Nautilus Biotechnology co-founders Sujal Patel (left) and Parag Mallick. (Nautilus Photo)

Nautilus Biotechnology is emerging as Seattle’s newest publicly traded company this week, taking advantage of the mania over SPACs to raise $345 million to fuel a new approach that could accelerate biomedical research and transform drug development.

The Seattle company, which will trade on Nasdaq under the ticker NAUT starting Thursday, was co-founded in 2016 by Institute for Systems Biology alum Parag Mallick and Isilon Systems co-founder Sujal Patel. Nautilus is developing a new way to analyze the proteome, the set of proteins in a biological sample.

The company’s institutional investors include Bezos Expeditions, the venture arm of Amazon founder Jeff Bezos; Vulcan Capital, founded by the late Microsoft co-founder Paul Allen; and Seattle’s Madrona Venture Group, among others.

Nautilus has some familiar faces at the helm who’ve successfully guided public companies before. Patel recruited former colleagues to help lead the startup, including marketing chief Chris Blessington, finance chief Anna Mowry, and product development leader Subra Sankar.

Biotech investment firm Perceptive Advisors sponsored the SPAC, a shell company that will join with Nautilus for the merger.

The deal will close on the 25th anniversary of Patel’s arrival in Seattle, where he started a job managing data storage infrastructure at RealNetworks that would lead to the idea of Isilon, a data storage company he helped start in 2001.

It was through Isilon, which sold to EMC for $2.25 billion in 2010 in one of Seattle’s biggest tech acquisitions, that Patel met Mallick, who was one of his early customers. Mallick, now an associate professor at Stanford University, had hired Isilon in 2004 to store reams of data from his experiments that generated large datasets on the human proteome and genome.

Since then, the two have kept in touch, and for the last decade Patel sponsored a postdoc in Mallick’s lab through his family foundation.

So when Mallick had a completely new idea to analyze the proteome in 2016, he turned to Patel for advice. Later that year, they co-founded Nautilus, with Patel as CEO and Mallick as chief scientist.

The new company relies on a fusion of fields: life sciences, computer and data science, and physical sciences and engineering. It’s a challenging mix to develop in an academic lab, but the synergy became a natural fit for Patel and Mallick.

“I thought a lot about what was the right vehicle to get this out into the world,” Mallick said in an interview with GeekWire this week. “It needed all three of those pieces — hardware, software and wetware — to come together.”

Added Patel: “Inside our company’s walls there are protein biochemists and nanofabrication engineers working on the chip, there are software engineers, optical engineers, machine learning engineers, single molecule biophysicists. This broad range of disciplines really lends itself to a company and a commercial organization.”

There are a wide range of use cases for the company’s technology, including translational research and therapeutics development. Almost all FDA-approved drugs target a protein, and knowing more about the proteome can help make the drug development process more efficient. For instance, researchers could analyze the effect of a drug on the proteome before and after treatment.

In some ways, Nautilus wants to democratize proteomics, similar to how companies such as publicly-traded biotech giant Illumina have done with genomics. The company estimates a total addressable market of more than $25 billion, with biopharma capturing 50%, and research and applied markets capturing the rest.

Probing the proteome

Nautilus aims to analyze 95% of the human proteome, which has 20,000 or more proteins. (Nautilus Image)

While DNA and RNA mainly provide instructions, it’s proteins that are the building blocks of cells.  But proteomics analysis lags far behind the analysis of DNA and RNA, and is generally not user-friendly for most laboratories.

“The tools that we have don’t have the same throughput and coverage and depth and sensitivity that you have on the genomics side,” said Mallick.

“We have a mantra inside the company: anyone who wants a proteome gets a proteome,” he added.

Central to its technology is an instrument containing a chip with billions of “landing pads” for proteins in a sample. Reagents that bind proteins flow sequentially over the chip and binding is assessed optically. The analysis of the data occurs through a machine learning process. The result is a read-out of the proteins in the sample.

One key aspect of the system is that the protein-binding reagents, some being developed by Nautilus, don’t typically bind just one protein. Each reagent might react with 10% of the proteome, said Mallick. The system “takes many, many different inputs about a single molecule, computationally combined to give you what is a shocking specific identification,” Patel said.

The platform will have the potential to identify more than 95% of the proteome, according to a Nautilus. In addition, the approach will enable better analysis of protein modifications, key molecules that pop on and off of proteins and regulate their function. Their system will be able to assess where and how often such modifications occur, said Mallick.

(Nautilus Image)

Nautilus has released few details about its platform, but is currently partnering with Genentech to test and hone it, and expects to produce a scientific publication late this year. The new funding will enable Nautilus to propel its technology further through research and development and commercialization, with launch of their instrument expected in late 2023.

As a co-founder, Patel got deep into the technology, helping build the machine learning algorithms that power Nautilus’ platform. He watched college level classes in biology and chemistry on YouTube.

“I had to basically catch up and figure out how to be a CEO of a biotech,” he said.

As part of his learning process, Patel called Mallick every day with “a list of 50 dumb questions.”

“He’s a very patient man, he’s a professor,” Patel noted. After that, Patel dove into the scientific literature, reading hundreds of papers on core areas for the company.

Long-term play

SPAC mergers offer a faster path to going public than the traditional initial public offering, and have rapidly gained in popularity. So far this year 335 SPACs have raised $105 billion, according to SPAC Research, nearly eight times the amount raised in all of 2019.

Enthusiasm for SPACs has fluctuated. Part of the reason is a delay in completing SPAC deals due to a revised approval process from the SEC, The Information reported. The aftermarket performance of SPACs has also fallen around 20% since peaks earlier this year, according to IPO SPAC Index.

This is Patel’s second time taking a company public. He did it in 2006 with a traditional IPO for Isilon, before its sale to EMC. With Perceptive Advisors, which invested in a Series B round for the company, he feels Nautilus has the right partner for a SPAC. And though Nautilus is still developing its product, it’s the right time to go public. Times have changed since 2006, when Isilon went public with a commercial product, he said.

“Investors are more receptive to companies and tools that are pre-commercial, but have incredibly large potential markets to go after. And so with that, there were the right conditions and the right investor group for us to raise a large amount of capital,” he said. “Bringing in a disruptive amount of capital really helps us to accelerate and lower risk and so it made perfect sense.”

SPAC deals can be a faster and more efficient way to load up on cash versus hitting up venture capitalists for more money. Another appealing lure of SPACs is that the founding team can enter the public markets retaining larger chunks of equity.

Following the merger, Patel will own about 13.4% of Nautilus, and Mallick will own 16.6%, according a proxy statement filed May 14.

By comparison, the 2006 Isilon IPO filing listed Patel’s stake at 5.8%.

The company in February said its valuation would be $1.3 billion following the merger, assuming a share price of $10. Shares of the shell company, Arya Sciences Acquisition Corp III, ended Wednesday at $11.16. The ticker will change to NAUT on Thursday morning. Editor’s note: NAUT shares ended Thursday at $11.00.

Nautilus’ SPAC is one that is “willing to still fund developmental venture capital stage risks,” said Matt McIlwain, managing director of Madrona Venture Group, an early Nautilus backer. “This is a company that is quite early, in many respects,” said McIlwain, who is also on Nautilus’ board of directors. Madrona and other investors are taking the long view on a technology to solve a long-standing problem in the life sciences, said McIlwain.

Nautilus is entering an arena with solid investor interest. Companies touting new technologies for proteome analysis include Seer, which raised $175 million in a traditional IPO late last year; Quantum-Si, which is expected to also go public via a SPAC at a valuation of $1.46 billion; and SomaLogic, with an expected SPAC merger this fall valued at $1.2 billion.

Nautilus expects first revenue in 2022, reaching $183 million by 2025, though the company will still be unprofitable with an estimated net loss of $42 million, according to a February investor presentation.

The company’s Seattle offices are home to much of its computational team, and the wet lab is located in San Carlos, Calif. Nautilus aims to double its workforce, to more than 200 employees, by the end of next year.

Nautilus had raised a total of $109 million prior the SPAC merger, including a $76 million Series B round last year led by Vulcan Capital, a multi-billion-dollar holding company created by the late Microsoft co-founder Paul Allen. Bezos Expeditions, the VC arm of Amazon founder Jeff Bezos, also invested, along with Perceptive Advisors, Andreessen Horowitz, Madrona, and others.

Andreessen Horowitz will own 14.2% of the combined company; Vulcan will own 5.8%; and Madrona will own 5.1%, according to the proxy filing.

Nautilus will reel in $145 million from the SPAC merger along with $200 million from new and previous backers via private investments in public equity, also known as a common stock PIPE, which is used to fuel a SPAC as an extra financing round.

The PIPE, led by Perceptive Advisors, includes Madrona, Vulcan, and Andreesen, and new investors such RA Capital management, Ally Bridge Group, Bain Capital Life Sciences, Franklin Templeton Investments, OrbiMed, Alyeska Investment Group, L.P., and Casdin Capital.

Mallick’s former postdoctoral advisor, Institute for Systems Biology co-founder and affiliate faculty member Ruedi Aebersold, is on the Nautilus scientific advisory board. Other members of the scientific board are Joshua LaBaer, executive director of the Biodesign Institute at Arizona State University and Nobel Prize winner Lee Hartwell, formerly president and director of Fred Hutchinson Cancer Research Center.

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