PureTech thinks the ‘hub-and-spoke’ startup model is still a good bet. If only investors agreed.
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Biotechnology investors dream of success stories like Karuna Therapeutics. Founded in 2009, the company took a drug others had given up on, ironed out its flaws and then, against tremendously poor odds, ushered in a new generation of antipsychotic medications.

Bristol Myers Squibb recently acquired Karuna for $14 billion. PureTech Health, the Boston-based incubator that got the company off the ground with about $19 million, has now recorded more than $1 billion in gross proceeds.

Despite that success, PureTech’s leadership doesn’t think investors fully appreciate the firm’s worth. Not counting funds at subsidiaries it doesn’t wholly own, PureTech had $400 million in cash, cash equivalents and short-term investments as of June 30. And yet, the company’s stock, which is listed on both the Nasdaq and London Stock Exchange, trades at prices that suggest shareholders don’t see much value beyond those reserves.

Bharatt Chowrira, PureTech’s former president and freshly minted CEO, believes there’s a disconnect between shareholders and the work being done at firms like his, which operates under a “hub-and-spoke” model. In such a model, a central biotech creates offshoot companies that each get to focus on a specific medicine, disease area or drugmaking technology, while still staying tethered to the parent firm and drawing on its resources and expertise.

This structure holds advantages, namely that it’s relatively easy to sell off or spin out projects that show great promise — or, conversely, wind down those that hit major obstacles. Companies like BridgeBio Pharma, Centessa Pharmaceuticals and Roivant Sciences, which last year sold one of its subsidiaries to Roche for $7 billion, have adopted this radial style as well.

Chowrira, along with PureTech’s co-founder and current president, Eric Elenko, spoke to BioPharma Dive about the drawbacks of the hub-and-spoke model. They also discussed the hard lessons investors learned over the last five years, as an extremely sunny biotech market took a historic downturn that’s made funding harder to secure.

The following conversation has been edited and condensed for clarity.

BIOPHARMA DIVE: Puretech has done the hub-and-spoke approach longer than most. What have you learned? What’s worked, what hasn’t, and has your mindset on building companies changed?

BHARATT CHOWRIRA: We are really proud of our track record, in terms of executing on this model and developing really innovative, novel treatments for serious diseases. And it's been very successful from an R&D perspective. We've had an 80% success rate with our clinical trials, whether they were run at PureTech or through founded entities. Compared to the success rate of clinical trials in the industry, we are about six-fold better than the average.