Personnel moves usually make for boring news, but sometimes they carry deeper meaning. I couldn’t help but wonder about the deeper meaning when Cambridge, MA-based Ironwood Pharmaceuticals said last month it had recruited David Ebersman, the former chief financial officer of Genentech, to join its board.
Ebersman, a boyish-looking guy just 39, took the chief financial officer job earlier this year at Facebook, joining its more famously boyish CEO, Mark Zuckerberg. But Ebersman is well-known as well for his remarkable 15-year career climbing the ladder to become CFO at Genentech until the company was acquired by Switzerland-based Roche last spring. Ebersman was one of the reasons Genentech had the most respected biotech management team on Wall Street for years. His appointment to Ironwood’s board made me wonder if the privately held enterprise wants a little more help opening some doors with deep-pocketed biotech investors who can take the company to a new level, and maybe even help it go public.
Why say that? I’ve interviewed Ebersman several times and know he has exceptional command of facts and how they fit into company strategy, but even more than that, I remember seeing Ebersman in action at a Genentech analyst day at the Mandarin Oriental Hotel in New York two years ago. In front of at least 500 fairly stressed analysts and fund managers watching every word for market-moving news, he stepped up to the microphone after some heavy scientific presentations and broke the tension. Ebersman said he couldn’t really start into his presentation without first admitting how awed and intimidated he was that day to bump into one of his boyhood heroes in the elevator—former New York Knicks center Patrick Ewing.
Just the mental image of Ebersman, who’s about 5-foot-6, looking straight up in the elevator at a 7-foot former NBA basketball star like Ewing, had the room break out laughing. Genentech CEO Art Levinson, a science nerd to the core, added to the humor when he admitted he had never heard of Ewing and asked who he was, and why people seemed to think he was a big deal (which prompted some gentle ribbing from Ebersman).
So when I had a chance to talk by phone with Ironwood CEO Peter Hecht a couple weeks ago, I asked him whether he reached out to Ebersman to add his credibility and deep reservoir of good will on Wall Street. Might Ebersman be able to help Ironwood go public?
The short answer from Hecht was no. “We didn’t add David Ebersman to the board with any one transaction in mind. I’ve been working on him for three years to join our board,” Hecht says. But he didn’t disagree with how Ebersman’s affiliation can benefit Ironwood. “David has terrific credibility with investors,” Hecht says, adding that even before Ebersman joined the board, he introduced Hecht to a contact at Morgan Stanley, who led a $50 million financing for Ironwood a year ago.
Even if Hecht doesn’t have any direct comment about IPO possibilities, other people who make those kind of investments are certainly aware that Ironwood is a candidate for going public. The company has raised $306 million since its founding in 1998, and has some 160 employees. Its lead drug candidate, linaclotide, is in the final phase of clinical trials for patients with constipation from irritable bowel syndrome and chronic constipation. Ironwood’s partner, New York-based Forest Laboratories (NYSE: FRX), has said this drug has the opportunity to treat a condition that affects one out of every six adults in developed countries. An estimated 26 million Americans have chronic constipation, there are few available therapies for it, and the Ironwood drug has a novel mode of action. The U.S. health care system spends more than $25 billion a year on treating irritable bowel syndrome, according to Forest Laboratories’ annual report.
Since Forest has been out telling the story of this drug on Wall Street—and reminding investors it only owns half the drug—quite a few investors have been wondering about the company that owns the other half of the U.S. commercial rights: Ironwood.
Part of what has attracted investors is that Ironwood’s drug isn’t an improved version of something that already exists, but rather a completely new approach to the disease that has shown promising results in a mid-stage clinical trial. Such stories are rare, and the kind of thing that big investors want to hear. As Hecht explained at an Xconomy Forum we organized at Biogen Idec back in April, there are fewer than 10 “substantial” drugs in the pharmaceutical industry in the final stage of development, outside of cancer and rare orphan diseases. When trimming the list down to novel, first-in-class medicines in large markets like the one for linaclotide, “there are really only two or three.”
One predecessor drug for irritable bowel syndrome, Novartis’s tegaserod maleate (Zelnorm), had “modest efficacy” in Hecht’s words, yet was still able to generate $561 million in peak sales in 2006 before it was pulled off the market because of cardiovascular risks. The Novartis drug was different in that it was made to regulate serotonin, a neurotransmitter in the brain and gut, while Ironwood’s candidate is an engineered peptide. Most peptides are injected, but Ironwood turned linaclotide into an oral pill that has been made to withstand stomach acids, work its way into the gut, and do its job there, without being absorbed throughout the bloodstream, where it can cause side effects, Hecht has said. The drug is thought to act by stimulating secretions of fluids into the intestines, which softens stool, and helps people have easier bowel movements.
Since linaclotide has the potential to be a mass-marketed product, the clinical trials also have to be big and expensive. Two pivotal trials with a combined 1,600 patients are currently ongoing testing the Ironwood drug in irritable bowel syndrome, and another 1,200 patients are participating in a pair of chronic constipation studies, Hecht says. Data from those studies should be available in 2010, he says.
While Hecht acknowledges this development program costs a lot, even though his company is splitting the bills 50-50 with Forest Labs, he says Ironwood doesn’t need to raise more money. The company currently has more than $100 million in the bank. And it has been methodically cultivating relationships on Wall Street for the past three to four years, long before Ebersman joined the board. That systematic effort is what made it possible for Ironwood to close on a $50 million financing last October as Lehman Brothers and AIG imploded.
So going through all of that was a long-winded way for Hecht to answer my original question, which was whether a guy like Ebersman was brought in to help Ironwood advance to a new level with an IPO. Hecht says a few investors have certainly been impressed when he started telling them about Ebersman joining the board, but he stressed that any short-term perception gain for his company doesn’t amount to much.
“I’ve said it before, and maybe people get tired of hearing it. But we’re trying to build a great company, and we’re doing it for the long haul,” Hecht says.