China’s WuXi, a Partner of San Diego’s TargeGen, Offers New Model for Drug Development

3/11/10Follow @bvbigelow

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apparent, however, during the economic downturn that began in 2008. Facing a serious cash crunch, TargeGen laid off most of its 59 employees, and Ulrich says he was forced to jettison the company’s drug discovery operations in order to conserve its cash for mid-stage clinical trials. (The company, which now has 11 employees, has raised $118 million through four venture rounds since it was founded nine years ago, Ulrich told me.)

Soll, who said he saw the cutbacks coming, joined WuXi and is now the Chinese company’s senior vice president for integrated services. He told me he has been working with Royston on ways to make the full spectrum of WuXi’s contract services available to other early stage life sciences startups.

“VCs like to get deals de-risked as much as possible, and they don’t like to build a lot of infrastructure,” Soll said. “So I think the future model for VCs is not really building companies any more. They want to be very, very flexible. They want to find out if this asset that they have acquired—whether it’s from a university or a Big Pharma—is viable.” And Soll maintains that a CRO like WuXi can make such determinations—rapidly, efficiently, and affordably.

Royston agreed. As I reported last year, he has been concerned for some time about the business model for biotech startups and the funding gap, a.k.a. “valley of death,” for early stage drug development.

Royston noted that partnerships between biotech startups and Big Pharma companies have been increasing—from 165 collaborations in 1995 to 517 in 2005. But he said today’s biotech startups must cross a threshold he calls the “clinical proof of concept”—getting encouraging results in mid-stage clinical trials—before a Big Pharma company will seriously consider an acquisition. As a result, Royston said, the venture capital syndicate that provides funding for a startup’s drug development effort must provide more funding and for many more years. In some cases, that can mean hundreds of millions of dollars to fund more than a decade’s worth of drug development.

Nevertheless, Royston says, “I firmly believe there is still a role for traditional venture capital.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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