By Wayne Koberstein, Executive Editor
Sometimes the smallest bits of evidence light up the largest theories. Like the infinitesimal traces of the Big Bang astronomers recently teased from cosmic background radiation — data showing the effects of gravitational waves in the universe at zero plus one-trillionth of a second — a single company case, stripped down to the bare essentials, can teach fundamental lessons about growth after start-up.
Genzum is such a case. Its singular focus on developing and commercializing firstto- market topical generics requires that almost all of the information companies normally announce, from products to financials, must be kept confidential. What is left? A pure, undistracted view of how the company applied good business principles to a well-known business model to build a valuable product portfolio.
Genzum’s CEO Chris Achar conceived and led the company through a relatively swift execution of steps in its formation and scale-up. Genzum was founded four years ago upon a family heritage of business management and investment. The Achars and partner family, the Semlers, have long owned and operated a number of LA-based companies across various industries. Seeking a presence in the pharmaceutical industry, the families more recently ventured into the sector by establishing a large CRO, Semler Research Center (SRC), in Bangalore, India, from where the Achar family originated.
Eight years ago, when SRC started with about 10 employees, its only service offering was in formulation development. Now it is a full-service CRO, with 250 employees, specializing in formulation development, BA/BE (bioavailability/bioequivalence) studies in healthy volunteers, and Phase 1 to Phase 4 clinical studies in patients. The germ for Genzum was an idea for answering a need Achar saw while working with SRC in his post-graduate years. One of the CRO’s clients was pursuing the development of a complex topical product, but it lacked the funds needed to proceed into the large clinical trial stages the FDA requires for such products.
“On the CRO level, we saw a lot of our potential clients had great product ideas, but they lacked the structure, infrastructure, and capital necessary to truly execute on it — and we were seeing them stall out,” Achar says. “They would start in product development, but by the time they got to clinical, they just didn’t have the bandwidth or the funds to execute on it.”
Achar thought a new company, eventually Genzum, could serve as the “incubator” for those companies and products, providing not only funds but also clinical expertise combined with the business acumen needed to out-license and commercialize the product. After going back to school and returning with a fresh MBA in hand, he went to work on bringing his idea into reality. “If we could provide capital and infrastructure for those opportunities, we believed it would produce a great, long-term value, especially if we could help out-license the product to distribution companies that would not otherwise have such products in their own pipeline.” So Genzum did just that. “Our very first product, an ophthalmic suspension, was an incubated product out of the CRO, and we were fortunate enough that a Big Pharma distributor found it interesting and in-licensed it from us, and what that did was establish our business model. We then went out and executed, and before we knew it, we established a track record.”
1. CONCEIVING THE MODEL
Compared to tablets, capsules, and some solubles, topical medicines tend to be highly unstable, complex formulations where the emulsifiers and other constituents play essential roles alongside the active drugs’ effectiveness and safety. Thus, the FDA will accept ANDAs (abbreviated new drug application) for most topicals only with accompanying Phase 3 data comparing the generic head-to-head with the original drug.
That means the generics producer must “reverse-engineer” the original product to create a precise duplicate. No wonder few companies have the capability or inclination to compete in the space. But the rare combination of financial strength and special skills at Achar’s disposal gave him a leg up on others. Genzum’s model would grow to include not only incubator partners but the biggest players in generics.
“Today, the big five generic companies are coming to us with their topical-product wish list, what they ultimately want to see coming down our pipeline, because semi-solid drug forms — creams, gels, ointments — are very tough to reverse-engineer and usually have a very complex and expensive clinical requirement,” says Achar. “Traditionally, the big players would develop all of their product pipeline in-house. So why would they go outside? Cost and risk — the costs are too high, and the risks are too high. They turn to a company that is specialized in the area and can create value in a partnership.”
Besides the value Genzum offers as a specialized topicals developer, the company also matches the investment of its commercial partner in a development project. “The risk plays right into our strengths,” Achar says. “And we also address the cost aspect because in all of our partnerships, we have invested dollar-for-dollar with our commercial partners in the total cost of developing the drug, executing the clinical trials, and submitting to the FDA. It’s something we take a great deal of pride in, being able to say we are truly an equal partner.”
Another key aspect of Genzum’s model is that it does not aim to improve on the original product; instead, it aims to reproduce it precisely. “We’re coming on as the generic, joint-existing brand, so we have to be bang-on equivalent. We reengineer to meet and match the same safety and efficacy as the brand. So as the patent nears expiration, we will begin our work with the commercial partner to evaluate, identify, and then develop the product. And we put it in a head-to-head comparison clinical trial.”
Reproducing the active drug ingredient is the simple part, according to Achar. “If you don’t formulate exactly, then you will probably fail in the clinic. Yes, the ingredients are on the label, but the label doesn’t tell you the order, proportions, and other characteristics of the ingredients That’s the actual innovation, figuring that out. It takes about six months in R&D to reverse-engineer such a drug. And of course, once we come out on the market, it’s more affordable because we’re coming out at a discounted price.”
The drawn-out reengineering of topicals makes keeping them confidential while in development especially critical, he says. “You don’t really want to tell the market you’re doing a new product in advance. And before the product goes to market, for both sides, you don’t want to say who the partners are. Once it is FDA-approved, then everyone says who they worked with to develop it.”
Just as with its products in development, the company’s financials also remain hidden while it courts and forms more partnerships around new product opportunities. But Genzum’s business model seems to have a built-in positive forecast, in Achar’s view. “The nice thing about our business is we’re product-revenue driven, so once we develop the product and share in the cost, we also share in the rewards. The money the product generates comes back to us and to the commercial partner.” Another tantalizing hint: In September 2013, the company achieved a successful Series B round of unannounced size, which Achar says doubled the company’s valuation. It now has north of a half-dozen products in the pipeline.
2. BUILDING RELATIONSHIPS
Many companies in specialized areas of the life sciences have scientist founders. Achar, by refreshing contrast, is a businessman who has founded what is, before and after all, a business. When he started Genzum, he already had a map in his mind of how the company should develop and deliver on the promise of its model. Being a quick learner is another key business skill, and Achar obviously soaked up every bit of knowledge he could from his years at the CRO, “learning the mechanisms of the industry and the dynamics of drug development,” as he puts it. Teaming that knowledge with his business sense, he went forth in search of partners.
“What I really understood quickly, and it was really a lesson that my father taught me, is that business, no matter what the industry, depends greatly on relationships. That was my skill, and I knew it was something I could build this business around. If I could put together all the pieces necessary to make a commercial partner interested in the product, then the rest of it would be relatively easy to go figure out. This is the art in building a business.”
Going at a business the other way around — focusing on the product dream and leaving the practical details for later — will hamstring the company’s own development, in Achar’s belief. “If you say, I want to do this product, let me go do it, and then try to figure out the relationship with a partner, you risk everything,” he says. “You work out of pocket; you don’t even know whether there’s a pathway to the market. Do the potential commercial partners even want it? Are there too many competitors already?
“We started the business working from the market backwards — was there interest, who wants it, how much are they willing to pay for it? Knowing those three things, I understood the boundaries within which I had to operate. I had my budget for the rest of this go-figure-it-out portion. Go figure out who supplies the ingredients, whether we could develop it, or if not, who else could do it, the size and cost of the clinical studies, the raw materials, and so on. You put all of that together and a large portion is then focusing on execution.”
Most of Achar’s current networking is with the portfolio teams and the executive management of the potential partnering companies. “Once we actually figure out the partnership details, then we work down to their commercial ops and their regulatory, technical, and R&D. Understanding what they want — the decision process and steps on their end — is a huge component, so I can prepare and serve up what they need to push an opportunity internally.”
When Achar reached the point of narrowing and focusing his networking encounters, the results added up, but not only in quantity of business deals, he says. “All the relations that I have are genuine. I never approached it as I just want to get something out of it. I’ve actually struck up some beautiful friendships through the years of meetings. So that’s part of the value add; it doesn’t show up in a department, it doesn’t show up on a balance sheet, but it pays dividends for the business.”
Another side of relationships for a growing company is staffing. At the top of Achar’s list was a chief scientific officer and a chief operating officer, along with heads of regulatory affairs and clinical development. “We are a lean organization in the sense that we don’t maintain our own facilities with bench-level scientists; we contract with our CRO. But having the high-level oversight of those key areas was what we needed.”
Achar says Genzum is lucky to have a CSO who has 30 years of experience in Big Pharma and worked on more than 100 generic products, as well as a cofounder turned COO who is “extremely diligent, and scrappy when he needs to be.” Achar also emphasizes the critical role of regulatory affairs, “because that determines everything from where we buy our material to what the clinical trial design looks like.”
3. EXECUTING THE MODEL IN SCALE-UP
Relationships in business naturally lead to commitments to deliver as promised, which was the next, anticipated step in Genzum’s construction. Once a topical generic is formulated, it goes straight into a Phase 3 trial to prove its equivalency to the original. “In some of our study designs, we’re doing very direct, head-to-head comparisons,” says Achar. “In our ophthalmic studies, to control variability, we are dosing patients in one eye with the original drug, performing surgery, extracting fluid, and a week later, we’re doing the same procedure in the other eye, but dosing with our drug.”
The Phase 3 trials are large; according to Achar, the smallest has been 500 patients and the largest planned currently will be 3,000. At the same time, because topicals tend to age faster than dry powders, the generic must demonstrate stability on the shelf for two years. Not many small companies can say they have accomplished that level of execution within a few years of start-up. Achar believes more could, if they thought far enough ahead from the beginning.
"We started the business working from the market backwards — was there interest, who wants it, how much are they willing to pay for it?"
“There are a lot of start-ups that have one asset, maybe one partnership that they start on, and they just stay there. The difference for us is that we are a poststart- up company — scaling up followed after start-up. Proving ourselves, executing on the model, establishing a track record to the point where companies now want to work with us on identifying the next set of products — that is the scale-up portion. That was a big change for us. And it hinged a lot on relationships, then going out and filling out the remaining portion.”
Whenever I finish a story full of lessons for up-and-coming life sciences companies, I am always struck by the seeming obviousness of the principles illustrated therein. Yet, it is equally apparent that many if not most start-ups in this industry are stillborn, or nearly so, because of their science-driven but businesslacking agendas. Achar and his company Genzum highlight three basic business axioms that unfortunately seem lost on too many life sciences enterprises: Build a solid business model, form genuine relationships, and execute on the model with a well-planned scale-up. All other details aside, those are the essential tools of the art.