The chief medical officer of Tioga Pharmaceuticals, a start-up working on a drug for irritable bowel syndrome, is in North Carolina. The company’s regulatory team is in San Francisco. Its chief operating officer works from an office at San Diego’s Forward Ventures, the venture capital firm that formed Tioga. He also happens to be the company’s only fulltime employee.
A weak economy has combined with product development setbacks to turn once-promising companies into virtual ones. Witness the winnowing of San Diego’s TorreyPines Therapeutics to just three employees after it sold off much of its portfolio in June.
By contrast, Tioga is virtual drug-developer by design. The company outsources all aspects of clinical development—human trials, chemistry and manufacturing, regulatory, legal and IP management—in a business model that keeps overhead to a minimum as development progresses from one phase to the next.
Forward has advocated this business model for a while, and its moment may be at hand.
“I am a big believer in this approach to doing business, especially in difficult times like these,” Forward Ventures partner Stuart Collinson told me when we chatted last week. “When you see a traditional company, and count the employees and see the buildings and all those things, it is not a good model when every dollar of capital has to be used as efficiently as possible.”
In some respects, the model can be traced back to the beginning of the biotechnology industry 33 years ago. Genentech was little more than a virtual company when it negotiated the research contract with scientists at City of Hope National Medical Center in Duarte, CA, that lead to the first genetically engineered drug.
The parallels, of course, end there. Genentech invented something entirely new, genetically engineered human insulin, and went on to become an industry behemoth—and something of an ideal for all startups since—before being acquired by Roche in March. Tioga, on the other hand, hasn’t invented anything. Its irritable bowel syndrome drug, asimadoline, is a castoff from Germany-based Merck, which put the compound through early-stage trials before deciding it did not fit into its long-range plans. Merck granted Tioga rights to the drug in return for equity in the startup. As part of the deal, Merck contributes project management expertise.
Certainly, times have changed since Genentech’s founding. And it has never been easy for a startup to take a compound all the way from the lab to human clinical tests or beyond. But in today’s economic environment, the exit strategies easily available to research-oriented biotechs five to 10 years ago are less so now. Big pharmaceutical companies, desirous of late-stage compounds to replace tens of billions in revenue from drugs going off patent, are no longer paying top dollar to acquire biotech startups and their unproven molecules. The public markets also have lost their enthusiasm for betting on young biotechs through initial public offerings. This means venture investors must be prepared to write bigger checks, and wait many years longer for startups to reach sustainability. Anyone who has been in biotech for any length of time knows the business goes through cycles, so conditions may change. But for now, “it’s a pretty heavy slog from the invention of a new chemical to marketing approval,” Collinson said.
That’s not to say some startups aren’t taking the longer, somewhat riskier road. Among them is San Diego’s Amira Pharmaceuticals, which in June announced that a drug candidate for idiopathic pulmonary fibrosis showed promise in a mouse study. Still, Tioga has plenty of company in its desire to improve its odds, as I noted in a recent post about San Diego startups working to repurpose or revive existing drugs.
Personal contacts had an important role in assembling Tioga’s virtual team, and help it run smoothly. The chief medical officer is a former colleague from Collinson’s days at drug giant GlaxoSmithKline. The regulatory expert had worked with the chief medical officer in the past. “It’s helpful to have these relationships in place,” Collinson said. “We’re not working with a whole bunch of people who haven’t worked together before.”
The entire team has seldom been in the same room. Instead, they connect via email and through regular conference calls that can last up to two hours, depending on how much work needs to get done. A project manager also based in San Francisco keeps the minutes and a check list. Collinson sees no disadvantages to the virtual setup. “It isn’t really any different from what would take place at a large operation that was widely distributed,” he said.
Collinson, who is also the chairman and CEO of Tioga, thinks his company’s drug, which works on the form or irritable bowel syndrome that causes diarrhea, is a good bet for a couple of reasons. Millions of people, most of them women, have the condition. The only approved drug, alosetron hydrochloride (Lotronex), carries a black-box warning, the strongest possible, and may only be prescribed by physicians enrolled in a prescribing program that requires them to inform patients about the drug’s risks. Collinson said the Tioga drug works on opioid receptors in the digestive tract; alosetron hydrochloride has a different mechanism of action. Last May, a 600-patient mid-stage trial conducted by Tioga found the drug reduced abdominal pain, stool frequency and urgency, confirming the encouraging results seen in an earlier Merck-sponsored trial.
So far, Forward and other investors have invested $24 million in Tioga, which was founded in 2005 specifically to develop asimadoline. Roughly $100 million or so has been invested in the drug, when Merck’s initial contribution is taken into account, Collinson said. Last week, Tioga signed a deal with Japanese drug company Ono Pharmaceutical that gives Ono rights to develop and market asimadoline in Japan, Korea and Taiwan. Tioga received an undisclosed upfront payment and will receive development and commercial milestone payments, and a royalty on sales. Tioga plans to initiate a late-stage trial during the first quarter of next year, and explore its options after that. Stay tuned, because virtually speaking, Tioga’s business appears to be materializing.