Achieving the Exit  |  The SRS Executive Q&A Series   

SRS has produced this series of Q&A interviews to highlight how great entrepreneurs have beaten the odds to exit their companies successfully. As shareholder representative, SRS works with the world's best entrepreneurs once they reach this milestone. This series explores how they got there and what they learned along the way.

Q&A  |  Calistoga Pharmaceuticals (acquired by Gilead Sciences)

Carol Gallagher
Former President and CEO, Calistoga Pharmaceuticals

Carol Gallagher was named CEO of Calistoga Pharmaceuticals in 2008 and led the company to an acquisition by Gilead Sciences for $375M upfront and $225M in potential earnout consideration in 2011. Gallagher emphasizes the importance of creating strategic alternatives to build shareholder value, putting the right internal controls in place, and maintaining aggressive communications to build awareness in the life sciences community.

Q :  What have you found especially effective in growing a business that could be applied to, or used by, others managing their businesses?

There are three areas I would recommend: 1) Build a great team. Find the best people you possibly can and then create an environment where they can thrive, have autonomy, and be good team-players; 2) Tell it like it is. Create transparency with your employees, board, and investors; and 3) Focus on defining and capitalizing on your unique value proposition.

Q :  When you were named CEO of Calistoga in 2008, the company's operations were already well underway. What strategic moves did you make as CEO to continue growing the company and pave the way for an exit?

When I joined, the company was fortunate to already have a great scientific team with our three founders, Mike Gallatin, Roger Ulrich, and Neill Giese, as well as a very experienced CMO, Albert Yu. Shortly after joining, I hired Clifford Stocks as Chief Business Officer to assist in defining our strategy and exploring strategic partnerships and other financing alternatives. Cliff was a veteran pharma business development executive with deep, prior experience in implementing corporate strategy. One of our goals was to maintain strategic options at every point so we never had our backs against the wall. His addition to the management team represented an important step for the company.

In 2010, we started planning our registration trials. To help us with these plans and our portfolio, we hired Langdon Miller, an experienced cancer developer, as Executive Vice President of R&D. As the company was maturing, we wanted to add senior leadership in the areas of finance and compliance, which led us to hire a very experienced controller as well as a CFO, Andrew Guggenhime. Andrew is an experienced public company CFO with extensive relationships in the investment community. We wanted to make sure Calistoga was in compliance with Sarbanes-Oxley in order to be ready to go public. We also had the company audited each year to make sure our business operations were well run and our internal controls were in order as we moved into late stage development.

Q :  What were some steps you took to prepare your company for its sale?

We were not necessarily preparing to be sold, but rather we were creating strategic alternatives to continue to build shareholder value. We introduced Calistoga to the public investment community early--well in advance of when we might consider an initial public offering. We were aggressive in our communications to build awareness in the life sciences community and ensure that key opinion leaders in hematology were aware of our clinical programs and our early results. Building awareness and demonstrating progress created a track record of successfully hitting our milestones.

Working within the life sciences community is obviously beneficial for drug development activities, but it's also beneficial for targeting potential strategic partners with shared interests. The challenge for us early on was thinking about how best to obtain the capital that we needed to advance our drug development pipeline, and carry our compounds through registration trials. So, we had discussions with potential partners, initially proposing an ex-North America license with Calistoga retaining rights to commercialize in North America.

Multiple parties expressed interest in obtaining global rights to our lead program, CAL-101. Because this program was a major component of Calistoga's value, this interest led to discussions of acquisition. We then retained JPMorgan to manage an organized process for us that ultimately led to Gilead's agreement to acquire Calistoga in February 2011 in a deal that included $225M in earnout milestones in addition to the upfront acquisition price of $375M.

Q :  How did you leverage your investors to grow your business and achieve the exit?

We were fortunate to have top-tier investors. The original syndicate included Frazier Healthcare Ventures, Alta Partners, Three Arch Partners, and Amgen Ventures. They provided us with the equity financing we needed for clinical trials, but their value went beyond the capital they brought to the table. In the most recent financing, Laterrell Venture Partners and Quogue Capital joined as well.

We learned the importance of maintaining close communications with our investors and board members, who served as sounding boards for ideas. Along with domain expertise, our investors had great networks of contacts in the investment community that extended our range of financing options. After we used VC funding to finance our drug development pipeline through phase two clinical trials, we started considering public financing and assessed that alternative versus partnerships. Our investors and board members provided very valuable input on the pros and cons of these different alternatives.

Q :  What other factors played into the decision to sell Calistoga?

Our lead program, CAL-101, as well as our pipeline were showing significant promise. We needed broader resources to ensure that more patients could benefit sooner. Gilead's expertise with developing HIV therapies, a shared vision in developing cancer therapeutics, strong financial resources, global reach and desire to retain the majority of Calistoga's R&D staff proved to be a compelling long-term proposition for the future. Gilead has operations in North America, Europe and Asia Pacific and they are committed to improving the lives of cancer patients and those who suffer from inflammatory diseases. So, the fit was complementary and really couldn't have been better.

Another important concern for us was that our compound would not wind up orphaned within a large portfolio of drugs, which could have happened if we had been acquired by a large pharma company. We wanted to see our products advance rapidly through development and clinical trials. Of course, we sought the best price for our shareholders but we were pleased that Gilead saw value across our pipeline.

Q :  Now that you've stepped down as President and CEO of Calistoga, what are your expectations for the future of your company's operations as part of Gilead?

The sale of Calistoga represents a significant milestone for the growth prospects of the small molecule compounds we developed and for Gilead's focus on furthering its oncology product development. Our R&D team, most of whom were retained following the acquisition, will benefit from the resources that Gilead can devote to bringing the therapies we developed over the last several years to the patients that need them the most.

I'm optimistic that Gilead will be able to leverage our pipeline of unique, targeted therapies that we put into place for treating blood cancers, autoimmune disorders and inflammatory diseases. Calistoga's acquisition, I think, is going to contribute significantly to the future success of Gilead on the domestic and global stage when it comes to helping cancer patients alleviate their suffering from different types of blood cancers, immune disorders and inflammatory diseases.

SRS serves as shareholder representative on the acquisition of Calistoga Pharmaceuticals by Gilead Sciences. SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earnouts, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds.

SRS | Shareholder Representative Services is the global expert in professionally managing the post-closing process to safeguard the selling shareholders' interests in private company M&A transactions. As the shareholder representative, SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earnouts, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds.

SRS has a senior-level team of more than 30 attorneys, financial professionals, and operations and systems experts and the most sophisticated operational, tracking and reporting systems ever used by a shareholder representative. On deals valued in aggregate in excess of $25 billion, SRS has represented more than 400 venture capital and private equity firms and over 30,000 shareholders in 44 countries. No one has as much knowledge and experience in serving as a shareholder representative and navigating the issues that arise post-closing than SRS.

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