When you hear about personalized medicine, you might think first of the applications for cancer treatment, or maybe cystic fibrosis. But Dave Martin, the former head of R&D at Genentech, is thinking about personalized medicine in a whole new context—for antibiotics.

This concept, at South San Francisco-based AvidBiotics, is still at its earliest stages of development, and the company’s most promising antibiotic candidate probably won’t enter clinical trials until 2013, Martin says. But the program has potential to become a fascinating case study that nudges the healthcare system away from the reactionary, “one-size-fits-all” antibiotic prescribing habit that has led to problems with drug-resistant superbugs.

Here’s how AvidBiotics is thinking about taking on a dangerous bacteria called Clostridium difficile, or “C. diff.” About 3 percent of U.S. adults have C. diff in their guts already, and it usually co-exists just fine with all the other bacteria, causing no problems. But C. diff can become a problem if a patient comes to the hospital in a high-risk situation to get a certain form of surgery, cancer care, or maybe to spend time on a ventilator in the intensive-care unit. Knowing there’s a high risk these patients will get a virulent form of C. diff, the hospital can run a 45-minute diagnostic test from Sunnyvale, CA-based Cepheid to see if the patient is a carrier.

If so, the doctor could someday prescribe a targeted “narrow-spectrum” antibiotic from AvidBiotics that’s designed to kill the C. diff bug, and spare virtually all the normal, healthy bacteria in the gut. By using the drug in a preventive setting, doctors hope to stop the bug before it causes the nasty diarrhea that hospitals dread. An estimated 700,000 people a year are affected by C. diff, and the death rate is estimated at about 6 percent. By attempting to prevent the worst symptoms before they appear, a drug/diagnostic combo has potential to greatly reduce the number of long-term hospitalizations, which can easily cost the healthcare system more than $100,000 per episode.

“An ounce of prevention is really valuable in this disease. If we can prevent this disease in high-risk patients, rather than waiting until patients are very sick, then everybody wins,” Martin says.

This would represent an unusual approach to antibiotics. These drugs today are often prescribed after a patient gets sick. The doctor doesn’t know right away what bug caused it, and he or she has to wait a day or two for a lab culture to provide the answer. Rather than wait around for symptoms to get worse, the doctor often has to act quickly, prescribing a carpet bomb “broad spectrum” antibiotic that kills all kinds of bacteria, both bad and good. Researchers know that this indiscriminate killing of bugs in the gut interferes with the natural equilibrium, and creates problems for people’s immune systems, and nutrient absorption, that can linger for months, Martin says.

AvidBiotics isn’t the only company thinking about a prevention strategy with a narrow-spectrum antibiotic—San Diego-based Optimer Pharmaceuticals (NASDAQ: OPTR) is pursuing a similar strategy with its newly marketed product, fidaxomicin (Dificid). That company, which I reported on earlier this week, is studying its new FDA-approved antibiotic as a way to prevent C. diff infection in patients undergoing bone marrow transplants, where C. diff infections are known to increase the death rate, and cost an average of $130,000 per patient to treat. (Martin says the Optimer drug is an important advance, but he believes his company’s experimental drug is designed to more narrowly hit C. diff, while sparing other forms of bacteria.)

AvidBiotics, which I profiled here in September 2010, is using technology platform it licensed from UCLA to make engineered proteins that hit specific molecular targets on the surface of bacterial cells. These molecules, which the company calls Avidocins, are supposed to … Next Page »

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Bonnie Ramsey said three years ago that a cystic fibrosis drug from Vertex Pharmaceuticals was a huge medical advance in the making, and would end up being an achievement on par with putting a man on the moon, at least for her patients.

Yesterday, she says, was the day it truly felt like she was part of a team that reached the moon-shot goal. The good news came when the FDA approved Vertex’s ivacaftor (Kalydeco) as the first drug of its kind to work by treating an underlying genetic defect for cystic fibrosis.

“It’s a really big day,” says Ramsey, a leading CF physician/scientist at Seattle Children’s Hospital and the University of Washington. “Even though it’s for a small subpopulation, the treatment paradigm has completely changed. It’s no longer about just treating the symptoms, it’s about treating the genetic defect. That’s a real game-changer.”

The drug from Cambridge, MA-based Vertex (NASDAQ: VRTX) is now FDA approved for patients age six and older who have what’s known as a Class 3 gene mutation called G551D. This mutation is found in about 4 percent of the 30,000 patients in the U.S. with cystic fibrosis. The disease, the result of various mutations to a gene called CFTR, causes the poor transfer of water and salt across cell membranes, which leads to the buildup of thick, sticky mucus in the lungs, and poor absorption of nutrients. It means patients have to endure hours a day of treatment their entire lives, and the median life expectancy is about 39 years. Doctors currently treat the symptoms of the disease, through things like inhalable antibiotics, but Vertex’s drug is the first FDA-approved therapy that works by altering an underlying disease-related protein.

Bonnie Ramsey of Seattle Children's Hospital

Ramsey has had an instrumental role in developing this drug since its infancy. As the executive director of the Cystic Fibrosis Foundation’s Therapeutic Development Network, back in 2000 she began collaborating with the drug’s original developer, San Diego-based Aurora Biosciences (later acquired by Vertex.)

Ramsey was the lead investigator of a pivotal study of 161 patients, known as Strive, which yielded results in February that laid the foundation for yesterday’s FDA approval. The study showed that patients age 12 and older on the twice-daily pill from Vertex had about a 10.6 percent absolute improvement in their ability to force out air from their lungs in one second—compared with a placebo. The effect held up over the full 48-week course of the study. Researchers also saw significant improvements in being able to gain weight, while also reducing cough, sputum production, and the incidence of pulmonary exacerbations. Side effects included headache, and upper respiratory tract infections, researchers said, although more patients dropped out of the placebo group than the drug group. A second study verified the effect in younger patients, age six and above.

What excites scientists is that the drug has a compelling foundation in biology. It is designed to … Next Page »

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[Updated: 1:25 pm] Vertex Pharmaceuticals is now officially more than just a one-hit wonder.

The Cambridge, MA-based biotech company (NASDAQ: VRTX), best known for its hepatitis C drug, has won clearance from the FDA to start selling a new twice-daily pill called ivacaftor (Kalydeco) for a rare form of cystic fibrosis. The FDA said today the Vertex drug can now be used for patients age six and older who have a gene mutation called G551D. About 1,200 patients in the U.S., or roughly 4 percent of the total population of 30,000 cystic fibrosis patients, have the mutation.

The approval came faster than expected, as Vertex turned in its application in October, and the FDA had a deadline of April 18 to complete its review. The company plans to start shipping the drug to pharmacies this week, the company said.

“Kalydeco is an excellent example of the promise of personalized medicine—targeted drugs that treat patients with a specific genetic makeup,” said FDA Commissioner Margaret Hamburg, in a statement. “The unique and mutually beneficial partnership that led to the approval of Kalydeco serves as a great model for what companies and patient groups can achieve if they collaborate on drug development.”

The new cystic fibrosis drug has been highly anticipated for years, and the application to the FDA is based on clinical trial results that arrived in February. The study of 161 patients found that patients on the Vertex drug had about a 10 percent absolute improvement in their ability to force out air from their lungs in one second—a common measure of success in treating lung disease—compared with those on a placebo. The effect lasted over the entire 48-week course of the study. Researchers also saw significant improvements in reducing cough, sputum production, and the incidence of pulmonary exacerbations. Side effects included headache, upper respiratory tract infections, nasal congestion, rash, and dizziness, although more patients on the placebo group dropped out of the study early because of side effects, Vertex said.

While the 10 percent absolute improvement in breathing ability for people with a deadly lung disease might not sound like much, it is a big step forward for the disease. Cystic fibrosis, the result of mutations to a gene called CFTR, causes the poor transfer of water and salt across cell membranes, which leads to the buildup of thick, sticky mucus in the lungs. That effectively suffocates people over time, and often ends up killing people in their late 30s or early 40s. Doctors currently treat the symptoms of the disease, but Vertex’s drug is the first FDA-approved therapy that works by altering an underlying disease-related protein.

[Updated pricing information] Based on the small patient population that has the G551D mutation, and the significant benefit the drug provides to them, Vertex set the price at $294,000 per patient per year, Nancy Wysenski, Vertex’s chief commercial officer, told analysts today on a conference call. The company estimates that about 60 percent of eligible patients have private health insurance, while the rest are covered by government insurance, Wysenski says. As is common for companies selling high-priced medications, Vertex has established programs to help get the drug to patients who can’t afford it. Vertex said it will provide free medicine to uninsured families with household incomes of less than $150,000 a year, and it will provide assistance in making co-payments for those with insurance.

“We have a strong commitment to help patients 6 and older get Kalydeco,” Wysenski said on the conference call.

The drug was developed as part of a 13-year long collaboration with the Cystic Fibrosis Foundation, which put more than $70 million into the development program, along with Vertex, and the drug’s original developer that was acquired by Vertex-San Diego-based Aurora Biosciences. Because of its support, the Cystic Fibrosis Foundation will collect a royalty on Kalydeco sales that will start in the “high-single digit” percentage of sales, and escalate to “just below the teen level” as the drug reaches undisclosed sales milestones, according to Vertex finance chief Ian Smith.

Vertex has a number of plans ongoing to expand the use of Kalydeco beyond this initial small group of patients in the U.S. The company has applied for approval in the European Union, and hopes to receive clearance there to start selling in the third quarter. It is also running a trial of the drug in patients under the age of six; as a treatment for certain other gating mutations of the CFTR gene; and in combination with other medicines that seek to correct additional mutations.

Based on the price and number of patients in the U.S., Vertex can expect peak U.S. sales from the G551D patient population of about $550 million, said analyst Mark Schoenebaum of ISI Group, in a note to clients.

Vertex shares climbed 6 percent t0 $36.90 at 1:45 pm Eastern.

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Pfizer was where Pedro Lichtinger learned about pharmaceutical marketing from people who did some amazing things. For starters, New York-based Pfizer (NYSE: PFE) turned an old-school antifungal medicine into a $1.6 billion cash cow. Now as the CEO of San Diego-based Optimer Pharmaceuticals (NASDAQ: OPTR) Lichtinger is borrowing some ideas from that experience, looking to make the most of his company’s new antibiotic.

Optimer won FDA approval last May for its first marketed product, a twice-daily pill called fidaxomicin (Dificid). That drug is designed to fight a bug called C.difficile that causes diarrhea so severe it can kill patients, especially frail elderly people. It is a common problem in hospitals. The company got off to a respectable start, generating about $24 million in gross sales in its first six months. But the market for treating this pathogen, after it has been diagnosed in a hospital lab, isn’t huge. Optimer can expect to generate about $153 million in U.S. sales in 2015, according to analyst Eun Yang of Jefferies & Co.

So to get the biggest possible bang out of this new molecule, Optimer is thinking about not just treating “C.diff,” but preventing it. Like Pfizer did with fluconazole (Diflucan), Optimer sees a long-range future in which physicians will prescribe the product as part of a standard regimen as a preventive medicine for patients who are at high risk of getting C.diff and who are likely to face a lot of suffering and high-cost hospital interventions if they get the bug. The initial plan is to start with a clinical trial to prove the Optimer’s drug can help prevent that problematic result in patients undergoing bone-marrow transplants.

If this preventive strategy works, then Optimer’s new medicine could be used by up to 20,000 patients a year who undergo such transplants. Given that the drug is currently priced at $2,800 for a typical 10-day course, and it is likely to go up over time, so it could possibly add another $230 million to $380 million in annual sales by 2020, Lichtinger says.

“I came from Pfizer where this concept was applied to Diflucan, where years ago, it was the first major antifungal applied for prophylactic use,” Lichtinger says. “It’s still used today as a generic. I saw that drug go from a relatively small drug into a $1.6 billion drug as a result of this prophylactic approach.”

He was quick to add that he’s not forecasting Optimer’s drug will approach that rarefied sales figure, but he does add there is a wide variety of other patient groups that could benefit from getting preventive C.diff treatment, such as vulnerable patients undergoing heart or liver transplants, certain cancer patients, or those on ventilators in hospital intensive care units. “The opportunity is certainly even bigger than with the primary C.diff indication,” Lichtinger said during an interview earlier this month at the JP Morgan Healthcare Conference in San Francisco.

Bone marrow transplants seem like an obvious place … Next Page »

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[Corrected 2/8/12. See below.] The Bill & Melinda Gates Foundation has joined with 13 pharmaceutical companies and leading public health organizations as part of a massive $785 million drive to wipe out—or at least better control—10 historically neglected tropical diseases by the end of the decade. [Edited to reflect that the total value of the initiative is $785 million not, as originally reported, $785 million. We apologize for the error.]

The initiative will focus on diseases that affect one out of every five people on Earth (1.4 billion people), but don’t get effectively treated because there isn’t a strong enough market to sell drugs to people who can’t afford them. The Seattle-based Gates Foundation is contributing $363 million over five years for research into the neglected diseases, while other money from groups like the U.S. Agency for International Development and Britain’s Department for International Development will finance better distribution of existing medications that are effective. The initiative was announced today in a press briefing in London.

“It used to be that people would commit to a donation but nobody would order the drug because there wasn’t money to do the delivery,” Bill Gates told Bloomberg News in an interview. “Here, because you’ve got delivery money being committed and manufacturing money being committed, every year the amount of people who get this mass drug administration is going to be 10 times what it’s been.”

GlaxoSmithKline CEO Andrew Witty added in a statement that, “Many companies and organizations have worked for decades to fight these horrific diseases. But no one company or organization can do it alone. Today, we pledge to work hand-in-hand to revolutionize the way we fight these diseases now and in the future.”

Here’s who is participating in the initiative, and what they are contributing, according to today’s statement. You can also check out reports from Bloomberg News and the Wall Street Journal.

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Cell Therapeutics suffered an embarrassing defeat the last time it appeared in front of an FDA advisory panel and today the company made a move that will enable it to avoid another public shellacking, at least for a while.

The Seattle-based biotech company (NASDAQ: CTIC) said today it has withdrawn its application to start selling pixantrone (Pixuvri) as a new lymphoma drug in the U.S. after saying today it needed more time to prepare for a Feb. 9 meeting of the FDA’s cancer drug advisory panel. The company said it asked the FDA to allow it to present at the March meeting instead, but when the agency said no, Cell Therapeutics withdrew the application. That means the agency’s April 24 deadline to complete its review of the application has been voided, although Cell Therapeutics said today it plans to resubmit its application later in 2012.

The last time Cell Therapeutics appeared at the FDA’s Oncologic Drugs Advisory Committee (ODAC), in March 2010, the panel voted 9 to 0 against the company’s pixantrone application. The chair of the FDA panel at the time, Gail Eckhardt of the University of Colorado at Denver, said the Cell Therapeutics application was “disturbing,” partly because it only enrolled 140 of the 320 patients needed to generate a statistically valid result. The head of the FDA’s cancer drug office, Richard Pazdur, said at the time that the Cell Therapeutics application depended on “a single incomplete trial.” The initial application was turned down by the FDA in April 2010.

By withdrawing the application just before the next advisory panel, Cell Therapeutics contradicted one of its own statements from less than a month ago, when it said it believed it had addressed the concerns raised by the FDA.

“We are pleased the Office of Oncology Drug Products (OODP) chose to bring our pixantrone new drug application back to ODAC for review now that we have provided additional information and data recommended by the Office of New Drugs (OND) that we believe addresses the issues raised in the OODP Complete Response Letter of April 2010,” James Bianco, the company’s CEO, said in a Jan. 3 statement.

Shares of Cell Therapeutics fell 18 percent today to $1.09 in early trading.

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Newt Gingrich comes across on TV as someone who radiates smugness. It’s that sense that he’s not just confident in his own abilities, but extremely satisfied with his talents and his utter superiority over mere mortals like you and me.

I’m no political pundit, nor a psychologist, so I’ll let others analyze whether Newt is presidential material. But good old Newt got me thinking this past week about this specific character trait, and other unappealing elements of personality, that we often see in leaders of the life sciences industry. Bob More, a veteran venture capitalist with Frazier Healthcare Ventures, inspired me to delve into character this week with one recent comment on Twitter.

“Politics pretty similar to backing CEO’s. Newt may be smart and a good debate guy. But Newt=Smug. Never back smug,” More wrote on his Twitter account (@Bobmorevc).

Given how often people harp about the need to find superb management teams for developing new drugs or devices, I followed up with More to hear his thoughts on character traits to back, and to back away from, in life science entrepreneurs.

The No. 1 character trait to look out for, according to More and his mentor Jim Blair at Domain Associates, is trustworthiness. Dishonesty, to them, is the king of all deal-breakers. For example, More says he once worked for six months scrutinizing every imaginable aspect of a prospective investment for Domain, which he was quite excited about. Then at the last minute, the entrepreneur mentioned a slight change to the term sheet.

Bob More

“It felt like one of those things where a real estate agent comes in at last minute, and says ‘Oh, it’s just another $6,000 fee for the house,’” More recalls. He left that meeting with doubts about the executive’s credibility in other situations. When he asked Blair for advice, the response was memorable: “Kill the deal. Life is too short to deal with people like that,” More recalls Blair saying at the time. (Blair confirmed the story, and added that it wasn’t the only time he’s stopped an investment because of character concerns.)

This is tricky stuff, because all kinds of dishonesty unfortunately passes for standard procedure in business—ever hear of an executive resigning to “spend more time with family?” But the honesty thing is worth harping on in this specific context, because it strikes me that life sciences has more than its share of spinmeisters, hypesters, smoke-and-mirrors actors, and worse. One of the sure tests of honesty, More says, is to ask whether an executive will be candid and forthright about bad news in private, so that board members or advisors can work together constructively to solve the problem.

“You can deliver good news whenever, but delivery of bad news should be pretty quick. If you’re hiding bad news or hoping it will go away, it’s not a good trait,” More says. “When people are forthright, it builds trust.”

Then there’s smugness, that arrogance or sense of superiority. Developing innovative new drugs or devices requires a strong ego, high IQ, stamina, an inspiring personality that attracts other people, and other things. Often, that combination spills over into smugness or arrogance. More says he watches for a lot of the same cues that his sister, a teacher, watches for … Next Page »

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[Updated: 3:47 pm] Amylin Pharmaceuticals and Alkermes have gone to the FDA twice before to seek approval of their new diabetes drug, and been turned back, but now the persistence has paid off. The FDA has cleared their once-weekly injectable diabetes drug for sale in the U.S.

San Diego-based Amylin (NASDAQ: AMLN) and Dublin- and Waltham, MA-based Alkermes (NASDAQ: ALKS) today won clearance to start selling exenatide once-weekly (Bydureon) in the U.S., according to a letter posted on the FDA website. The approval came after the agency held up the application twice before—first in March 2010, and again in October 2010, saying it needed further assurance that the drug doesn’t cause an irregular heart rhythm known as QT prolongation. The companies expressed confidence back in July that the issue had been resolved, based on results of an additional clinical trial. The drug won approval in Europe back in June.

[Updated with added detail on Alkermes royalty] The long-awaited U.S. approval is vital to future of Amylin, as it started investing back in 2005 in a $500 million Ohio factory to mass-produce the new drug. Amylin’s fortunes have become even more tied to Bydureon since November, when longtime partner Eli Lilly bowed out of a collaboration to co-market the drug. Alkermes, which provided technology that made the drug last long enough in the bloodstream to turn it into a once-weekly injection, will pick up an 8 percent royalty on sales of the first 40 million units sold in a single year, and a 5.5 percent royalty once sales exceed 40 million units in a single calendar year. While there is competition from Novo Nordisk’s liraglutide (Victoza) as a once-daily injection for diabetes, and various other oral pills and injectable insulin, the new drug from Amylin and Alkermes is the first treatment that can be injected as little as once a week. Amylin has been marketing the original form of exenatide (Byetta) as a twice-daily injectable since 2005.

About 25 million people in the U.S. have the disease, and numbers are growing fast as the nation’s obesity rate continues to surge. The new Amylin drug could generate $1.25 billion in peak U.S. sales in 2018, said Cory Kasimov, an analyst with JP Morgan, in a note to clients on Nov. 11.

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Bad news out today from Infinity Pharmaceuticals. The Cambridge, MA-based biotech company said it is halting a mid-stage clinical trial of its drug for pancreatic cancer early after learning that patients were living longer in the placebo comparison group. Infinity (NASDAQ: INFI) shares fell more than 30 percent after the news.

The trial of 122 patients showed that when patients got Infinity’s saridegib (IPI-926) in addition to gemcitabine chemotherapy, they were living less than the six months they were expected to based on historical studies with the chemo drug alone. No unexpected side effects were seen among patients on the Infinity drug or in the control group, the company said.

This is a painful setback for Infinity. The company just last week released some more encouraging data from an early-phase study of the drug in 16 patients, which suggested it offered a benefit by shrinking tumors and helping them live a median time of about 10 months. The plan for this year was to wait for the results from the more rigorous study of 122 patients, to get a firm answer on whether it could help pancreatic cancer patients live more than the expected six months. Even though the drug failed in that study, Infinity said it still believes in the drug’s potential because it inhibits a pathway known as hedgehog that plays a role in multiple cancers. Infinity currently is testing the new compound in mid-stage trials against myelofibrosis and chondrosarcoma. Those studies are continuing, the company said.

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Prostate cancer was once a backwater for innovation, but suddenly it’s become one of the most competitive battlegrounds in all of biotech. And one of the darkhorses in this race, Bothell, WA and Vancouver, BC-based OncoGenex Pharmaceuticals, is getting ready to show next week whether it has another contender in the pipeline.

OncoGenex (NASDAQ: OGXI) is preparing to release interim results next week from a clinical trial that could offer a hint of effectiveness of a prostate cancer drug called OGX-427. If OncoGenex can show in this 72-patient study that its compound is slowing the spread of tumors, and lowering prostate-specific antigen (PSA) scores, then it could be in position to run a more meaningful trial that asks whether it can prolong lives, or work well in combination with other therapies. The preliminary data are expected Feb. 2 at the American Society of Clinical Oncology’s Genitourinary Cancers Symposium in San Francisco.

Results from this trial, and another study among patients with bladder cancer, mean a lot for OncoGenex during what has been a long period without much big news for investors and researchers to chew on. The company is now enrolling 800 patients into a pivotal study of its lead prostate cancer drug, custersin, but expects it will have to wait until the fourth quarter of 2013 to find out whether that treatment can extend lives of prostate cancer patients. While OncoGenex makes that long slog through development, it has seen companies like Dendreon, Johnson & Johnson, Medivation, Bayer, and Exelixis continue to jockey for position at various stages of therapy, each with distinct modes of treatment, for men with prostate cancer. The disease kills about 30,000 men in the U.S. each year.

“A lot of focus for us is on custersin, but while that’s going on, we continue to mature our OGX-427 data,” Michelle Burris, OncoGenex’s executive vice president of operations, said during a meeting at the JP Morgan Healthcare Conference earlier this month. While she notes the second OncoGenex drug has shown encouraging ability to work on its own in small studies, she acknowledged it will have to find a niche in a competitive landscape—and says that it can. “It plays nice with a number of different therapies,” she says.

Michelle Burris, OncoGenex's executive vice president of operations

The OncoGenex drug, given through an IV infusion, is designed to work by blocking a biological target known as heat-shock protein 27 (Hsp27). That protein is believed to play a role in helping cells survive under stressful conditions. It’s supposed to help stabilize proteins that keep cells from committing suicide. By inhibiting its activity, you could in theory allow cancer cells to naturally undergo the cell death (apoptosis) process. But there’s also another mechanism of hsp27 that researchers find interesting. It is thought to work as a “chaperone” molecule that helps shuttle in male hormones that fuel prostate tumors.

Researchers believe that could be useful because hormone deprivation therapies have long been standard treatment for prostate cancer, and patients end up developing resistance over time. Two new hormone-blocking therapies, Johnson & Johnson’s abiraterone (Zytiga) and Medivation’s MDV-3100, have both been shown in clinical trials to extend lives of men who resist conventional treatments by blocking male androgen receptors in a different way. OncoGenex’s bet is that even while those drugs are doing their thing, Hsp27 is operating as a chaperone that allows some residual androgens into the tumor, which help provide it with some sustenance.

This theory of cancer biology is being tested in a trial sponsored by the British Columbia Cancer Agency, and led by Kim Chi. The key study enrolled 72 patients with prostate cancer that … Next Page »

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Steve Holtzman got his first taste of corporate venture capital back in 1987, when he raised money from SR One, back when it was part of an old company known as Smith, Kline & French.

The concept was unorthodox 25 years ago, yet over time, most every Big Pharma company has become an active equity investor in biotech startups. But Holtzman, early in his tenure as lead dealmaker at Weston, MA-based Biogen Idec (NASDAQ: BIIB), chose to buck the trend, helping put the kibosh on the company’s VC investment group in the past year. This was no small decision, given that Biogen started its venture investing group in 2004, committed $200 million to it, and made investments in companies like San Diego-based Intellikine, South San Francisco-based iPierian, San Diego-based Calcimedica, and Cambridge, MA-based Aveo Pharmaceuticals (NASDAQ: AVEO), among others.

Holtzman outlined four main reasons why Biogen has gotten out of the VC game during an interview earlier this month at the JP Morgan Healthcare Conference. But before diving into those reasons, they should be placed in the context of what’s been a busy first year of dealmaking he has overseen as part of CEO George Scangos‘s new management team at Biogen.

Besides shutting down the venture investment effort, Biogen also closed down its startup incubator, so that more resources could go to internal R&D projects, Holtzman says. Given that Biogen has plenty of drug candidates (six) in the third and final phase of clinical trials usually required for FDA approval, Holtzman’s mandate has been to in-license drugs that can fill gaps in the early-stage part of the pipeline. Two recent partnerships, with South San Francisco-based Portola Pharmaceuticals and Carlsbad, CA-based Isis Pharmaceuticals (NASDAQ: ISIS), reflect that desire. Expect more in-licensing of early-stage drug candidates for autoimmune and neurological disorders in the year to come, Holtzman says.

Given that backdrop, here are the four arguments that Holtzman says are commonly made in favor of corporate VC activity, which he says don’t make sense for Biogen:

1. “Corporate VC investing provides a window on novel technologies.” That might sound reasonable on the surface, but Holtzman says it’s not necessary, and not the best way to stay plugged in. “I’d submit to you that the best window on novel technologies comes from your scientists, who are identifying new things all the time,” Holtzman says.

2. “It’s a good way to network with VCs who have an inside look at what’s hot. If you don’t invest with them, you aren’t connected to them.” This argument doesn’t apply to Biogen, because its senior executives—particularly Scangos, R&D head Doug Williams, and Holtzman—have all been in the biotech business for 25 years and have extensive Rolodexes in the venture capital world.

“We are intimately familiar with all the VC players on a first-name, friendly basis,” Holtzman says. “We have multiple meetings here [at the JP Morgan conference] with the leading VCs in the industry, where they sit down and go through every company in their portfolio that might be of interest to us. We are very happy to do that. We get calls regularly from VCs who say, ‘We’re thinking of starting a company in the following area. Are you interested in that area?’ And beyond that, they ask us, ‘What do you think are the interesting areas where we ought to start companies?’

Personal relationships with the VCs can be forged … Next Page »

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Cambridge, MA-based Verastem, the biotech startup seeking to make drugs against cancer stem cells, found a way to rustle up enough demand from investors to complete its initial public offering.

The company (NASDAQ: VSTM) said tonight that it raised $55 million by selling 5.5 million new shares at $10 apiece. It was a strong showing of investor interest, given that Verastem had previously proposed selling just 4.5 million shares, at a range of $9 to $11 a share. UBS and Leerink Swann led the offering, and were assisted by Lazard Capital Markets, Oppenheimer & Co., and Rodman & Renshaw, according to a statement on Verastem’s website. The offering could end up raising more money in the end, because the underwriters have a 30-day option to buy another 825,000 shares. Shares of Verastem will now start trading on the NASDAQ on Friday, the company said in a statement.

The IPO was a bold move in a market that has shown limited interest in such offerings from biotech startups, especially companies like Verastem, which was founded in August 2010 and doesn’t yet have any drug candidates in clinical trials. While Verastem contends that cancer stem cells—also known as tumor-initiating cells—are critical players that help tumors resist treatment and spread, scientists still have a lot to prove about the role they play. The bet here is essentially on an intriguing field of science and a high-profile cast of scientific advisors and executives led by CEO Christoph Westphal. He’s best known as the former CEO of Sirtris Pharmaceuticals, the developer of drugs for diseases of aging, which was sold to GlaxoSmithKline for $720 million in 2008.

Christoph Westphal is chairman and CEO of Verastem

Investors haven’t shown much interest in backing such high-risk/high-reward companies like Sirtris or Verastem lately. Last year, just 10 biotech companies went public, according to a tally from FierceBiotech, down from 13 a year before. At least a couple of other notable biotech companies are teed up to test the IPO market in the early days of 2012—Mountain View, CA-based ChemoCentryx, which is trying to sell 4 million shares at $14 to $16 a share, and Cambridge, MA-based Merrimack Pharmaceuticals, which is attempting to sell 16.7 million shares at $8 to $10 apiece, according to the most recent regulatory filings.

The Verastem offering stands to benefit a number of well-known players in the Boston biotech community. Heading into this deal, the biggest holders in Verastem were Longwood Founders Fund, with a 15.4 percent stake; CHP of Princeton, NJ with 13.5 percent; MPM Bioventures with 13.1 percent; Bessemer Venture Partners with 12.9 percent; Eastern Capital Limited with 7.8 percent; and Advanced Technology Ventures with 5 percent.

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Avila Therapeutics, after just five years in business and $51 million in venture capital, made big news today when it agreed to be acquired by Celgene for $350 million upfront plus another $575 million in milestone payments.

Naturally, there are a lot of people celebrating the success of the Bedford, MA-based company today around the web and on Twitter.

Over at Polaris Venture Partners’ blog, Amir Nashat wrote that “early, Series A life sciences investing pays off.”  He added that this portfolio company is the eighth in the last three years to generate returns, either through acquisition or an IPO. “One common thread that binds each of these companies was their compelling scientific foundation and transformative potential for treating disease. In our model, these areas are essential and go hand-in-hand with strong teams. In the case of Avila, we were fortunate to back a truly unique team of repeat entrepreneurs,” Nashat wrote.

Bruce Booth, a partner at Atlas Venture who also invested in the company, wrote on his blog about how Avila (AH-vill-uh) paid off big-time for its early venture investors. The company raised just $51 million in venture capital its five-year history. The company is generating a 5x return on investment on the upfront payment from Celgene, which has potential to balloon to a 15x return if Avila hits its future milestones.

Booth offers some interesting background on the Avila story, and some lessons in four bullet points. “Avila has exhibited many of the hallmarks of a great biotech story today”: Specifically, he said those hallmarks are:

 Commitment to discovering and advancing real innovation

 Healthy focus on ‘equity capital efficiency’

 Dedication to creating strategic optionality for the company’s future

 And, most importantly, a fantastic team

Over on Twitter, Michael Gilman of Cambridge, MA-based Stromedix (@Michael_Gilman) recalled sitting in his living room more than five years ago with Avila co-founder Jus Singh, talking about his idea for the company. “The sweet thing about Avila is that it’s a triumph of data over dogma. People HATED covalent drugs. Avila changed their minds,” Gilman said on Twitter.

Avila Therapeutics CEO Katrine Bosley

You can read the Xconomy story on the deal by my colleague Arlene Weintraub. The one thing I’ll add is that I saw Avila CEO Katrine Bosley along with VP of corporate development Nagesh Mahanthappa and CFO Andrew Hirsch a couple weeks ago at the JP Morgan Healthcare Conference in San Francisco. Bosley talked a bit about how the company’s lead drug candidate, a Btk inhibitor, was being readied for mid-stage clinical trials against cancer later this year, and that it was thought to have potential against autoimmune diseases.

It was a quick meeting, and there wasn’t any hint that a deal this big was ready to be announced. But Hirsch tried to persuade me that maybe the IPO market for biotech isn’t as barren as some people think, which I took as a subtle hint that Avila might be sniffing around at that option. “I think there is an appetite from the investment community for high-quality stories,” Hirsch said.

And Mahanthappa optimistically noted that some big companies have been doing creative deals to support innovative biotechs. In particular, he singled out Celgene for its partnerships with Cambridge, MA-based Agios Pharmaceuticals and Acceleron Pharma. When I asked him about predictions for the year ahead, he predicted that creative deals like that would continue.

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Two of the scientific founders of a couple of Seattle’s best-funded biotech startups have come together in a new company that aims to create a valuable antibody drug candidates while burning through the least amount of venture capital possible.

The new Seattle-based company, called V-Gene, is being started by combining a couple of technologies developed by Johnny Stine and Steve Wiley. Stine is the founder of Theraclone Sciences (formerly Spaltudaq), and Wiley is the co-founder of VLST, a pair of companies founded at Accelerator. The new startup has gotten a term sheet for an initial $1.2 million in financing from an undisclosed venture investor, Stine says, and although the deal isn’t signed yet, he expects that round to close before the end of March.

V-Gene is setting out to develop two or three antibody drug candidates for infectious diseases and cancer, and put them into preclinical testing in the next 12-18 months, Stine says. If V-Gene can deliver on those milestones, it should be in position to raise a second round of financing. At that point, Stine says, he’ll go back full-time to the lab bench at his other company, North Coast Biologics, which he says is being positioned so t0 spin out multiple antibody drug development startups.

The new company is being structured in a different way, now that Stine and Wiley say they’ve been around the block in the venture business. They turned down a $40 million venture offer from a couple of large VC firms to instead go for a smaller $1.2 million deal, which enables them to keep a much larger (30 percent) equity ownership stake. On the lean budget, V-Gene can get to a value-creating milestone after a relatively fast 12-18 months. If that goal is reached, a bigger venture syndicate could advance the drugs in development, and the founders would leave. Stine, who has been outspoken about his desire to bring biotech back to its “garage” roots, says he wants to stay in control this time and keep focused on doing what he does best—discovering antibodies at the earliest stage.

“Since we know the rules now, we can play the game according to our rules,” Stine says. “We can rapidly get in some money, rapidly create antibodies, get some quick validation, raise a Series B, and then we can wave goodbye to the company. I have no plans to keep working beyond the Series A financing. I’ll come back here (to North Coast) and do this process again. We think we have an antibody incubator.”

North Coast, which Stine founded in 2008, currently has partnerships to discover antibodies for five large biotech companies, and one large pharmaceutical company that he says he can identify—Novartis. The partnerships have provided North Coast with more than $1 million in upfront payments for discovering antibodies against targets the customers choose, and allows North Coast to earn milestone payments and royalties if the candidates advance in development, Stine says.

Stine was the driving force behind the Theraclone antibody discovery approach. That process starts with looking at blood or tissue samples from patients, and identifying natural antibodies that are made by people’s immune systems against foreign invaders like viruses, bacteria, or cancer cells. Mother Nature has evolved pretty efficient defense mechanisms against these bad actors, so Stine’s insight was to look for antibodies with broad potential to neutralize many kinds of invaders, and make genetically engineered copies of them as drugs. North Coast follows a similar philosophy in how it looks for antibody drugs, through what it calls BLAST technology. The new technology, Stine says, is more versatile and efficient than we he developed at Theraclone (then Spaltudaq) more than five years ago.

Wiley, who met Stine when the two were … Next Page »

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San Diego-based Illumina, the market leading maker of DNA sequencing instruments, has just made it through a rough year, and now it may be entering its final chapters as an independent company.

Illumina (NASDAQ: ILMN) said last night that it has gotten an unsolicited (that’s polite PR language for hostile) takeover bid from Switzerland-based Roche. The offer values Illumina at $44.50 a share, or about $5.7 billion. That represents about an 18 percent premium over Illumina’s closing stock price of $37.69 on Tuesday. Roche said it plans to run a “tender offer” in which shareholders are being asked to tender their shares at its price until Roche has corralled enough shares to take control. Illumina, in a brief statement, asked shareholders to do nothing until the board makes a recommendation.

The offer must look like a screaming low-ball offer to Illumina shareholders, given that the company traded as high as $79.40 a share in the last year. But Illumina has gone through a rough stretch of late, as it fell short of its quarterly sales goal last fall, and made layoffs, as customers worried about potential federal research budget cuts, and competitors like Life Technologies, Complete Genomics, and Pacific Biosciences all fought hard for their share of a fast-moving market for sequencing tools. Still, Illumina is the dominant player in the market, and the DNA sequencing market is expected to grow as machines get faster and cheaper, making them available to many more scientists. The market is expected to grow from $1.2 billion in 2009 to more than $3.6 billion by 2014, according to figures from Scientia Advisors.

Given the opportunity, I’ve got to imagine the Illumina board is seething at this unsolicited takeover bid. It sounded like it in last night’s terse, but diplomatic, statement.

“Consistent with its fiduciary duties and responsibilities, and in consultation with its financial and legal advisors, Illumina’s Board of Directors will thoroughly review Roche’s proposal and make a recommendation to stockholders in due course that the Board believes is in the best interests of Illumina stockholders. Illumina stockholders are advised to take no action at this time pending the Board’s recommendation.

Analysts at Bernstein, quoted by Dow Jones, didn’t sound so excited about the deal either. Roche has sought to become a diversified healthcare giant that makes drugs and diagnostics, and while high-powered genetic instruments like those from Illumina are primarily research tools today, many in the industry believe they will have more value in the future as diagnostic tools.

“Large scale genomics may, or may not, have an important role in clinical practice in the next 10 to 15 years, but Roche feels it needs to have the option to play just in case the hype eventually becomes reality,” is how analysts at Bernstein interpreted the Swiss company’s move Wednesday, according to Dow Jones.

Quintin Lai, an analyst with Robert W. Baird who covers Illumina, said he believes Roche is mostly interested in using Illumina tools for making products to diagnose cancer. “We think Roche covets the clinical diagnostics potential that ILMN’s technology provides,” Lai wrote today in a note to clients. “We have noted that next-generation sequencing is attracting strong interest in the area of cancer diagnostics and therapy selection.”

Illumina shares shot up 45 percent, all the way to $54.63, in speculation that takeover bids from Roche, or possibly another company, will run much higher. This will certainly be an interesting story to watch unfold over the coming weeks.

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Affymax shocked the world when an FDA advisory committee recommended last month that its anemia drug was good enough to earn a spot on the U.S. market. Now the Palo Alto, CA-based company (NASDAQ: AFFY) is making all sorts of moves behind the scenes that will determine how big a bite it will take out of Thousand Oaks, CA-based Amgen’s multi-billion dollar anemia drug monopoly.

Decisions about the product’s price, who to hire to sell it, and how to negotiate with Medicare and dialysis clinics are all high on the list of tasks facing the Affymax executive team. It’s part of the process of getting ready for March 27, the deadline the FDA has to complete its review of peginesatide, the experimental anemia drug from Affymax and its partner, Takeda Pharmaceuticals. If Affymax can get the green light from the FDA, it will be allowed to sell its product to about 400,000 patients in the U.S. on dialysis treatment, and tap into a market that generated $2.5 billion in sales last year for Amgen’s epoetin alfa (Epogen.)

Medicare has spent tens of billions of dollars on Amgen anemia products over the years, and members of Congress at various points have been critical of how much taxpayer money goes to one company making one drug.

“I don’t want to say there’s pent-up demand, but there’s a lot of interest in the renal community,” in the new product, says Affymax CEO John Orwin. Without disclosing the price, he suggested that Affymax plans to offer a lower-cost alternative. “Healthcare providers are under a lot of pressure to find overall cost-lowering solutions. So we think we’re coming into a favorable environment.”

Given the FDA advisory panel’s lopsided 15-1 vote in favor of its drug, the odds are Affymax will soon be in position to start selling the first alternative to Amgen’s epoetin alfa (Epogen), which has had a monopoly since it was first cleared for sale in 1989. The FDA previously approved a rival from Roche called epoetin beta (Mircera) in 2007, but that drug has been blocked from the U.S. market, at least until mid-2014, because of an intellectual property dispute that Amgen won. Affymax is able to sidestep that minefield because its drug helps stimulate production of oxygen-carrying red blood cells, like Amgen’s, but it is a peptide that is chemically distinct, and works through a different biological mechanism.

Even though Affymax will likely be in position to sell its product soon, it is a classic underdog in this story. Amgen (NASDAQ: AMGN), the world’s biggest biotech company, has contracts in place to provide its anemia drug to Fresenius Medical Care and DaVita, which together control about 70 percent of the dialysis market, analyst Christopher Raymond of Robert W. Baird said in a December 28 note to clients.

Raymond rates Affymax a “buy” with a price target of $13, but he sees many obstacles ahead. Small biotechs often … Next Page »

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Vertex Pharmaceuticals went from king of the hill in the treatment of hepatitis C to yesterday’s news in about six wild months. But while many on Wall Street say Vertex’s big drug will soon become obsolete, Vertex and its small partner in South San Francisco have quietly put themselves in position to defend a big share of this future multi-billion dollar market.

Cambridge, MA-based Vertex (NASDAQ: VRTX), which has significant operations in San Diego, is running a series of small clinical trials this year that will mix and match combinations of antiviral medicines against hepatitis C. These trials will help determine whether Vertex and its partner, South San Francisco-based Alios Biopharma, have hit upon a combination of drugs that can raise the cure rate, and reduce side effects, for millions of patients with this liver-damaging virus.

While Vertex’s new drug has been a huge step forward in the past year, the ultimate way to fight the fast-mutating virus, many scientists believe, will be by putting together a cocktail of antivirals that attack hepatitis C from multiple angles like with HIV.

“There isn’t one magic pill that will solve the problem,” says Vertex CEO-to-be Jeff Leiden. “It’s clear the HCV space will evolve into different combination treatments for different patients. It’s not yet clear what the best combination is going to be. What you want is to have the component parts in your company so you can put them together.”

Vertex's Jeff Leiden

The hepatitis C world saw dramatic upheaval in the past year as researchers learned more about antivirals in development. Vertex won FDA approval in May for its new protease inhibitor, telaprevir (Incivek), which doubled the cure rate to about 80 percent for new patients when given in tandem with standard pegylated interferon alpha and ribavirin. About 25,000 people rushed in to get treated with the new combo regimen in its first seven months on the market, generating hundreds of millions in cash flow per quarter for Vertex, and pushing it into the black.

Exciting as it all was for physicians, patients, and Vertex shareholders, the company was soon upstaged. Researchers have long been looking for a way to get rid of the injectable interferon part of the regimen, which causes nasty flu-like symptoms that people must endure for months. To go beyond combo therapies (like the one from Vertex and another from Merck that include injectable interferon), the next step is to hit the hepatitis C virus with not just protease inhibitors, but also drugs from other classes—nucleotide polymerase inhibitors, and non-nucleotide polymerase inhibitors.

Princeton, NJ-based Pharmasset (NASDAQ: VRUS) stole the show last November at the American Association for the Study of Liver Disease when it said its nucleotide polymerase inhibitor cured all 40 patients with certain hepatitis C genotypes in a small study—a result that led to its $11 billion acquisition by Foster City, CA-based Gilead Sciences (NASDAQ: GILD). A few weeks later, another maker of drugs in that class, Alpharetta, GA-based Inhibitex (NASDAQ: INHX), got bought by Bristol-Myers Squibb for $2.5 billion. Separately, Bristol-Myers Squibb released some more promising clinical results from its own pipeline just last week.

Those developments got everyone talking about a new paradigm in hepatitis C, which many on Wall Street believe will leave Vertex in the dust. Jason Kantor, an analyst with RBC Capital Markets in San Francisco, said in a Dec. 19 note to clients that “the consensus view is that Vertex’s HCV franchise will essentially go to zero beyond 2015.” Vertex stock has dropped almost 40 percent in the past year, down from its 52-week high of $58.87 to $35.86 at yesterday’s close.

While Leiden has spent much time talking with investors about Vertex’s other drugs in development—particularly one expected to hit the market this year for cystic fibrosis—he says the company isn’t about to surrender in the hepatitis C market. He has a plan intended to allow Vertex to compete beyond 2015, when the first all-oral, interferon-free regimens are expected to could come along and replace today’s standard of care.

Sometime before the end of March, Vertex expects to see results from an early-stage study of an all-oral combo regimen of telaprevir (a non-nucleotide polymerase inhibitor called VX-222 that it acquired from a Canadian company in 2009) and the usual ribavirin. If Vertex can cure about 75 percent to 80 percent of patients with this cocktail, and reduce side effects by eliminating interferon, Leiden says the company would be ready to go to pivotal clinical trials this year with its own all-oral combination.

“If we can do that, it will be a very exciting result. If you take that regimen into pivotal trials, now we’re talking about 2014 to finish those trials,” Leiden says.

And that isn’t the only combo Vertex has in mind. Within weeks … Next Page »

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Novo Nordisk, the world’s largest maker of diabetes treatments, is increasing its bet on Seattle’s biomedical research community.

Denmark-based Novo said today it is establishing a new center with 20 scientists in Seattle who will conduct research into type 1 diabetes. This new group will be housed in South Lake Union alongside Novo’s team of autoimmune/inflammatory disease researchers. Matthias von Herrath, the director of the Type 1 diabetes research group at the La Jolla Institute for Allergy and Immunology, will lead the new Novo research center, which is expected to open this summer, the company said in a statement.

“My dream has always been to see some of the treatments that my and other research teams have tested in animal models translated into better treatments for type 1 diabetes,” von Herrath said in a company statement. “As head of the research center, I hope to pursue this dream, while also forging new public-private collaborations within this field.”

Novo Nordisk has a long history in Seattle, partly through its past ownership of ZymoGenetics, and more recently through its own autoimmune and inflammatory disease research team. Novo announced its intent in the summer of 2008 to build an 80-person research team dedicated to the study of diseases in which the immune system goes haywire and starts attacking healthy tissue. Type 1 diabetes is thought to be one of these disorders, in which the immune system attacks the pancreas, making it unable to produce enough insulin to control people’s blood sugar. Type 1 is a different condition than the more common form of diabetes, type 2, in which people—typically once they become overweight—gradually lose the ability to use insulin properly.

For more on Novo’s plans to tap into Seattle’s immunology talent pool, see this feature story from January 2009, and another post from its Seattle research center’s grand opening in September 2009.

Novo tends to keep a pretty low profile in the pharma industry, but it generated controversial headlines earlier this month when it was revealed that celebrity chef Paula Deen, famous for cooking high-fat foods, has developed diabetes and become a spokesperson for Novo. The relationship rankled critics, because poor diets have led to a rapid increase in incidence of type 2 diabetes. About 25 million people in the U.S. are thought to have type 2 diabetes, and the total cost to the U.S. health system is estimated at about $3.4 trillion in the 10 years through 2020, according to UnitedHealth, the nation’s largest health insurer.

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Millennium is the house that Velcade built, and today it’s gotten the green light to start marketing what it considers to be a new and improved version of the hit drug for multiple myeloma.

The Cambridge, MA-based cancer drug developer, part of Japan-based Takeda Pharmaceuticals, said today it has gotten clearance from the FDA to start marketing a version of bortezomib (Velcade) that can be injected just under the skin, in addition to the usual form given intravenously. Today’s approval means the subcutaneous form of Velcade can be used in every setting where the existing drug is prescribed, for patients with multiple myeloma and mantle cell lymphoma.

While this would ordinarily be considered an incremental advance by providing patients and physicians with a more convenient option, the new Velcade approval could be more meaningful. That’s because the new subcutaneous form of the drug appears to be more tolerable, causing fewer cases of nerve damage in the fingers and toes, which is the most common severe side effect of the existing product. One of the key trials Millennium submitted to the FDA showed it could reduce the rate of moderate to severe peripheral neuropathy from 16 percent to 6 percent by putting patients on the new subcutaneous form. By offering a version that’s equally effective, yet more convenient and tolerable, Millennium is hoping to neutralize one of the advantages that South San Francisco-based Onyx Pharmaceuticals (NASDAQ: ONXX) is playing up for its competing proteosome inhibitor, carfilzomib, that’s being reviewed by the FDA.

“Considering this new subcutaneous route of administration for Velcade is important for our patients, including those with poor vein access and those with pre-existing peripheral neuropathy or a high risk of developing peripheral neuropathy,” said Noopur Raje, director of the Center for Multiple Myeloma at Massachusetts General Hospital Cancer Center, in a Millennium statement. “It’s important to have a range of treatment options to provide the best possible care to each individual patient.”

The Millennium drug was approved by the FDA in 2003. It generated $1.4 billion in worldwide sales in 2009, and is on pace to eclipse $3 billion by 2015, according to BCC Research. About 20,000 people are diagnosed with myeloma each year in the U.S., and 10,000 die from it annually, according to the American Cancer Society. For more background on how the new version of Velcade could change the multiple myeloma landscape, see the FDA approval preview story I ran here last Friday.

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Mark Twain used to toss around a saying about three kinds of lies. There are lies, damned lies, and statistics. This week in biotech, we saw some statistics that could lead some people to get a false impression that everything is just peachy in biotechland.

If you measure the state of life science innovation by the amount of money flowing in, things look swell. Venture capitalists poured $4.73 billion into 446 biotech companies last year, according to the MoneyTree report by the National Venture Capital Association and PricewaterhouseCoopers, based on data from Thomson Reuters. The venture industry association’s press release cheerily noted that overall venture funding jumped 22 percent last year. While software is still the No. 1 and faster-growing sector of the two, biotech held its own, with a solid 22 percent gain in dollars invested compared with a year earlier.

You have to dig deeper to see what’s really going on. There is still a good amount of money going toward late-stage development of drugs people started working on 10-15 years ago. But there is an alarming drop in support for today’s cutting-edge biotech startups. Last year, just 153 U.S. biotech and medical device startups got their first round of financing, the lowest amount of seed investment activity in 15 years, as reported by Ryan Flinn of Bloomberg News.

There’s something really wrong with this picture. Most any biologist will tell you we are living in a golden age of discovery, at a time when we will soon be sequencing entire human genomes for $1,000 in one day. We are able to ask questions about how life works that nobody could even imagine asking a few years ago. It ought to be the time to charge ahead with basic research, and early-stage R&D to test exciting new concepts in diseases like cancer, diabetes, Alzheimer’s, HIV, and more.

But everywhere you look, the story is about cuts, cuts, cuts. The National Institutes of Health, the primary government agency that supports basic biomedical research, used to write checks for one out of every three grant applications, but it’s now down to about one out of every six, NIH director Francis Collins said earlier this month at the JP Morgan Healthcare Conference. Pharma companies are cutting back on R&D, firing workers left and right, and leaning on cheaper outsourced vendors everywhere they can. As many as one-fourth to one-half of biotech venture capitalists are thought to be slowly going out of business, as they are unable to raise new investment funds. The same IPO investors that want to buy Facebook shares look at biotech stocks like a four-year-old looks at lima beans.

There are good reasons why we see all those things happening. Pharma companies have created enormous inefficiencies for themselves through mega-mergers, and now they need to spend years trying to get their houses in order. Biotech as an industry has overpromised and underdelivered, and many investors are tired of it. The FDA, stung by various drug safety scandals, has been cautious about approving new drugs (although there are signs that FDA leadership wants a more balanced approach). And of course, our society is still struggling to come to terms with healthcare reform, and the realization that it’s unsustainable to spend infinite amounts of money on healthcare.

John LaMattina

All that said, an entrepreneur or a bold Big Pharma executive is the kind of person who looks at that picture and believes he or she can overcome the hurdles, and form a plan to turn vision into reality. But there aren’t that many people out there with the can-do spirit, or guts, to put down real money behind really talented teams devoted to the discovery of new drugs. And because everybody’s talking about how to go from Phase I to Phase II with drugs people invented years ago, there’s a real possibility that once those projects run their course, we’ll all look around in 2020 and wonder where all the wonderful new drugs are going to come from.

“You can really get into a vicious cycle when you have to eat your own seed corn,” says John LaMattina, a senior partner with PureTech Ventures, and the former president of R&D at Pfizer.

There are exceptions, of course, with a few people trying creative new ways to plant seed corn. Third Rock Ventures and Atlas Venture are a couple of VC firms that have remained active, continuing to bet big on the edgiest stuff coming out of the labs. Most every Big Pharma company has set aside cash for corporate venture firms that are seeking to help fill the void being created by the shrinkage of traditional VC. Pfizer, Johnson & Johnson, Sanofi, Bayer, and deserve credit for working on creative new collaborations with top biomedical universities and research centers, which seek to minimize some of the problems with the fruitless alliances of the past. J&J made news this past week when it unveiled an incubator for 18-20 startups in San Diego which looks to fill up some lab space it had vacated through its own internal R&D cutbacks.

Right now, we are in an age of experimentation with new organizational structures for supporting biomedical R&D. The hope is that these new organizations can reduce the time, money, and high-risk profile that has made life sciences such a hit-or-miss investment over the years. Pharma companies know they don’t … Next Page »

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