Industry Explorers Blaze On: Leading Business With Science — Part 2
By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein
Industry Explorers Blaze On: A series of stories of longtime leaders, still active in the industry, sharing their historical perspectives on life sciences industry innovation.
In part two of this article (see April’s issue), we continue the story of Geert Cauwenbergh whose nearly 40 years in the industry included work with Paul Janssen as well as being a startup entrepreneur with RXi Pharmaceuticals.
OUT ON HIS OWN
It seems even the simulation of entrepreneurism in a corporate environment could not satisfy Cauwenbergh’s own enterprising spirit — an inheritance from his years at Janssen. Yet yearning for change is never enough, either; to affect the world, an idea must take physical form. Once again, his natural gregariousness led him to a fateful meeting of minds.
“I had gotten to know Seth Harrison, who headed Appletree Ventures, then a small venture fund, and our wives also became friends, because they are both painters. We liked to hang out at the Markt, a Belgian bar and restaurant in Manhattan, where Seth and I would talk about the business, and our wives would talk about art. One day, Seth suggested I take some of the money from the generous compensation J&J had given me and start my own company, rather than spinning companies off and letting other people run them. When my wife and I got home that evening, I told her I wanted to follow Seth’s suggestion, and she agreed, because she knew I was unhappy with the status quo.”
He spoke with J&J management and won an agreement to back his startup. “I said, ‘Can I take all of your prescription derm assets in development, including the IP, and spin it out in a company?’” Chairman Weldon approved and stipulated the terms of the deal: no commercial assets, only R&D assets; the company must raise a minimum of $35 million from investors. J&J would take $25 million in equity in the company but no cash payments. Unlike the other spinoffs, the new company would market any products it successfully developed. “Six months later, we had raised $46 million, not $35 million, and initially we kept the company private.”
The startup was Barrier Therapeutics, and in April 2004, the company took a then unusual step for a spinoff of going public, raising another $75 million. Barrier drew more than products from J&J, says Cauwenbergh. “I had a fabulous team. J&J was also nice in letting me pick and choose whom I wanted from their employees. They would say no, if they really didn’t want the employee to go. But we had a little fight over only one person, but in the end, they realized that one person was not happy and would’ve been happy with me, and they allowed him to go as well.”
Barrier started with a few small but close-to-market products, getting them all approved in only three years and on the market in 2006. By 2008, when Barrier was acquired by Stiefel Labs, the company’s revenue had grown from zero to $45 million. By the acquisition terms, Cauwenbergh had to observe a noncompete clause for 18 months, during which he tried some vacationing and consulting. He finally jumped into a bigger assignment as a consultant running a small, regional drug licensing and development company, RHEI Pharmaceuticals. RHEI was active in China, and he commuted there frequently, literally expanding his horizons as a CEO. Ultimately, he sold RHEI to a local, midsize Chinese company, a difficult feat following close on the meltdowns at Stearns and Lehman Brothers.
ON TO THE PRESENT
By mid-2010, Cauwenbergh was free of RHEI, but he stayed busy serving on several bio company boards in Belgium, Canada, and the United States, until November 2012, when he answered a call from Kevin Tang of Tang Capital in San Diego: “Geert, we know you have a lot of experience in dermatology and wound healing, and you’ve taken companies public. We are looking for candidates to become the CEO of a spin-out from CytRx.”
In 2006, CytRx, an oncology company, spun off an RNAi (RNA interference) company started by Nobel Laureate Craig Mello and colleagues. The spinoff was initially called RXi, but later named Galena when it acquired Apthera, a developer of therapeutic vaccines. By Cauwenbergh’s account, RXi had previously raised money, but then went through a shareholder tussle over whether it should use the funds for the Apthera purchase or spin out the RNAi part of the company and declare a dividend. In the end, it did both, buying Apthera and spinning out the RNAi programs into yet another company bearing the RXi name. With more than a thousand shareholders at the time, the new, tiny RXi had to go public immediately.
Cauwenbergh heard from Tang when the spinoff deal was still in progress, with personnel and contractual issues still pending. “I told Kevin Tang, ‘You don’t want me as the CEO at this point. A consultancy should be fine. If you give me a CEO contract, and the spinoff deal falls through, you’ll have to pay me one year’s severance, and I will hold you to that.’ Kevin said, ‘Consulting is fine.’”
The consultant arrangement also worked better for Cauwenbergh, because it gave him time to do a deep dive into the RNAi space and the science behind RXi’s platform. All he knew then was the space had an abysmal record of failure.
But the week before Tang had to sign the spinoff deal, he called Cauwenbergh, wanting an answer to the CEO job offer. “I asked Kevin what he planned to do if I didn’t stay to take the job. He said, ‘You’ve seen a lot more than I have seen. If you’re not doing it, it means there’s something fishy that I missed, so I’m not going to put my money on it.’ I told him ‘that would be a major mistake. I think this is potentially a gold mine.’ A week later, Kevin had invested, and I came into RXi as the CEO of the company.”
STILL ACTIVE AFTER ALL
It has now been five years since Cauwenbergh took the helm of the early but ambitious RXi. As with the other major steps in his professional life, it brings significant changes in scale and risk. RXi’s technology, development goals, and drug candidates are not licensed assets. They all arise from the company’s own research.
RXi started with strong science, giving it confidence its novel approach would greatly improve the effectiveness of RNA interference. Many previous approaches relied on delivering the RNAi agent in a lipid-based medium, which helps the RNAi agent penetrate the cell as a foreign substance. RXi’s technology, called self-delivering RNAi compounds (sd-rxRNA), uses no delivery vehicle; the sd-rxRNA enters the cell and “loads” directly into the RNA-induced silencing complex (RISC). RISC is a cellular constituent in the normal pathway for silencing messenger RNA. In the case of a therapeutic RNAi, this silencing mechanism is exploited to reduce the production of disease-causing proteins. Thus, the sd-rxRNA agent acts as the active drug with improved cellular uptake, free of a delivery vehicle, for local application not restricted to certain tissues.
For the same reasons Cauwenbergh had hesitated before joining RXi, raising money in the RNAi space was anything but easy. For the first year, his job consisted mainly of securing more funding. “Fortunately, we had another senior person in the RNAi space, Dr. Pamela Pavco, chief development officer. She’s highly regarded and capable of running the company internally while I chased new money, because to start we had only enough money for perhaps a year, maximum.”
In January 2013, he saw Phil Frost, an investor he had known since his time with Janssen Dermatology. “Phil said, ‘Geert, RNAi drugs, they don’t work. I spent $35 million on a Phase 3 program for one, and it failed.’ But Dr. Pavco was with me, and she showed Phil the data from our preclinical studies, along with the fluorescence images of how our drug got into the tissue and the old conventional sRNAs did not get in. Phil looked at me and said, ‘Geert, we may do a deal this time.’”
Frost soon agreed to lead a deal worth $16.4 million, with no discounts or warrants, and RXi’s share price rocketed from $64 to $100, which in hindsight, says Cauwenbergh, seemed a bit “exaggerated.” But he had no reason from his prior experience to justify questioning the company’s apparent good fortune — until luck took a mysterious downturn. “Every time we issued a press release, the volume would go up, but we went down. Volume and price would rise in the morning, and then in the afternoon, the price would fall 5 to 10 percent lower than when we started — with good news!”
Time for a lesson in the financial business: “I thought something must be wrong here, and it turned out, whenever we issued a press release, Kevin Tang would basically short-sell and then send a conversion letter. That started in January 2014, and when he was done selling in May 2015, our common shares outstanding had gone from 12 million to 41 million, and our share price from $64 down to $4. Then we really had to raise money, this time in a market without warmth. That’s when I lost my virginity in that space — because it was the first time I did a deal where I had to give discounts and warrants.”
MULTIPLICATION BY ADDITION
And it would not be the last time. In late 2016, Cauwenbergh needed further funding to finance the purchase of MirImmune, a company that significantly multiplied RXi’s development options. RXi issued an $11.5 million underwritten public offering of securities, giving underwriters an option to purchase additional shares and warrants.
“I don’t like this dilutive cycle of financing, and I want to try to find a way to break out of it, to be able to create value for my long-term shareholders,” he says. “The MirImmune deal may actually become a significant way to achieve that goal.”
MirImmune, an immuno-oncology developer, had previously licensed and conducted valuable research on RXi’s technology. MirImmune had its own development programs using the sd-rxRNA platform, including anti-PD-1 and other IO compounds. Essentially, the program may offer a gene-silencing alternative to conventional CAR-T or mAbs for inhibiting tumor checkpoints. By the time of the acquisition, MirImmune’s research had identified at least one compound each for six different checkpoints and had developed ways to load up to four different checkpoint blockers in the same cells — combination immunotherapy in a single cell-therapy agent. One of MirImmune’s programs also aims at cosimulation of tumor-infiltrating lymphocytes (TILs).
The original licensing deal between RXi and MirImmune came at a time both companies were low on cash, so they had to improvise. RXi accepted a 10 percent equity in the other company in a warrant with five years of dilution protection. With the license, MirImmune garnered about $0.5 million from one its founders, Timothy Barberich, as well as some NIH funding. When it returned to RXi with the results of its testing, both companies decided it was a good time to merge. RXi now has programs in dermatology and ophthalmology in clinical, and immuno-oncology in preclinical development, aiming to start its first trial in immuno-oncology in 2018.
ALWAYS LOOK BACK
One way to envision Cauwenbergh’s career is that it has come full circle — returning to the entrepreneurial, ground-breaking environment that gave Janssen its cutting edge. His story is one of beginnings, not endings, of learning new things every day and seeing newborn possibilities and challenges at every turn. But it is also a tale of applying knowledge and experience, based on an understanding of industry history and scientific progress.
“If you go time and again through the same system of developing new drugs and you don’t learn from the failures that people have made, you will make the same failures, possibly costing lives not only as result of toxicity and side effects, but also because you waste time in getting life-saving medicines to the market. Think about where we were as an industry in 1900, 1950, 2000, and where we are today. It has been an exponential, evolutionary growth of knowledge. You need to learn about its history; otherwise, you will have to retrace the learning curve.”
One general lesson from the industry’s history: Its most-effective leaders have succeeded by maintaining a creative balance of science and business. In Cauwenbergh’s case, the ability to blend those two disciplines proved to be an advantage in every job he had — starting with Janssen and its phenomenal founder.
“Paul Janssen always said that I belonged in R&D, and if you have that in you, the business piece you can learn — and even if you don’t know all of the technicalities of R&D, you can learn how to grasp an essential understanding of the science. I was of very practical use to Dr. Paul. I could explain relatively complex matters in such a way that an average general practitioner or a nurse practitioner could understand what we were doing. And I could write about it; I published a lot. That is probably why he liked me, and I know that is why he took me under his wing, because he told me that.”
Cauwenbergh has one more piece of advice for new industry explorers: Always have an open, prepared mind. “Be prepared to accept the unexpected, and recognize it as an opportunity, because that is when greatness is born.” Words of wisdom from someone who is not only a fascinating storyteller, but also a careful listener.
SIDEBAR
Out Of The Congo — Janssen’s Therapeutic Legacy
It is difficult to superimpose the history of Janssen on the history of the Congo, also known as Zaire, although the fate of the company and the Congo’s separation from Belgium closely coincide. Only the few key facts remain. The colony, Belgian Congo, became independent in 1960. By 1961, when J&J acquired Janssen, the company was still young but fated to become a global player and record-breaking originator of new medicines meeting long-unmet needs. Its success would rely in great part on medical researchers who had worked for the Belgian government in the Congo’s universities and returned to Belgium when their jobs ended with the colony’s independence. Some of them had been exploring new therapeutic avenues for diseases especially common in the tropics, though actually present nearly everywhere, such as fungal infections and diarrhea. Paul Janssen selected several of the ex-colonial scientists to build and expand his R&D organization in Belgium. By the end of the 1960s, the Janssen company had developed some of the first effective medicines for fungal infections, parasites, and GI disorders, reflecting its interests and roots in the Congo. It maintained a long-term connection to the former colony, keeping a small commercial operation in the country. Paul Janssen visited the area multiple times, and the company later funded AIDS-related clinical research there, staying one step ahead of the worst upheavals, until total war forced an end. At that point, the last Janssen-funded researcher finally left Africa, albeit reluctantly. Returning to Belgium and joining the company in 1992, Dr. Paul Stoffels, now the cochairman of J&J’s combined Janssen pharma business, would subsequently build on his scientific and clinical work in Africa to champion a generation of breakthrough anti-HIV medicines.