Transcript Life Science Entrepreneurship: Lessons from 26 Years and

Life Science Entrepreneurship:
Lessons from 26 Years and 8
Companies
Lew Shuster
August 29, 2009
Outline
• Case Studies:
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MDL
Microbiological Associates
HGS
Pharmacopeia
Invitrogen
Kemia
Epitomics
Halozyme
WuXi
• Themes:
– Business models
– Sustainable competitive advantage
– Facing and managing risk
Case Study #1: MDL
• Founded in 1979 by 4 PhD chemists intending to design new
pharmaceutical and agricultural chemicals using proprietary
computer software
– First step was to write & copyright the software
• 1980: Initial software so powerful that large corporate customers
asked to license-->$100,000
• 1981 to 1986 built a world-leading position in software for
chemical research
– Database management including substructure search and published
databases of chemicals and reactions
– Sales force--secured adoption by most leading pharma/chemical co.
– Customer service--user groups
• Today: After many owners, a subsidiary of Symmx
Case Study #2:
Microbiological Associates
• Founded in the 1940s!
– Produced bovine serum for NIH early cell culture research
• 1950s, 1960s, and 1970s
– Polio vaccine research
– Early NCI studies--cancer & viruses
– NASA (first moon rocks returned to earth)
• 1980s--leveraged buyout from parent company
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Merged with companion animal diagnostic company
Large cost-plus-fee NIH contracts
Toxicology services to ag chem and pharma
Leading lab animal “QC” testing service--virus, mycoplasma . .
Genentech contacted to discuss future FDA approval of CHO
cell manufactured therapeutic proteins
Case Study #2: Continued
Microbiological Associates
• 1986: Crisis!--Revenues nearing $10 mill./year, but
losses of $2 mill./year, out of cash, loans in default
• Response: Rigorous financial and strategic analysis
– Closed companion animal diagnostic business
– Downsized from 200 to 160 staff--very painful but necessary
• Focused on strengths we could build a future on:
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Genetic toxicology tests (Ames, etc.)
Lab animal QC (virus tests, etc.)
Biologicals QC (CHO cells, Genentech)
Selected NIH contracts funding R&D
• Strengthened customer and FDA relationships
– Built pioneering lab information management system
• 1987--Profitable, growing!
• Company acquired by Invitrogen in 2003 for $480 mil.
Case Study #3: Human Genome
Sciences (HGS)
• 1992: Craig Venter at NIH identified hundreds of
putative new human genes by cDNA sequencing
– Lost political battle within NIH
• HGS formed by VCs to fund and commercialize
Venter’s new TIGR--high throughput gene discovery
• Approach--Integration of molecular biology,
sequencing equipment, and sophisticated information
technology
• VCs initially invested $10 million, and HGS leased $9
million in sequencers & computers
• Then 1993--Smithkline Beecham $125 mil. contract
• Late 1993 IPO!
Case Study #3 Continued: HGS
• 1994--early successes
– Colon cancer gene (w/Bert Vogelstein)--cover of Science
– Cathepsin “K”--key to bone osteoclast activity
– New members of important gene families
• But challenges emerge
– Full length gene ID, protein expression and characterization
expensive! Cash burn $$$
– Human genes and their regulation more complex than anticipated
• Fortunately for HGS, stock stays “hot”. Company raises >$2 bill. in
debt and equity through 2001--market value peaks >$10 bil.
• After the “internet/genomics bubble” bursts, HGS stock drops 99%
from peak to early ‘09 low
• Summer ‘09--finally promise emerges!
– Lupus drug Phase III trial successful! GSK into Phase III also
Case Study #4: Pharmacopeia
• Early 1990s high hopes for combinatorial chemistry
and high throughput screening to dramatically
accelerate small molecule drug discovery
• Cold Spring Harbor biologist conceived encoding
solid phase synthesis beads
– References led him to a prominent Columbia U. chemist who
designed superior chemical “tags”
– Patent applied for and shopped to VCs
• Larry Bock (Avalon Ventures) won rights--formed
Pharmacopeia
• Recruited prominent ex-Merck, BMS, SB, DuPont
execs to lead
Case Study #4 Continued:
Pharmacopeia
• 1994 and 1995--rapid expansion
– Major $$$ big pharma collaborations--S-P, etc.
– Late 1995 IPO--$16/share!
– Staff grows from 40 to 100 and beyond
• 1998: Pharmacopeia acquires MSI (now Accelrys)--leading
chemical software
• 1999: Profitability--revenues of >$100 million!
• 2000: Stock bubble peaks--stock $90/share
• But then stock market bubble burst, and . . . .
– Weaknesses emerge in combichem technology
– Strategy flip-flops several times--contract services vs. internal drug
discovery/development
– Excessive bid for acquisition rejected by shareholders
• 2003: Accelrys spun out--reversing 1998 merger
• 2008: With stock at $1, Pharmacopeia acquired by Ligand
Case Study #5: Invitrogen
• 1987: Stratagene a leading provider of molecular
biology enzymes, plasticware, and other supplies
– Two employees conceived packaging reagents into “kits”--to
clone a gene, express a protein, or. .
– Stratagene top execs vetoed
• Two employees left--formed Invitrogen
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Rented 1,500 sq. ft. Sorrento Valley unit
Initial furniture--old doors on blocks as desks
Assembled and sold “kits”--profitable each year
Started acquiring/developing proprietary “tools”
• Expanded through 1990s--self-funded
– Rewarded employees with stock options and ESOP plan
• By 1998, $25 mil./yr revenue, 30% growth, profits!
Case Study #5 Continued:
Invitrogen
• 1999: IPO, acquires of Novex (gels), ResGen
– Leading internet marketer, creative ads--now direct sales
• 2000: Stock bubble--market cap to $4 billion!
– Revenues annualize >$125 million, profits grow rapidly
– Employees/managers scrambled to keep up
• Summer 2000: Acquires Life Technologies--nearly 4X
larger company!
– “Merger integration madness”--severe internal infighting
– Extensive management turnover; revenue growth slows from
30% to 3%. Stock price drops
• Mid-2000s, Greg Lucier CEO, “GE”, acquis. resume
• Today “Life Technologies”--$3 bill. rev., $8 bil. cap.
Case Study #6: Kemia
• Created in 2002 by Forward Ventures to
commercialize Yale chemistry-- alpha helix mimick
– Hope that synthetic chemical scaffold could replace proteins
• Recruited aggressively, bought two NMRs, signed
lease for big, new $$ lab,
– But could not find even a 1 uM lead compound
– Exhausted initial cash, defaulted on building
lease/equipment loan, VCs about to shut down
• But a lead chemist saw potential for allosteric kinase
inhibitors; quickly identified initial lead series
– Company strategy shifted, expensive building lease
renegotiated, CEO hired, VCs put more $ in
Case Study #6 Continued: Kemia
• Late 2003--clinical development candidate identified
– Excellent animal efficacy data (p38a)
– Good once daily oral PK
• Early 2004--$33.5 mil. Series B VC
– Late 2004--favorable toxicology data
• 2005--Phase I clinical--favorable!
– With encouraging ex-vivo human biomarker data
– And surprise--drug raises HDL--“good” cholesterol!
• Late 2006--$31.5 mil. Series C VC
– Started first two of 3 Phase II clinical studies
• 2007--Clinical trial results disappointed
• 2008--Kemia liquidated
Case Study #6 Continued: Kemia
“Lessons Learned”
• Don’t trust what you learn from rats and mice
• Be wary of “the perfect molecular target”
• The myth of “the validated target where you can still
be early to market”
• We live in a post-Viox (FDA) world
• Many diseases are heterogeneous; drug metabolism
varies dramatically among patients (CYPs, UGTs, etc.)
• Your investors “call the shots”, and
– More heterogeneous today
– Their views can change--sharply
Case Study #7: Epitomics
• 2002 Guo-Liang Yu identifies/licenses UCSF/Loyola rabbit
monoclonal antibody (“RabMab”) technology
• Forms Epitomics with Series A angel investment
• Unable to secure $$$ VC funding for a therapeutic business,
launches contract svcs.
– “Intel” vs. “Dell” strategy
• Builds service business; secures Series B financing
• 2004 opens production facility in China
• 2005 Series C financing, launches own reagent product line,
advances RabMab technology
• 2007 powerful animal data on first humanized therapeutic
antibodies derived from RabMab
• 2008: Profitable business, revenue $$$, multiple activities, major
China operation achieving excellent results
Case Study #8: Halozyme
• Deliatroph founded by two Sidney Kimmel Cancer
Center researchers w/“friends and family” money
– Focus: in vivo imaging tumors, vasculature in mice/rats
– One co-founder’s PhD thesis on a hyaluronidase
• 2002: Initial cash gone, new angel investors forced
strategy change--focus on hyaluronidases
– Licensed IP on members of gene family
– Targeted initial an clinical opportunity with animal data
• 2003: Initial hyaluronidase development plan failed,
so switched to back-up--a second hyaluronidase
– A human enzyme where the bovine equivalent had been used
clinically for decades but was no longer made--FDA
• 2004 - 2009--Baxter, then Roche deals, IPO through
reverse merger into “shell”. Today mkt cap $600 mil.
Case Study #9: WuXi Pharmatech
• 1994: Ge Li joins Pharmacopeia as chemist from Clark Still’s lab at
Columbia
• 1998: Ge Li led 32 Pharmacopeia chemists dedicated to ScheringPlough (S-P) 5 year project
– Demonstrated leadership and technical skills
– Earned confidence of S-P mgmt. and ex-Merck execs
• End of 1999: Ge Li sees opportunity to do contract chemical
synthesis in China--very low cost, high quality labs/chemists
– Proposes idea to Pharmacopeia management; rejected
• 2000: Consulting closely with an ex-Merck exec and business
consultant, forms WuXi Pharmatech
• 2001 - 2006: Builds WuXi initially with S-P and Merck contracts.
– EXTREME attention to confidentiality, IP protection,
– Delivered value, earned trust
• 2007--IPO. 2009--market capitalization >$800 million
“Themes”: Context
• “Change” is all around us, is always happening
and creates multiple opportunities:
– Technology advances
• Biology, chemistry, other sciences
• Information technology
– Business environments evolve
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China’s emergence--others
Financing sources
Outsourcing vs. vertical integration
Internet--2009 marketing different from 2000
• Creative opportunities can sometimes be found
integrating across technologies/businesses
Business Planning: Foundations
• Clear, rigorous thinking/analysis required:
– Who will your customers be--and what do they
really need/want?
– How will you meet customers’ needs better than
existing (and foreseeable future) competitors?
– How will you reach and convince your customers?
– Creativity--is your approach really new? Better?
– Can you execute--for the launch? For the long
term?
• The tough question--is your “vision” a brilliant
insight--or simply a crazy idea!
Managing Risk
• Seek, and listen to, lots of advice from a variety of sources-different disciplines, backgrounds, experience
– Listen carefully to the objections--are they truly reasons you should
give up, or are they identifying the critical next steps to success?
• Spend money very carefully
– Used furniture, subleased space, etc. can save $$$
– Think through alternative approaches--internet marketing, etc.
• But spend money where it counts:
– Don’t short-cut patents and legal/business advice on contracts
• Think creatively and explore potential collaborators in technology,
sales, marketing
– Find ”win-win” opportunities to better meet customer needs
• Monitor and reassess as you learn, and be honest with yourself
– If failure likely, be willing to change course
– But be careful not to change course too often
The Successful Business Plan:
Three Rules
• Create value--for your customers
• Build sustainable competitive advantage:
– Patents/copyrights? Trade secrets?
– Customer relationships/trust?
– Economies of scale--low cost or other advantage?
• Evaluate your plan by multiplying the components of
success--not adding them.
– Mgmt X Technology X Financing X Proprietary X . . .
– Important, because a “0” in any key area destroys the plan,
and investors are very good a quickly finding the “0”
Concluding Notes
• Keep an open mind and stay active
– Read, listen
– Talk, ask questions, explore widely
– Challenge
• When an idea starts to gel into a potential
business idea, do the “hard analysis”
– Rigorous internal analysis plus
– Broad external input
• Keep trying!
• Thank you!!!