A Week Of Pharma/Biotech Dealmaking

In the new year’s early wake, the JP Morgan Healthcare Conference (JPM HC) spreads over San Francisco’s central downtown blocks, sparking private meetings and satellite seminars in hotels and eateries all around the event site at the St. Francis. Inside the site, perhaps several thousand people at any time fill the lobbies and shuffle between sessions and company presentations in a half-dozen parallel tracks. Over four days, the JPM HC attracts more than 7,000 invitation-only registrants, growing in number most years.

Add to that the simultaneous events scheduled close by — a phenomenon that has also grown in recent years — and you have a larger congregation that I call, collectively, “JPM Week.” Besides JPM HC, one of the more prominent events this year was the EBD Group’s Biotech Showcase, whose more intimate format encouraged even more small-company presence and large-company interaction.

But, the main action in this concentrated space and time is outside the conference rooms and often off-site — one-on-one meetings between life sciences companies, investors, customers, and suppliers. Frequently more than mere introduction, the meetings may serve many purposes, from indispensable human contact to significant deals, and every level of business exchange in between.

And, the conference-related networking also spreads beyond the four days in the city. Returning home, most if not all participants spend days to months catching up, following through, and generally dealing with the harvest of opportunities and commitments cultivated at the gathering.

Generally, the most common patterns are well known:

• Small-company leaders may wait years just to earn an invitation to the main show, JPM HC, meanwhile meeting privately with contacts off-site or working the alternative venues. After the first JPM invitation, they typically wait a few more years before becoming presenters (competition for the 300 or so slots is fierce), but caution is also abundant among small young companies until they grow to a certain critical mass.

• Large-company executives run their own marathons in selecting among the huge number of companies in town that they want to meet and, of course, in conducting meetings literally nonstop all week. Often the meetings are fateful for both sides, leading to partnerships that succeed or fail, false hopes foregone, or true opportunities found or lost.

• Investment bankers and analysts, lawyers, academics, healthcare managers, researchers, and journalists all take part in the mix, with people sharing and exploring every angle, from the smallest details to the largest issues that affect healthcare investment.

THE SELLING SIDE
Other patterns emerge only from personal experience of the event and surrounding confabulation, a word that describes the collective discussion as well as the hyperbole that inevitably accompanies it. For, selling — selling one’s company, technology, partnering skills, and other expertise, resources, and services — lies at the heart and soul of the diverse congregation.

The sellers labor under the supposedly cold, calculating gaze of investors and Big Pharma. But passion on both sides plays at least as big a role as reason. With the next generation of medicine and healthcare at stake, it is difficult for any player to be dispassionate.

The biggest players get most of the attention, of course. Big Pharma presentations are always overattended, mass reported, and followed thereafter, often in the mass media. Yet, for all their dominance, the big companies seem relatively passive, sorting through all the entities that offer the most potential for innovation and business growth: the typically small, frequently young companies that assume most of the risk and must constantly prowl for funding to develop new technologies and products.

That is why I spent most of my time meeting with such companies — more than a dozen, representing a range of technologies, therapeutic areas, and funding models. A closer look at these companies yields important lessons, benchmarks, and cautions, not only for their peers, but also for the players of all sorts represented at JPM Week. For balance, I also spoke with several large and midrange companies, as well as venture capital and angel investors, analysts, and others at the event.

OCCUPYING SPACES
Pitching a truly novel technology may be one of the loneliest of all pursuits. But, so is seeking attention as one of many players in a hot new area. Every company dedicated to developing new life sciences technology faces its own mix of challenges unique to its entry point, position, and circumstances in the space targeted by its business plan. Theoretical models are thus limited, but parallel experiences among companies often yield useful lessons. Beyond this report, I will continue to follow these companies and hope to spotlight their post-JPM progress in future months.

I spoke with companies competing in a variety of areas, from small-molecule and biotech therapeutics, to vaccines and immunotherapies, diagnostics, and specialty pharma. Some struggles they hold in common; others are specific to each company. Likewise, the competitive spaces they occupy vary greatly, from lonely for the most novel technologies, to crowded for the latest and hottest.

Novadigm Therapeutics typifies the novel extreme with its vaccine engineered to generate a single antigen against both a fungal and a bacterial infection: candida and staph aureus – the first cross-kingdom vaccine. A team of infectious disease specialists led by company founders at UCLA conducted 3-D homology to find the surface protein common to the fungus and sepsis-causing bacteria.

Staph and candida are two of the worst pathogens in the ICU, and thus Novadigm is already positioning it for the hospital-infection market, but with a much larger potential market in infection-prone patients that are immune-compromised, on antibiotics, or who have hard-to-treat conditions like recurrent vulvovaginal candidiasis. A typical Phase 1 vaccine study showed a four-fold increase in antibody levels and a steep rise in immune response in all 40 patients, but the company faces a long haul in proving its concept, gaining sufficient clinical adoption (at least in recruiting investigators), and eventually gaining regulatory approval.

Novadigm is still early in its funding race, having started in 2008 with an $18 million Series A round from Domain Associates, followed by $17 million in government grant funding, including $12 million from the DoD. The company has licensed its technology from research partner LA BioMed and has a network of service providers, but is putting off major partnerships until its vaccine clears Phase 2 proof-of-concept. Already, though, its executive team echoes a unanimous theme among all those interviewed: Fundraising and the search for partners never stops, nearly constant travel is required, and perseverance pays.

Other companies developing especially novel approaches include Scynexis, Ligocyte, and Epizyme — although in speaking with them, I saw how different their development challenges, corporate models, and investment strategies were. Scynexis is pioneering a new anti-infective MoA (mechanism of action), cyclophilin inhibition, specifically in a compound to fight hepatitis C, while also selling its R&D services for “shared-risk” projects. Ligocyte is in Phases 1 to 2 with a vaccine for novovirus, along with other “virus-like-particle” (VLP) vaccines and has depended mainly on DoD and NIH grants and a Series A round.

Epizyme may appear to be yet another targeted-therapy company, but actually its small molecule histone methyltransferase (HMT) inhibitors and screening technology may have wide cancer and noncancer applications. It has drawn on two venture rounds, with participation by Amgen and Astellas and research funding from GSK and Eisai.

Comparable novelty exists in the diagnostics companies, but it is safe to say that diagnostics face much less severe entry barriers than do therapeutics, thus somewhat easing their development. All three diagnostics companies I spoke with drew a distinction between the regulatory and clinical-adoption pathways in their business.

These days, every new diagnostic tool stems from unique assumptions about key biomarkers and disease mechanisms. T2 Biosystems has what amounts to a minute MRI to measure the activity of oxygen molecules as a key to molecular diagnostic tests, immunodiagnostic tests such as protein and molecule detection, and platelet function and coagulation capabilities. SuperNova Diagnostics is developing a tiny liquid-crystal chip for in-office tests based on “direct detection” of DNA. And BioBehavioral Diagnostics develops computer-based units for diagnosing and dosing medications in ADHD and other neurological disorders. To ensure wide use in the clinic, the companies must achieve something approaching consensus among physicians, opinion leaders, and payers.

On the other end of the scale, some companies are wading into waters frothing with potential competitors, all vying for opportunities in the latest, hottest technology space. Probably no other area fits that description better than molecular targeting in oncology. I spoke with Idera Pharmaceuticals, which is developing drugs aimed at Toll-like Receptors (TLRs) for cancer, autoimmune, vaccine adjuvants (with Merck & Co.), and gene-silencing oligonucleotide (GSO) technology. Idera is a public company and was founded as Hybridon in 1989.
Outside of oncology, another popular target market is Age-related Macular Degeneration (AMD). Using new insights from Dr. George Chiou, the same researcher responsible for the glaucoma drug timolol, MacuCLEAR is hoping to defeat market-leader Lucentis (ranibizumab) with a new treatment to arrest progression of “dry” AMD to the more serious “wet” AMD. On the other hand, it is quite early in its program and has had only limited private-placement and grant funding since 2007.

So-called specialty pharma companies were also among those I interviewed. NuPathe is in Phase 3 development with a “smart” transdermal patch for migraine treatment. Coincidentally, MAP Pharmaceuticals has filed an NDA for a migraine therapy improvement: an inhaled aerosol form of dihydroergotamine (Levadex). Both companies are fascinating in how they have combined older, reliable drugs with new technology designed to improve patient treatment, as well as their status and experience as public companies.

REFLECTING VIEWS
All of the perspectives voiced by the small companies have echoes in the large-company views of AstraZeneca’s head of partnering, Shaun Grady. Neither his company nor others its size can hope to cover the entire universe of start-ups and new-technology developers seeking Big Pharma partnerships. In one sense, the big players hold all the chips in the partnering game and could theoretically dictate deal terms that essentially transferred all risk to the smaller ones. But AZ, at least, has decided to play nice, reaching out to potential partners in actively interested and sympathetic ways, but with one caveat: Show us something we can get to patients in the shortest possible time.

By the end of JPM Week, I sensed a consensus among participants that the meeting’s liveliness belied a mixture of hope, desperation, and practicality amidst the general and continuing economic recession. Perhaps one tangible change was that the economy hardly entered people’s discussion. Instead, everyone’s focus was on what companies could do with the opportunities available to them, however modest. The obvious intimacy and interaction at the EBD Biotech Showcase, where many of the companies I interviewed presented, reinforced the overall vitality of the greater gathering catalyzed by JP Morgan in San Francisco this year — and its rippling effects beyond.