One of the inconvenient truths of the biotech and pharmaceutical industry is that only about one out of every 10 drug candidates good enough to enter clinical trials passes all the tests to graduate as an FDA-approved therapy. Every major drugmaker is searching for ways to boost that success rate, and yesterday I got an interesting glimpse into how the world’s largest biotech, Amgen, thinks about how to raise its game.

Amgen is based in Thousand Oaks, CA, but has 900 employees in Seattle and about 200 more in Cambridge, MA, many of whom play critical roles in the perilous early steps of R&D where a lot of time and money get wasted. I got an overview from Amgen’s senior vice president of translational sciences, Joe Miletich, while he was in Seattle this week to meet with employees (and briefly enjoy the view of Elliott Bay from the office CEO Kevin Sharer sometimes uses).

Amgen (NASDAQ: AMGN) had $15 billion in revenues a year ago, largely from products for patients with anemia, autoimmune diseases, and cancer. About one-fifth of that revenue, $3 billion, was poured into the R&D budget. Much has been written about how Amgen coasted on the success of its first two blockbusters in the 1990s, acquired another one in 2002 from Seattle-based Immunex, but has more recently sought to re-ignite its innovation engine, particularly for cancer drugs, this decade under R&D boss Roger Perlmutter, a former Merck executive and University of Washington immunology professor.

Since it often takes a decade or more to develop a new drug, this effort is still a work in progress, but Amgen now has 50 drugs in the pipeline from the late discovery stage through Phase III clinical trials. Amgen has organized the pipeline with three key guys who report to Perlmutter from beginning to end. David Lacey runs the early discovery, Miletich handles translational steps from there through early-stage clinical trials, and Sean Harper is responsible for late-stage clinical trials.

Amgen's Joe Miletich

Miletich was formerly a professor of internal medicine and pathology at Washington University in St. Louis and a Merck executive. His team in the middle of the R&D machine takes drugs after they’ve graduated from the discovery phase, and then runs them through a battery of genetic tests, cell-based tests, animal tests, models of disease, and biomarker studies to see which types of people might respond to such a treatment. The goal is to test whether the candidates are safe, and whether there’s “evidence of biological impact” that gives the company “a high degree of certainty” on whether the drug is actually hitting the desired target and doing what it is supposed to do in people, he says. If done right, this work is supposed to answer which of those 50 drugs on the roster, and which of the 6 to 8 new ones that enter human trials each year, are truly worthy of putting major-league resources behind in the ultimate proving grounds of Phase II and III clinical trials. The rest of the candidates, Miletich says, may need more long-term observation in people, while some should be killed early before too much money is wasted, he says.

This isn’t revolutionary stuff—it’s what other companies do, Miletich acknowledged. But it is an effort to weave together basic research and clinical development in a closer way than had been done in the past, when research might just hand over a drug to development to see if it worked, Miletich says. He says this more integrated, or “translational,” approach should pay off directly by raising Amgen’s success rate above the usual industry rule of thumb.

“Over the next five years, I’d like to see us have about a 20-30 percent higher success rate over the historical average,” Miletich says.

That sounded pretty bold, but Miletich was quick to throw in qualifiers. There are …Next Page »

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Most Seattleites would probably list Bill Gates, Paul Allen, Howard Schultz, and Jeff Bezos when asked to name local entrepreneurs who built not just successful companies but entirely new industries. But they’d be forgetting Steve Gillis.

Gillis would have to be considered something like the Fifth Beatle in a group like that—you can walk into his office today without being babysat by PR handlers—but he is one of the pioneers of the biotechnology industry both in Seattle and nationally.

For those who don’t know, Gillis was a charismatic 28-year-old immunologist when he left a faculty post at the Fred Hutchinson Cancer Research Center to start Immunex in 1981. He and co-founder Christopher Henney rode the early wave of investor enthusiasm for genetically engineered drugs to an IPO, recruited top scientific talent from around the world to Seattle, and persevered through some dark days to create a breakthrough drug for autoimmune diseases that generates more than $7 billion a year in worldwide sales for biotech giants Amgen and Wyeth.

Talk to any scientist who worked at Immunex in the early days, and they’ll tell you they adored Gillis, the inspirational scientist with an irreverent brand of humor. Legend has it he used to dare scientists to dream big, and instead of bashing them for running a failed experiment, he’d honor goof-ups with the “Pons & Fleischmann award for achievement in dubious science,” named after the guys who once claimed to discover cold fusion.

Gillis didn’t have as much success in his second career act from 1994 to 2005, as the founder and CEO at Seattle-based Corixa. But when GlaxoSmithKline bought that company for a little more than $300 million, he took a new direction in his career, joining one of the most active life sciences venture firms in Seattle, Arch Venture Partners.

This role at Arch allows Gillis, now 56, to put his fingers in a lot more pots. He serves on the boards of six life sciences companies in Seattle: Accelerator, Trubion Pharmaceuticals (NASDAQ: TRBN), VLST, Theraclone Sciences, Qwell Pharmaceuticals, and VentiRx. He also serves on the board of two other Arch companies in Massachusetts—Brighton, MA-based Surface Logix and Cambridge, MA-based Variation Biotechnologies.

This new perspective as a venture capitalist provides Gillis an opportunity to be even more influential in the community, says one of his protégés from the Immunex days, ZymoGenetics CEO Doug Williams. “He can be enormously helpful to the local biotech scene at Arch, and in fact I think if you look at the companies he’s involved with locally, you’d have to conclude that he already is. Steve is one of those rare people with an equal dose of talent in science and the business of biotech. He’s pretty much done and seen it all, and for him to be able to convey that to many companies instead of just one is of great benefit to the local scene,” Williams says.

I sat down with Gillis a few days ago to talk about life as a venture capitalist, how the biotech investing model has changed, and Seattle’s strengths and weaknesses. Here are the highlights of the conversation.

Xconomy: Can you bring us back to your thought process when you came to Arch? It was the summer of 2005, you had a long run at Corixa, and could have done a lot of different things. Why did you decide to become a venture capitalist?

Steve Gillis: After whatever it was, 14 years at Immunex and 11 at Corixa, that was 25 years of being involved in operations of a public company. I didn’t want to jump back into doing that. I needed some sort of break. Because sometimes running public companies isn’t a lot of fun. A lot of what you do is …Next Page »

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Two veterans of Illumigen Biosciences, the Seattle-based company that was acquired a year ago by Lexington, MA-based Cubist Pharmaceuticals, have resurfaced in a new biotech venture in Seattle called Kineta.

Shawn Iadonato and Charles Magness co-founded the company to develop new classes of therapies to enhance the innate immune system to fight viral infections and autoimmune diseases. They went to work shortly after Illumigen was sold to Cubist (NASDAQ: CBST) last December. That deal was worth $9 million in upfront cash, plus milestone payments potentially worth $332 million based on success with Illumigen’s hepatitis C drug candidate and other experimental treatments.

Kineta isn’t disclosing who’s backing it, or how much capital it has raised. It does claim to have assembled an impressive team of scientific advisers, including Michael Gale and Michael Katze, a pair of immunology experts at the University of Washington. It also says it has partnerships with Cubist to finish animal tests on a novel hepatitis C drug, and what it calls “substantial development funding” from the National Institutes of Health under the Small Business Innovation Research program. The goal will be to identify conventional small-molecule drugs that stimulate the RIG-I gene pathway, which is thought to trigger native immunity against hepatitis C and other viruses. The Kineta team says it can use its techniques to fight flu, West Nile Virus, Type 1 Diabetes, Multiple Sclerosis, and Rheumatoid Arthritis.

“Kineta’s launch is truly great news for Seattle’s biotech cluster,” said Bruce Jackson of enterpriseSeattle, a regional economic development booster organization, in a Kineta statement. “It is extremely important that Seattle’s most successful life sciences entrepreneurs reinvest in our community.”

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Leave it to Paul Allen to create a museum that flies. Literally. This Saturday afternoon in the skies above Everett, WA.

Okay, the museum doesn’t really fly, it’s an aircraft hangar that remains on terra firma. The part that flies is most everything inside the museum, which the billionaire with omnivorous interests calls his Flying Heritage Collection. It’s composed of 15 World War II-era fighter planes that Allen has assembled from around the world over the past decade, polished up, and restored to FAA-certified flying condition.

Aviation fans can marvel at the roaring engine of the P51D Mustang, or imagine the danger pilots of other planes faced when performing night bombing raids over Berlin or London. But the larger question Allen is raising with his collection is an even more fascinating one, for me, anyway: What ingredients are necessary to make big leaps ahead in innovation? After all, this short historical period from 1935-1945 saw planes go from propeller-driven to the era of jet engines. Speeds went from 60 mph to 600 mph. Wood and fabric were replaced by all-metal body frames. Radar went from concept to mainstream. How did those stars align so quickly?

I drove up to Paine Field on a rainy Wednesday afternoon to see for myself and meet Adrian Hunt, the executive director of the Flying Heritage Collection. Since it opened in June, the flying museum has apparently been something of an instant hit. More than 11,000 people have already visited, the type of attendance figure that organizers thought it would take six months to eclipse, Hunt says.

Apparently, people are drawn to the living, breathing aspect of the place, where the artifacts don’t sit around collecting dust. Hunt pointed to an eye-washing station on the wall next to an exhibit, and a fire hose. They aren’t props—this is an active aircraft hangar. “That’s not the sort of thing you see at the Seattle Art Museum,” Hunt says. He adds, “It’s important that these are restored to flying condition, so people can experience the power, the engines, and the noise.” (The public can’t hop on board, the planes are flown strictly by professionals.)

By taking a close look at each plane, you can see the step-by-step advances aviation made in those formative years. Allen’s exhibits credit the leaps in innovation to six main themes, which you can see etched on the wall before you enter the hangar. The first is political will, defined by government leadership and public support, which the museum says was “driven by ambition or the need to survive.” (I’ll go on a limb and say that’s a more powerful motivator than stock options).

But political will alone wasn’t enough. For one, the means and manufacturing capacity from capital and labor had to be in place. For another, the support technology like weather instruments needed to mature. More precise weaponry had to be developed. Of course, engines had to evolve with greater horsepower to fly longer, higher, and faster. Then fuselage and wing materials needed to get stronger and lighter in order to make planes safer and more nimble.

Even though I’m the biotech guy at Xconomy, it made me think there’s got to be some lesson here for my corner of the world. Maybe it’s the next flu pandemic that mobilizes political leadership and public support around vaccine research, which could be the catalyst to propel us to a new era of disease prevention after decades of immunology research. Then again, if we aren’t already laying the right foundations in research, maybe we won’t be equipped to make such rapid leaps in a time of crisis. That’s something to think about when the 70-year-old planes rumble in the skies over our modern high-tech mecca this Saturday afternoon.

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Steve Reed sums up his goal for Immune Design, his new vaccine company, in a few bullet points: Better protection, fewer doses, less raw material.

The Seattle-based company got started last month with $18 million in first-round financing from The Column Group, Alta Partners, and Versant Ventures. The idea is to make vaccines loaded with immune-boosters called adjuvants. They’ll be made to stimulate dendritic cells, which are sort of like conductors telling other cells in the immune system which foreign invaders to fight.

I caught up with Reed down the hall from our new Xconomy office, at the the Infectious Disease Research Institute (IDRI), the nonprofit institute he founded in 1993 to tackle diseases of the developing world.

Reed isn’t ready yet to reveal Immune Design’s first vaccine candidate. But he said it should be ready for clinical trials within a year. The company has licensed the technology from IDRI, which has already done most of the animal tests and manufacturing work.

Immune Design is licensing potential commercial applications like flu, HIV, hepatitis C, or certain types of cancer. Other uses of the adjuvant more practical for diseases of the developing world, like tuberculosis or malaria, will stay within the nonprofit IDRI. If any of the commercial applications are a hit, Immune Design will plow a royalty stream back into the IDRI.

“It’s a Robin Hood approach,” Reed says.

One example that symbolizes room for improvement is the DPT vaccine, Reed says. Infants in the U.S. have to take the vaccine—short for diphtheria, pertussis, tetanus—in four doses, because it stimulates a generalized immune reaction, not a specific one, against the pathogens in its name. Immune Design would stimulate a more specific defense, using a synthetic adjuvant hitched to an engineered virus or snippet of protein. The result could be a single-shot vaccine. That’s highly useful in the developing world, where it’s difficult to get people to show up for multiple doses, and highly convenient for patients in the United States.

“It really shouldn’t have to be four shots,” Reed says. “There needs to be more innovation there.”

It’s just an example, because DPT is a cheap, relatively effective commodity vaccine that Immune Design isn’t looking to improve upon. The company is busy building up a staff of three into a team of 35 scientists to do the early development work on new vaccine candidates.

Reed is visibly excited about the new-generation adjuvants. No currently marketed vaccine contains this form of synthetic adjuvant. The adjuvant will be combined with an engineered virus, licensed from the Caltech lab of David Baltimore, that efficiently spreads the immune-booster through the body. In other cases, Immune Design may use key snippets of protein to train the immune system to fight without having the potential to actually make people sick, like weakened live-virus vaccines can.

Reed plans to spend 80 percent of his time at the new company, and the rest of his time at the nonprofit institute, where he will continue to oversee grant work sponsored by the National Institutes of Health and the Bill & Melinda Gates Foundation. Steve Davis, the former CEO of Seattle-based digital media company Corbis, has been brought in as interim CEO of IDRI to keep that institute on track.

Immune Design isn’t the only company trying to develop next-generation vaccines, particularly since Merck showed last year it could sell $1.5 billion worth of Gardasil, a $150-per-vial vaccine for cervical cancer, proving that vaccines don’t have to be cheap commodities. Other competitors include Pfizer, the world’s largest drugmaker, VentiRx, a San Diego-based startup company, and VaxInnate of Cranbury, NJ.

Clinical trials for new vaccines need to enroll thousands of patients to demonstrate safety—too costly for any venture-backed startup to do single-handedly. Rather than cut a deal with a pharmaceutical company right away, Immune Design plans to partner with academic labs for early-stage tests to show a vaccine’s value. It’s a departure from Reed’s experience at Corixa, the Seattle biotech company, where the mantra was “partner early, partner often.” Corixa got someone else to pay for its research, Reed says, yet retained slim royalty rights to potentially valuable products.

By waiting longer to sign a deal with a pharmaceutical company, Immune Design shoulders more of the risk in clinical trials, but could stand to get much richer if they pan out. That could bode well for Reed’s “Robin Hood” strategy.

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Vaccines are coming back in a big way. Immune Design, a Seattle-based startup vaccine company, made that clear today when it said it raised $18 million in an initial round of venture capital.

The names involved are some of the biggest in immunology. The founders include Nobel Laureate David Baltimore of Caltech, Steve Reed of Infectious Disease Research Institute in Seattle, and Larry Corey of the Fred Hutchinson Cancer Research Center, an expert in efforts to develop HIV vaccines. The company is backed by Alta Partners, The Column Group, and Versant Ventures.

Reed, an immunologist who earned his biotech stripes as a co-founder of Seattle-based Corixa, will be the founding CEO. (He’s also one of the inaugural Xconomists in Seattle.) Baltimore is an adviser to The Column Group. So is Richard Klausner, the former head of the National Cancer Institute and former leader of global health at the Bill & Melinda Gates Foundation, who is joining the company’s board. Immune Design’s board chairman is Ed Penhoet, a partner at Alta Partners and the former CEO of Chiron. Penhoet’s earlier company, also a vaccine maker, was sold to Novartis in 2005 for $5.1 billion.

The new company’s goal is a lofty one. It wants to design vaccines that coax the immune system to mount more specific, effective responses to infectious diseases than those prompted by traditional vaccines. Immune Design plans to do that with improved adjuvants. The adjuvants—compounds that boost the immune response—will be aimed at what are known as dendritic cells, which present bits of signature material from a foreign invader, like a virus, to other immune system cells. That’s sort of like waving a red cape in front of a bull, inciting immune cells to attack just the right targets, scientists say. Most vaccines now work by triggering a more generalized stimulation of the immune system, a less efficient approach, Immune Design says.

The company’s release doesn’t say specifically what disease it is tackling first, although it says it expects its first vaccine candidate to reach clinical trials within 12 months.

Clearly, the technology is following a business opportunity. The vaccine business, shunned as a backwater for cheap commodities as recently as five years ago, is suddenly booming. Vaccines generated $16 billion in sales in 2007, according to Immune Design’s press release. Merck’s Gardasil, for a virus that causes cervical cancer, generated $1.5 billion in sales in 2007, its first full year on the market.

While at Corixa, Reed worked on vaccine adjuvants that helped spur London-based GlaxoSmithKline to acquire the company for $300 million in 2005. His new company is down the hall from our new Xconomy Seattle office on First Hill, so you can be sure I’ll be poking my head in there soon to learn more and tell you about it.

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