, California, and we have made 4 antibody-drug conjugates in that facility. And that is a remarkable feat because we're the only ones in the world who have ever made molecules like these cell free, and we've done it with our own manufacturing capability that we've built through the years. The question that we also had to struggle with was what should we make, and we settled on next-generation cancer therapeutics. Small sideline story for you. My CSO, when he joined, he and I were tasked to think differently about how to use the technology platform because he was the new kid on the block. And as we were tasked with that, I said to him, Trevor, his name is Trevor Hallam. So Trevor, we've got a lot that we can do with this technology platform. I just don't think we should do cancer. So as we think about this, let's think about everything else other than cancer. And about a month later, about a month later, he came back to me and said, Bill, I know you told me that we shouldn't be thinking about cancer. But I think this platform is ideally suited for cancer. And I said, okay, why do you think that? And that began a conversation between the 2 of us about where cancer therapeutics were going. Antibody drug conjugates were just starting to have their day in the sun. Bispecific antibodies were showing good promise as well. And there was a lot of other stuff going on that suggested that cancer therapeutics were going to be more complicated to make than just making an antibody. And it turned out that our platform was ideally suited to make these next-generation cancer therapeutics in a way that allows us to believe that we can design a homogeneous molecule, a single species, that because of the work that we put in, in the research and preclinical development, we know it's the optimal molecule, the optimal single species to put into clinical development. Not a heterogeneous mixture, not something that's an average in terms of performance, where some elements of the therapeutic are competent, and others are not so competent and they compete with one another. We wanted a single species. And so today, as I said, we have 4 antibody-drug conjugates that are each single species, one is in ovarian and endometrial cancer, one is for myeloma, one is for non-Hodgkin's lymphoma and myeloma, and one is for non-small cell lung cancer and squamous cell carcinoma of the esophagus. So those are 4 different molecules. We've filed INDs for each of those at least 1 a year since 2018 and have a pipeline of other molecules that are moving forward. So I think we made the right choice to go into cancer from a business standpoint. We're now a publicly traded company, valued at over $1 billion, and we're helping a lot of patients with cancer. We have a long way to go, but we've made some significant strides over the last 5 years, and I'm very optimistic about the next 5.

Bill, that is a remarkable pace of progress over the last couple of years in terms of getting new assets into the clinic. And also it's quite unique nowadays for companies to be responsible for end-to-end development from early-stage discovery, all the way through to commercial GMP manufacturing. There's obvious trade-offs associated with doing so. Would love to unpack your mental model around some of those trade-offs and how folks should think about, hey, you know what, I'm going to set up my own GMP facility versus going the usual CDMO route.

You're right. That's a very difficult question to get a good answer to, although I think we're seeing more companies decide to invest in manufacturing. What's difficult about it? Well, what's difficult about it is that you're effectively owning your manufacturing capability as opposed to renting someone else's manufacturing capability. And it turns out that the cost of ownership are significant. You have many more fixed costs as well as variable costs. If you're renting, that's all variable. You can scale it up or scale it down. The difference, though, when you own it and you own something that isn't fully developed is that you develop your manufacturing capability under your own control. If we see something isn't working, the next day, we can be doing it differently because the team has identified a different way to do something than we did the day before. If I'm working with a CDMO, I have to try and figure out what didn't work in their hands, why didn't it work? And what should we ask them to try to do differently? That is a much longer cycle time, and it's much more expensive. For us, the decision was relatively straightforward. When we were building our company, I knew that it was going to take hundreds of millions of dollars to finance this company because I knew that we needed to have a manufacturing capability that was believable. If you're the only ones in the world doing a certain technology process, you better be able to do it at a scale that is comforting to investors and to others that you can actually make it all the way to the finish line and have a commercial process. And so in order to persuade people that we could do that along the way, we found a facility in San Carlos, California that was built as a GMP facility but was constructed in a way that was amenable to our technology process. And we found it at a very inexpensive rental price because it'd been vacant for 3 years. And so I was able to persuade our Board that we should invest in owning our own manufacturing capability rather than renting it, even though I did not have a single product to make in that facility at the time we made that decision. In fact, it would be several years from the time we made that decision to the time that we would be making something in that facility that is now the one that's produced these molecules. And it's a little bit of a field of dreams story, that if you build it, they will come. And what I knew is that if I told a pharmaceutical partner or a potential partner, hey, look what we can do in the lab, and they would say, okay, so how are you going to take care of manufacturing? Don't worry about that. We'll figure it out down the road. That would not be a very satisfactory answer. But if I said, here, let me show you the facility that we're actually going to make. What we're trying to work on with you, it's a lot more believable that, frankly, when the molecule is ready for that facility, the facility will be ready for us. And I was heartened that our partner, Celgene, believed that our ability to actually do this and made substantial investments in Sutro to enable us to build that manufacturing capability. But we had that facility moving forward, ready to make things several years before it was actually time to make something in it. But that facility unlocked business development opportunities. It unlocked capital for us. It unlocked new programs that we would not have been able to conceive of had we not had that facility. So a bit of a leap of faith, but one that's been well rewarded. And our financing through our partnerships has generated almost $400 million. And that facility is core to that financing execution.