Full article reprinted from Start-Up April 28, 2009
Prolific entrepreneur Cam Garner has a new model for start-ups. Gone are the days of raising huge A rounds to build commercial infrastructure and license in families of products. His two new firms, Meritage and Evoke, are narrowly focused on single assets, in each case a reformulation of an approved drug repositioned in an underserved specialty indication. Read more...
Full article reprinted from Start-Up April 28, 2009
Prolific entrepreneur Cam Garner has a new model for start-ups. Gone are the days of raising huge A rounds to build commercial infrastructure and license in families of products. His two new firms, Meritage and Evoke, are narrowly focused on single assets, in each case a reformulation of an approved drug repositioned in an underserved specialty indication. One thing is certain: 2009 has seen and will continue to see the demise of plenty of biotech companies.
"We're at a pretty unusual time right now," Cam Garner, prolific entrepreneur and chairman of multiple biotechs, including start-ups Meritage Pharma Inc. and Evoke Pharma Inc., tells START-UP. "It's hard to tell how it will all shake out, but we're in for a long-term fundamental change," and that's not necessarily a bad thing, he says. Too many companies were financed that probably shouldn't have been, and some marginal venture funds were started. "Funding the third, the fourth, the fifth deal in a given space is not an efficient use of capital," says Garner.
Capital efficiency is a theme Garner returns to often. Since his time as CEO of Dura Pharmaceuticals (eventually bought by Elan Corp. PLC in 2000 for $1.7 billion) Garner has founded and chaired several biotechs with successful track records in raising significant private capital thanks to a focus on commercial assets. Xcel Pharmaceuticals, for example, formed around in-licensed marketed neurology assets from Elan, pulled in a $70 million Series A in 2001; a few private rounds and failed IPO attempts later, it was sold to Valeant Pharmaceuticals International for $280 million in 2005.
But more recently Garner's Verus Pharmaceuticals Inc. was sold off in pieces—an unexpected twist for a company that expected to build a commercial presence in the specialty area of pediatric therapies—likely catalyzed by the absence of public investors willing to support IPOs, even for companies with products on the market. Without an exit, Verus' private investors would have had to foot the bill for its development projects. Verus—created explicitly to license in later-stage development or commercial assets—had raised $98 million in 2005 in combined equity and product-specific financing, in what is still the largest Series A biotech financing ever. Some of that money went toward bringing in its first product opportunity, the then-approved-but-yet-to-launch TwinJect epinephrine auto-injector pen.
Garner's new companies are a different story, and suited to more difficult times. Meritage pulled in a much smaller Series A than the likes of Xcel and Verus. The biotech raised $22.5 million in June 2008 from Domain Associates, Latterell Venture Partners, and The Vertical Group. [200830323] Evoke took in an even smaller amount, raising $12.3 million in its first round in February 2009 from Domain and Latterell. (Domain and Latterell were investors in Verus, and Domain has been lead investor in other Garner companies including Xcel and Cadence Pharmaceuticals Inc.) Like Xcel, Cadence and Verus, both Meritage and Evoke are run by former Dura executives.
But unlike those previous efforts, each of the two new start-ups is narrowly focused around one asset, in each case a reformulation of an approved drug repositioned in an underserved specialty indication. Meritage is built around Verus' earliest-stage asset, a viscous formulation of budesonide in Phase II trials for pediatric eosiniphilic esophagitis (EoE), an auto-inflammatory condition often misdiagnosed as GERD. Evoke's EVK001 is an undisclosed asset sourced from an undisclosed partner, in Phase II trials to treat diabetic gastroparesis.
"In today's market it's not tough to access Phase II projects," says Garner. But what's nearly impossible these days is to have a solid idea of how far you can take those assets, he says. One used to be able to be fairly certain "that you could finance the development and commercialization of a couple of high-quality projects," says Garner. "With the increasing difficulty of financing companies you need to be more capital efficient." Without reliable public markets, the days of raising more than $100 million privately are, for most biotech companies, gone.
Verus perhaps illustrates the private investor's predicament. But it was AstraZeneca PLC that actually triggered the move to break up Verus. "When AZ came in and offered to buy the pediatric asthma program, that really changed our strategy," says Garner. The September 2007 AZ deal—a straight licensing pact for all Verus' North American rights to its late-stage asthma project, with $30 million up front and a potential $280 million earn-out—set the company on a path to dissolution. Ex-US rights to the TwinJect product had never really been a factor; Verus offloaded Canadian rights to Paladin Labs Inc. almost immediately after licensing the product. Then in 2006 it sold European TwinJect rights to UCB SA, along with an option in other rest-of-world territories. With the asthma program now at AZ, Verus decided to jettison US TwinJect rights—and its commercial infrastructure—as well. Sciele Pharma Inc. (now part of Shionogi & Co. Ltd.) paid $29 million up front (and undisclosed potential milestones) for the program and all related products under development at Verus in March 2008. And in June 2008 Verus' last asset went to Meritage for an undisclosed blend of cash and Series A shares.
Part of the reason that it's so hard to fund a commercial organization is that "by the time you're ready to commercialize, the VCs have very little reserves left for a given company," says Garner. "This is compounded by the fact that almost all of their portfolio companies are in need of cash because there is no IPO market and the debt markets are too restrictive or too expensive. Today's business models need to reflect the financing environment," he says. "And it's a lot more capital-efficient to say, 'we can develop an asset to an exit point with $30 million or less.'"
Or just slightly more. Meritage president and CEO Elaine Philips, PhD (a former Verus and Dura exec), says that the company's $22.5 million Series A should take its candidate through Phase IIb studies in pediatric EoE and into Phase III. Proof of concept might be far enough. In January the emerging field of EoE—for which there are no drugs on the market—received a significant boost when Cephalon Inc. paid $100 million for an option to purchase Ception Therapeutics Inc. for an additional $250 million. [200910007] Ception is developing reslizumab, an anti-IL-5 monoclonal antibody in aPhase IIb/III trial in pediatric EoE and Phase II for eosinophilic asthma in adults. Cephalon can peek at Ception's pivotal reslizumab data before deciding whether to pounce.
Philips says Meritage's top line Phase IIb data will be in by the end of 2009, and that the company is prepared to hang onto the product for the long run, provided funding is available. "We are just on the cusp of talking about a broader financing strategy for Meritage," she says. "Given the target population and concentrated prescriber base we would envision a small, Verus-like commercial organization to support the product," she says. (Verus marketed TwinJect with about 75 sales reps in the US.) Of course, "if folks call us, we're open to chatting."
Meanwhile Philips and the rest of Meritage's management team—comprising CSO Malcolm Hill, PharmD (ex-Verus, ex-Dura) and CBO Adam Simpson (ex-Verus)—are looking at further in-licensing opportunities. Chances are any new compound would have to satisfy some high hurdles to risk diluting the company's single-asset focus. Meritage is the kind of company that should be very attractive in this awful economic environment, says Garner.
"There's no existing therapy for EoE, so we're addressing an emerging market with a substantial unmet medical need," he says. "It's a new opportunity but a well characterized molecule, and there's not a lot of competition in the space. Those are the kinds of projects we look for."
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