Resolve Nabs $2M For Lupus Drug, First Step on the Road to Returns With No IPO, No M&A

5/17/11Follow @xconomy

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Ablexis, which agreed to license its technology to five drug companies last year, has followed a similar playbook, Posada says.

Some venture capitalists are curious about the new model, but haven’t quite been willing to pull the trigger, Posada says. Others insist on continuing to swing for the fence with an IPO or acquisition. “A lot of VCs have no interest, aren’t able, or want to approach this idea with the old C corp structure, where they take everything from the up-front payment. It took me a year to find firms where the value proposition made sense to both parties.”

Like most anything in life, there are pluses and minuses to the new approach. The founders, and a small team of consultants, are able to retain a larger piece of the equity pie for themselves by avoiding a big eight-figure venture financing. But this also means Resolve has to run on a very tight budget, and it must hit its milestones on time, or else it runs the risk of running out of dough. And the model can only really work in specific types of diseases, where it is possible to create value with a new drug after only $10 million to $15 million of early stage testing, Posada says.

Resolve’s plan is to use this first wad of cash to get going on studies required to submit an FDA application to begin clinical trials. The first clinical trial of Resolve’s lupus drug will be a safety study in healthy volunteers, followed by a mid-stage study at three doses given over six weeks, which will look for the drug’s effect on an interferon biomarker that’s thought to be correlated with relief of lupus symptoms, Posada says.

The validity of the biomarker is critical, because otherwise Resolve would have to run a longer and more expensive trial that would run months or years to show its drug is really working. But since Resolve is building off of work by Genentech and MedImmune, which have validated the biomarker, Posada says it’s possible for his company to strike a lucrative licensing deal with a Big Pharma company if its drug simply shows a promising effect against the biomarker. It would be up to the Big Pharma partner to really prove to the FDA that the biomarker is correlated with a meaningful improvement in symptoms for lupus patients.

If Resolve can carry out this plan, and strike a partnership, it could end up re-writing the templates for how risk gets shared across the long continuum of drug development. Essentially, Big Pharma will have obtained an asset that has passed some important early steps, paid a little bit of money for it, and only start shelling out big bucks if the drug really does live up to its potential in a market worth billions. You can bet that others will be copying this model if Posada is right.

But so far, the majority of investors still haven’t been ready to throw out the old templates, Posada says.

“It’s surprising a lot of folks don’t understand how an LLC is different from a C corp. A lot of people in venture capital think they’ll fund a company and it will get bought. It’s surprising. It’s becoming more and more obvious it’s an antiquated view,” Posada says.

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