The economists all say that the recession is over, but you’d hardly know from the creative contortions entrepreneurs must perform to start a biotech company in 2010. The latest sign of the times comes from Resolve Therapeutics, an interesting new startup in Seattle.
Resolve is the latest spinoff from the University of Washington, where it was cooked up in the labs of rheumatologist Keith Elkon and immunologist Jeff Ledbetter. They co-founded this company with CEO Jim Posada, a former dealmaker with Eli Lilly and GlycoFi before that New Hampshire-based company was sold to Merck in 2006 for $400 million. The startup’s vision is to create an effective new drug for lupus, a chronic disease in which the immune system goes haywire and attacks healthy tissue like an invading virus.
The way this company is getting structured says a lot about the cautious, short-term thinking that prevails today in biotech. Ledbetter is a proven scientific entrepreneur, having co-founded Seattle-based Trubion Pharmaceuticals, and having a played vital early role in the development an FDA-approved drug—Bristol-Myers Squibb’s abatacept (Orencia). The opportunity in lupus is still huge, with no new drugs approved in at least four decades, and an estimated 1.5 million to 2 million people in the United States suffering from the illness. Many companies have tried and failed in their quest to tap this huge potential market. Rockville, MD-based Human Genome Sciences (NASDAQ: HGSI), along with Roche’s Genentech unit and AstraZeneca’s MedImmune operation, have rekindled hopes of patients and physicians through a series of advances in recent years.
Instead of seeking to raise a mountain of venture capital to build a company to pursue the big idea, Resolve is following the lean and mean “virtual” company model that has become popular by necessity. That’s nothing novel, but what’s more interesting is that Resolve is being financially structured to produce a quick payday for its investors. Knowing that it would take too long and cost too much to follow a traditional path, Resolve’s game plan is to raise $12 million to push a single drug candidate through the first part of mid-stage clinical trials, and then generate liquid returns through a partnership with a Big Pharma company that seeks to finish the long, expensive, and risky slog of drug development. There’s no pretending here that Resolve will go public, and it doesn’t need to be acquired for a fortune someday by a big drugmaker.
“There’s a well thought out plan here,” Posada says. “We’re going to operate with as little capital as possible and get ourselves to a partnership deal as quickly as possible. We can provide returns for our investors in a timely way, and we can provide Big Pharma what it needs in terms of new drug candidates.”
The company hasn’t raised its money yet, although it now has an exclusive license from the UW to develop protein therapeutics against autoimmune diseases, including the biggie—systemic lupus erythematosus. This is based on deep knowledge of the disease and its molecular pathways from Elkon, lots of expertise in protein drug engineering from Ledbetter, and business strategy and dealmaking experience from Posada.
Posada says he got excited about the new idea about six months ago. The UW scientists have already created a fusion protein molecule, made to bind with an undisclosed target that is designed to stop the excess production of interferon alpha molecules that are thought to be central actors in the autoimmune process. Work by other scientists at Genentech and MedImmune, who have developed antibodies made to shut down the excess production of interferon alpha, have validated this strategy, Posada says. This is a different pathway than others have tried, largely through depleting excess production of immune system B-cells, he says.
By making a fusion protein drug RSLV-125 with a long half-life in the bloodstream, the potential advantage would be less frequent injections for a chronic condition. Resolve—like every other company in the field—is also hoping that its drug will be targeted enough to shut down the autoimmune process without going too far and rendering people vulnerable to infections.
Resolve has a long way to go before it can make claims like that. It is about 15 months away from filing its application to begin clinical trials with the FDA, Posada says. But once it gets to the clinic, Resolve’s plan is to generate meaningful results much faster than could have been generated a couple years ago. Essentially, Resolve is betting that it will entice a Big Pharma company to write a big check for co-development rights, based on lab results that show it can effectively shut down excess production of interferon alpha in the bloodstream of lupus patients. That might be interesting to scientists, but it’s not the same thing as proving that you can relieve the symptoms of lupus patients, who often have symptoms that flare up and down, and which must be tracked for at least a year in clinical trials.
Studies like that would take too long, and cost too much money for a startup like Resolve, but since Genentech and MedImmune have already blazed the trail in showing the clinical value of knocking down interferon-alpha, the bet is that another company will bite when Resolve can prove it does the same thing, Posada says.
Getting to that point will be an exercise in resourcefulness. Posada, a molecular biologist by training who did his postdoctoral fellowship in the late ’80s and early ’90s at the Fred Hutchinson Cancer Research Center, has clearly thought a lot about how to make this work as a business in Seattle. He’s now a business development consultant, in his first go-round as a CEO. He is planning to move to Seattle from his current base in Sun Valley, ID, and set up offices here for the new company. But he won’t need labs—that work will continue to be done at the University of Washington. He’s assembling a team of 10 consultants, and reaching out to his network of contractors to get essential work done like toxicology and small-scale manufacturing. The plan is to generate a return, and hand off the asset to someone else without even contemplating building that stuff internally.
“Our exit will be a licensing transaction,” Posada says. “We believe we know that prospective partners are looking for in terms of product attributes, and really, there’s a much higher probability of us doing a licensing transaction than an M&A deal.”
Resolve, by focusing on just one key step in the continuum of value creation in drug development, is hoping to sidestep the ugly economics of the pharmaceutical business. It often takes a decade or more, and $1 billion in R&D to develop a new drug. Few investors have that kind of patience or will to shoulder that kind of risk anymore, so Resolve is built on generating a return after two to 2.5 years. “We think we can get a return with a reasonable multiple in a reasonable amount of time,” Posada says.