Not once has J. Michael French scraped together more than six months of operating cash for his company since he became CEO in June 2008. More than once, almost any rational person would have concluded bankruptcy was imminent.
Yet 30 months have come and gone and French’s company, Bothell, WA-based Marina Biotech (NASDAQ: MRNA), is still hanging on. It has clinched just enough deals, and captured just enough financing to keep the doors open. At last count, it still had 56 people on the payroll. Even though investors have lost patience with its scientifically edgy concept of RNA interference, French, a military brat turned pharma dealmaker, insists it’s only a matter of time before he strikes that next big deal that will prove his never-say-die approach was worth it.
“The reason we are still alive is we have men and women out there in the lab doing great science,” French says. “When I look at myself, I see tenacity. That’s the only thing I bring to the table in high volume.”
Tenacity is certainly one of the personality traits it takes to keep on plowing ahead in what is just about the highest-risk, highest-reward industry on the planet. Despite all the heralded advances in biology, biotech is still a business where nine out of every 10 drugs fail after they were considered good enough for human testing. It still usually takes a decade or more of effort, and hundreds of millions of dollars, just to find out if your hypothesis for a novel new drug is strong enough to pass muster with the FDA and become a marketed product. Anyone who dares to think they can do this had better have a combination of book smarts, street smarts, determination, charisma, an almost maniacal self-confidence, and a steeliness to make it through the hard times when the whole world believes you’re wrong.
Most investors—and this journalist, too—wrote off French and his company a long time ago. I figured it was one of the weak members of the herd that would get devoured during the Great Recession. But when that didn’t happen—and when Marina Biotech acquired Cambridge, MA-based Cequent Pharmaceuticals back in July—I figured it might be time for me to actually go out and learn a bit about this character Michael French who won’t give up.
“Michael has done a good job navigating his company’s survival in tough times,” says John Maraganore, the CEO of Cambridge, MA-based Alnylam Pharmaceuticals, and a competitor to Marina Biotech.
French, 51, grew up as the oldest son of a field artillery officer in the U.S. Army. French and his two younger sisters, like kids in many military families, moved around a lot growing up. When he got his first CEO gig at Marina Biotech (then called MDRNA) it was the 35th time in his life that he’d moved.
Growing up, French says he wanted to become an astronaut. He went to college at the U.S. Military Academy at West Point, where he studied aerospace engineering. He strived for the astronaut dream all through his 20s, getting a master’s in physiology and biophysics from Georgetown University partly because it would help him get the advanced education needed to enter the program. He finally gave up the astronaut dream after he was called to active Army duty during the first Persian Gulf War in 1990.
When it was time to go back to civilian life, he put his newfound advanced degree to work in a series of jobs where it could be of practical use—at pharmaceutical giant Bayer.
Listening to French talk about his career arc is dizzying at times. His curriculum vitae (which you can read here) lists 22 jobs since 1981, spanning both his military and business careers. The experience includes a stint handling marketing of a hemophilia drug at Bayer, and business development at a systems biology company in Foster City, CA called Entelos. There was the time he worked from Brazil for a family-owned company in Italy. There was a time when he used military intelligence techniques he had learned to build a competitive intelligence consulting business. There was a four-month period as president at Israel-based Rosetta Genomics. And there was even more consulting, some of it unpaid, between jobs.
The big break came in 2005. One of his contacts from his military days, Steve Hoffman, had wound up at Palo Alto, CA-based Skyline Ventures. Skyline had invested in an early RNA interference company in San Francisco called Sirna Therapeutics. Sirna needed a senior business development officer, so Hoffman arranged for French to meet Sirna CEO Howard Robin.
The stars aligned for French in that job. RNAi pioneers Andrew Fire and Craig Mello won the Nobel Prize for their work the following year. Suddenly, pharma companies just had to get into this new field, in which two biotech companies owned key intellectual property. French struck while the iron was hot, clinching deals with Allergan, GlaxoSmithKline, and Roche. Then Sirna hit the mother lode, when Merck paid $1.1 billion to acquire the company in October 2006.
“It was the right place and the right time,” French says. “It’s always about that. Never underestimate luck.”
Getting bought by a Big Pharma that didn’t need another business development guy meant that French was soon looking for work again, although with some extra cash in his wallet and a more impressive resume. After a brief stint at Rosetta Genomics, where he says he “wasn’t a good fit,” he struck out on his own again, consulting to small biotechs. One was Bothell, WA-based Nastech Pharmaceutical. By the spring of 2008, the company decided to reinvent itself from being a business that made nasal spray versions of injectable drugs into an RNAi drug developer. French, coming off his experience with Sirna, was itching to take the next step in his career, running his own company. The board agreed to install him as CEO of the company, replacing Steven Quay. The company was also re-named MDRNA the same month, June 2008, to reflect its supposed new beginnings.
Expectations were low from the start. The stock was worth $1.27 a share on the day French took over, June 23, 2008. And once on the inside, he discovered things were in worse shape than they had appeared.
“I knew there was something here, and fairly confident it was a viable approach from a scientific perspective,” French says. “I don’t think I knew the extent of the infrastructure challenges when I joined. I had to get my hands around $7 to $8 million of debt, an empty building that we were trying to vacate, and we had about four months of cash left. There were challenges.”
Three months later, another bad thing happened that everyone remembers. The collapse of Lehman, Merrill, et al., and the resulting havoc in the global financial markets, looked like a sure death blow to a lot of struggling biotechs like Marina. By October 24, 2008, the stock dipped as low as 14 cents a share. French recalls the company having a market valuation of less than $5 million, while it was still sitting on a pile of more than $7 million in debt, and was coming off a year in which it spent $25 million just to keep operating. With stock that’s essentially worthless, it’s almost impossible to sell more shares to raise more money.
“With a $5 million market cap, you have to ask yourself, how can you survive?” French says.
The company was so low on cash, it almost failed to make payroll in January 2009. The company cut salaries the last two weeks of that month, while still making payroll, as it was frantically negotiating on multiple fronts. French thought he had found a way forward, lining up an agreement with venture capitalists to pump $30 million into the company. At the same time, French was negotiating with Kenilworth, NJ-based Schering-Plough to provide the company with RNAi technology in a deal that would have brought in a $16 million upfront payment.
What French didn’t know at the time was that Schering-Plough was in advanced talks to be acquired by pharma giant Merck, in a mega-merger that was announced two months later. Merck, the owner of Sirna, didn’t need any more RNAi technology. So at the proverbial 11th hour, the Schering-Plough deal fizzled. And when that happened, the VC cash disappeared, too. The VCs wanted their money to advance RNAi, not pay partially pay down some of the old Nastech debts, French says.
The unraveling of those two deals prompted a lot of scrambling the next several weeks. French turned to one of the old Nastech partners, San Diego-based Amylin Pharmaceuticals, and said he’d take $1 million immediately instead of $3 million he was entitled to later. Amylin said yes. The deal was announced February 3, 2009. “That enabled us to pay everybody” on staff, French says.
It essentially bought French a little time. Ten days later, the company licensed some of its RNAi intellectual property to Roche—essentially allowing it to kick the tires of the technology—for $5 million. The next month, French persuaded Novartis to chip in $7.25 million for a similar tire-kicking deal. Again, these deals gave French a little breathing space, but not much. He still had to renegotiate about $6 million in debt with GE Capital, using intellectual property as collateral to buy more time.
To hear French talk, there was no bluffing or bluster in these talks. Partners knew they had him over a barrel, and were getting fire sale prices from a man under serious pressure.
“Companies like Roche and Novartis don’t just do deals in four and six weeks, and give people $12.5 million,” he says. “They didn’t do that because Michael French is a good guy. They did it because the science is good.”
He also says he relied heavily on his relationships forged over the years. “The reputation I have, basically, that was important. People know if I come in and say something, it is absolutely, without question, the truth. There are no ifs, ands, or buts about it. When Barry (Polisky, the chief scientist) comes in to the room, it’s the same thing. I told [prospective partners] ‘I need to do this in four weeks, or I won’t have a company left.'”
Even after the Roche and Novartis lifelines, French was still short on cash. Then in June 2009, he got truly lucky. The company issued a press release on June 9, headlined “MDRNA Receives Full FDA Approval of Generic Calcitonin-Salmon Nasal Spray for Osteoporosis.” Anybody who bothered to read the fine print would know that MDRNA wasn’t actually in the nasal spray business anymore, and had licensed that technology to another company, Par Pharmaceutical. But MDRNA technically had the license, and was entitled to issue the press release.
So even though this product didn’t represent any meaningful future cash flow for MDRNA, some investors got giddy about this supposedly surprising good news. The company’s stock went bonkers. It went from $1.54 at the previous day’s close—on volume of a paltry 94,000 shares—to open the next day at $3.28. Given the wild new demand for shares, French turned on a dime, hiring Canaccord Adams that very day to sell a fresh 5.25 million shares to investors at the bargain rate of $2 a share. That new offering raised $10.5 million that day.
That infusion gave French some new flexibility to manuever. He used the new cash to pay off debt with GE Capital. “In one year, we essentially went from being $6 million or so in debt and with a $25 million burn rate to having no debt and probably then about a $15 million per year burn rate,” he says.
Still, the company struggled to find any way to build sustainable value. It had no proprietary RNAi products in clinical trials, generating the kind of experimental data that would show investors it had a promising new drug in its pipeline. And the gee-whiz science story around RNAi had worn thin. People in the industry were snickering about how Merck had overpaid for Sirna.
“In 2006, the fact you could knock down something in a mouse was front page science news,” French says. “Now we know you can look at a mouse funny and knock stuff down with RNAi. Now it’s about the extension of the capability, for systemic delivery, that is requiring significant brainpower. And pharma recognizes that.”
Instead of moving its own technology along into clinical trials, MDRNA did what a lot of pharma companies do—it used its cash, the leverage its stock ticker provided, to acquire an innovative asset in development. In this case, it was through acquiring a private company, Cambridge, MA-based Cequent Pharmaceuticals. MDRNA structured this as a $46 million all-stock deal in which it obtained the rights to an oral pill Cequent had developed, and which was poised to enter clinical trials, for a rare disease called FAP that is a precursor to colon cancer.
MDRNA shareholders retained a controlling stake in the merged company, and French was able to remain as CEO. Besides providing MDRNA with the clinical-stage asset it needed to attract investors, Cequent also had some cash on its balance sheet. The new drug offered a potentially large benefit to patients with a rare disease, and what looked like a relatively low-cost, easy to manage clinical trial plan to reach the marketplace. “If ever there were a product a small biotech could take to the market on its own, this is it,” French says.
Partly to distance itself from the baggage of its Nastech nasal spray days, and to distance itself again from the always-on-the-brink reputation of MDRNA, the company chose to change its name one more time. In this case, French and his team played around with variations on their ticker symbol “MRNA.” After passing on something that they say sounded like an underwear line from Target (Merona), they settled on Marina Biotech. “Marina was a word everybody understood. We had operations in Puget Sound and Boston Harbor. We thought it worked well for the company,” French says.
Not everyone was amused. Seattle-based Mirina, a startup hatched at Accelerator, filed a federal trademark infringement suit after asking the new Marina to stop using a name that sounded identical and created confusion in the market. There’s nothing much new to report on this case at the moment, as both companies have dug in their heels. “We think there’s plenty of room for everybody to live happily ever after here. I’m not sure why it’s such an issue,” French says.
The new Marina Biotech, while stronger than before, is still in what any reasonable observer would call a pretty weak position. It has just enough cash to operate until the end of March, French says. He’s still striving to put together a truly lucrative partnership, in which big companies no longer kick the tires but really shell out for unimpeded access to bring the technology in-house. This can’t be easy, given that one of French’s benefactors, Roche, recently said it was dropping all RNAi work as part of global budget cuts.
Yet Marina somehow has continued to hire people, hiring scientists, even while it has never had more than six months of cash at any one time. I couldn’t help but ask French how he manages to look someone in the eye and hire them, knowing that he can’t say the company will have enough cash to operate more than four months.
“You go back to the philosophy, you can’t save yourself to success,” French says. “You have to generate data. We are cautious about what we do. We aren’t extravagant, but we need to produce data and research that will drive deals and support our pipeline.”
Peter Garcia, the company’s chief financial officer, elaborated that the strategic plan assumes that they’ll somehow find a way to raise more money when they need it. Even though almost nobody on the outside expects much, they expect a lot.
“I had the pleasure of working with George Rathmann,” Garcia says, referring to the legendary former CEO of Amgen and Icos. “Everyone knows the Amgen story, but they don’t know all the dirty details. It’s not dissimilar to what Michael has had to go through. It’s not dissimilar to what Sirna had to go through during certain periods of time. Everybody sees the end result. But if George [Rathmann] would have tried to make his cash last three more months, maybe they wouldn’t have made Epogen.”
I can hear readers scoffing now, because comparing any biotech entrepreneur to Rathmann is sort of like comparing a plucky city councilman to Abraham Lincoln. French is more used to hearing sarcasm and backhanded compliments. “People like to run around and say ‘Congratulations, you are still alive after two years.’ I appreciate the sentiment, but we’re not done yet,” he says.
French insists that he believes in the technology, the people at his company, and his own ability to make things happen when the pressure is on. It’s not as much pressure as there is on a battlefield, but he sees similarities between military situations and those in business. In this case, if Marina survives, it has a chance to develop a new pharmaceutical product that could someday help people.
“We never gave up. Never say die,” French says. “That’s the reason we’re still here.”