Alnara Pharma Used “Flexible” Strategy on Road to Eli Lilly Deal

7/8/10

Cambridge, MA-based Alnara Pharmaceuticals made headlines before Fourth of July weekend when the drug giant Eli Lilly agreed to buy the startup and its late-stage drug for pancreatic insufficiency for an undisclosed sum. But what might have been lost in all the hoopla about the deal was that there are only 21 full-time employees at Alnara.

Indeed, Alnara used what CEO Alexey Margolin called a “flexible model” en route to its buyout agreement with Lilly (NYSE:LLY). It’s an example of how biotech startups are trying to achieve, and in this case attaining, big successes with relatively modest resources.

The startup, which has raised a total of $55 million in venture capital, has relied heavily on its full-time staff of experienced people and a large number of contractors since it was founded in July 2008. Bob Gallotto, the chief business officer of Alnara, said that the company has kept its number of full-time staff members low to limit spending. It also used a contractor for manufacturing, Lonza, rather than investing in its own own large-scale drug production facility.

“On any one day we may have 40 people in the office, 25 of them coming in and doing different things one day a week here or there,” Gallotto said.

Biotechs have had to do more with less by necessity because of the lack of available capital since the financial meltdown in 2008. Alnara is among a growing number of biotech startups that have adopted business strategies or models that include the use contract workers, partners, and lean staffs of highly capable people to move their drugs toward the market. Another local example is Cambridge-based Zafgen, a developer of obesity drugs that complements its core staff of three senior executives with a network of consultants and contract research organizations, company CEO Tom Hughes has told me.

These companies have learned from the spending sins of their predecessors in the drug-development game. Take Altus Pharmaceuticals, the defunct Waltham, MA, biotech firm where Alnara’s Gallotto and Margolin worked prior to Alnara. Altus ran out of cash last year after burning through more than $360 million. When Altus cut 107 workers in January 2009, many of those being laid off were said to be people working on the firm’s late-stage treatment for pancreatic enzyme deficiency called liprotamase. Publicly traded Altus had decided to end development of the liprotamase and hand it off to the Cystic Fibrosis Foundation, which had funded development of the drug.

Alnara benefitted from this unfortunate turn of events. It picked up a license to liprotamase—which is formerly known as Trizytek—from the CF Foundation in March 2009. (The drug would help cystic fibrosis patients with a symptom of their disease that hampers digestion.) At the time, there were many former Altus employees who had experience with liprotamase. Alnara decided to hire some of those people as consultants rather than full-time employees. (Still, Margolin said that half of the firm’s full-time staff members previously worked at Altus.)

Yet it’s important to note that Alnara did much more than keep its overhead low. Margolin said that the people the firm has hired have lots of experience, enabling them to operate with a high degree of autonomy and minimal managerial oversight. “This is only possible when you have a core of very experienced professionals,” he added.

To be clear, Alnara has also benefited from several factors that were unforeseen or had little to do with its flexible business model. Where would Alnara be, for example, had Altus not given up on liprotamase? And because Margolin and Gallotto had more than a decade of combined experience with liprotamase before Alnara acquired rights to the drug, they didn’t have the learning curve with the product that other groups without such experience would have. Also, Alnara’s co-founder and chairman, Rich Aldrich, had served on the board at Altus from 1992 to 2006 and knew liprotamase well.

Still, Alnara’s nimble organization was able to seize an opportunity with liprotamase that might have been more difficult move for a larger, public biotech company to do as quickly. Alnara was able to transform from a pre-clinical stage startup, formed in July 2008 to develop protein drugs that are swallowed and target the gut, to a company with a Phase III product in its pipeline in a matter of months.

“We were able to do it with a relatively modest amount of resources and real focus,” Aldrich said.

Aldrich has extensive experience with both small and large biotech companies. He was a founding executive of Cambridge-based Vertex Pharmaceuticals (NASDAQ: VRTX), one of the leading biotechs in the Boston area. He also co-founded Boston’s Longwood Founders Fund, an Alnara investor, to finance and launch biotech startups.

“Let’s face it,” Aldrich said, “public companies have an additional level of scrutiny and burden that makes it difficult or maybe can slow down the decision-making process.”

Yet Alnara used a “flexible” model, and that might have made all the difference.

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