The Micro-Innovators Part 2: Small Enterprises Make Outsized Contributions With Novel Drugs
By Wayne Koberstein, executive editor
Many companies may deserve coverage under the definition of “micro-innovators” as companies developing unique therapeutics they have themselves discovered. But here I have chosen three companies that have chosen the toughest possible route in the life science industry: taking an innovative path from the earliest stages of research through the entire course of product development.
I interviewed the CEOs of micro-innovators Sarepta Therapeutics, Melinta Therapeutics (formerly Rib-X), and Advanced Cell Technology (ACT). Sarepta has been in the news often for its Duchenne muscular dystrophy (DMD) drug, mainly concerning whether it will beat the competition, a GSK drug, to market. Melinta has striven bravely into the almost abandoned field of antibiotics with a product based on Nobel-winning research into ribosomes. ACT has pioneered a unique line of human embryonic stem cells for treating AMD and other conditions. From the three companies’ collective and individual experiences, a set of tenets emerges, which I have framed as imperative responses to the conditions such companies typically encounter.
In Part One, we looked at how the companies began with groundbreaking science, built a business foundation for applying the science, and learned to aim their unique technologies at defined therapeutic targets. In Part Two, we see how they funded, planned, and are executing their clinical trials.
MANY WAYS TO PAY THE PIPER
“Funding the company was probably our biggest struggle,” says Gary Rabin, ACT’s president and CEO. Of course, many if not all micro-innovators would say the same, as do Sarepta and Melinta. But in ACT’s case, some added twists developed that illustrate the lengths to which some companies will go to pay the high costs of drug development. It may also suggest another way small companies that discover and develop their own products stand out from the crowd in this industry — none of our three companies has followed the stereotypical venture-capital to IPO path.
ACT was not VC-financed; it went public through a reverse merger into a shell company, giving it access to capital market financing from the beginning — a tough accomplishment in its founding year 2005. At that point, however, it was still preclinical, with not even a gleam of a therapeutic product in its eye.
“Companies at that stage, without big venture capital behind them, struggle to raise capital, and this company did some really bad financing in that period, so it worked hand to mouth,” Rabin says. “The coffee maker and the copy machine were actually repossessed at one point. We’ve come a long way since then.”
ACT had the additional challenge of working in the controversial area of human embryonic stem cells (hESC). To this day, it is still pushing to persuade the NIH that its cell line meets the agency’s hESC definition and qualifies for NIH funding.
Now a low-priced favorite on the bulletin board exchange, ACT contemplates moving up. “Being a penny stock on the bulletin board has offered some advantages to us in the past, but the volatility that excites penny stock investors is not always a desirable feature, particularly as a company matures,” says Rabin. “We have been able to build an incredibly loyal base of investors – with more than 45,000 retail shareholders – and reached a market cap of almost $200 million. Now we want to take the next step, and we are actively working toward uplisting to NASDAQ or the like. This will give us access to an additional pool of institutional investors.”
Sarepta also went public for its development funding, 15 years ago. But lately, it has felt the hot glow of stockholders’ expectations over its shoulder. CEO Chris Garabedian sees the positive side: “It was critical that I could tap into the public market more easily than trolling for dollars in the VC community, which can be challenging without a track record of the technology’s success.” He points to the exceptional cases of early IPOism, such as Human Genome Sciences, Dendreon, and Alexion.
But Sarepta also went through an identity change before it began to make headway. With the move to focus on DMD came a corporate transformation, symbolized by rechristening the company from its former name, AVI Biopharma. “Every paragon of success today had been written off at one point because it had the wrong application,” notes Garabedian. “Gilead is a perfect example; it moved to in-licensing nucleotide products and now is the largest market cap company in the industry, recently surpassing Amgen. So you work with what you have. We renamed the company. We changed the staff and executive team, and people describe us not as a start-up but a start-over.”
Similarly, Melinta’s name change, just as I finished this article, reflects a “strategic realignment,” according to the company. Under its new management, Melinta will shift into full commercialization mode, pushing toward and preparing for product launch.
Sarepta, like Ariad and Garabedian’s former company Celgene, has also skipped the partnership avenue. A year ago, Garabedian says, he would not have thought the company could make it to market without a major pharma partner. Now he no longer agrees with that premise. “There are many examples of sophisticated small companies successfully commercializing new therapies on their own, and that’s what we aim to do here at Sarepta.”
Garabedian agrees that structured deals with terms that favor pharma partners and stretch out the timeline with milestone payments make partnering less attractive. “We haven’t taken it completely off the table, but it has to be the right circumstances to make sense for staying on the drug development path, doing the right thing by our shareholders, and ultimately getting our drugs to patients as soon as possible once we prove they’re safe and effective. And large pharma has different priorities, without necessarily having the same sense of urgency we do.”
Stock volatility has been an issue for Sarepta, at least as a topic of speculation among trade press and analysts. But the company’s real test will only come when the FDA makes a key decision about the Phase 2b eteplirsen data — whether to approve eteplirsen early based on dystrophin levels as a surrogate marker of effectiveness or on the stabilization of function observed in clinical studies to date.
Melinta went the opposite direction with its funding — remaining private to this day. Venture capital and dedicated private investors have sustained the company for years and, according to CEO Mary Szela, will do so into the indefinite future. “The company is wellfunded at this point to pursue the development and commercialization of delafloxacin and the additional anti-infective compounds in our pipeline. Our investors are focused on the long term and committed to realizing the potential of our pipeline,” she says.
Melinta recently ended a partnership with Sanofi and reclaimed all rights to its novel ribosome-targeting antibiotics (RX-04) program. “At the time the Sanofi deal was completed, we believed it was the best way to advance the RX-04 platform, and Sanofi contributed meaningfully to its advancement,” says Szela. “However, with the clinical and development resources of our lead investor Vatera, and with a new management team in place, the company now has the resources to advance the program independently and has worked with Sanofi to obtain full rights. We were thrilled they agreed to return the rights since we believe we are in a strong position to move RX-04 into the clinic.”
Szela says the company remains committed to developing its pipeline of novel antibiotics. It is conducting a Phase 3 clinical trial of delafloxacin for acute bacterial skin and skin structure infections (ABSSSI), the first of two planned Phase 3 trials for the drug in ABSSSI, the second one for an oral formulation later in 2013 or in early 2014. It plans to launch human trials for the lead molecule in the RX-04 program in 2014 for life-threatening, gram-negative pathogens.
“The cost of building our own GMP space has proved to be far less expensive than the CMO route and probably far speedier in terms of the time to get to clinical trials.”
Gary Rabin, president and CEO, Advanced Cell Technology
“We are very lucky to have a group of investors who believe in the scientific and technological underpinnings of the company, and they are very supportive of our efforts, so we are well-funded to complete the development and commercialization of our products,” Szela says. “Drug development is a difficult endeavor, and the main hurdles we face in the R&D of our products are achieving the clinical and regulatory milestones necessary to commercialize them.”
For ACT, Rabin says, working with human embryonic stem cells gives it some uniqueness, which has attracted private investors and helped it weather the Bush-era moratorium on government funding. “The federal-funding issue has proved to be both a positive and a negative. While we would like to see greater NIH investment in our programs, as well as access to our human ES cells by other researchers in regenerative medicine, the moratorium actually gave us a gigantic advantage because we used private money and thus became a forerunner in both clinical development and in securing very broad patent positions in HES — as a consequence of getting there first.”
STAY THE COURSE! — WHERE’S THE MAP?
By choosing the novel-drug development path, micro-innovators assume the mighty challenge of actually going down it. The first real step is proof-of-concept (PoC), but as we’ve seen, companies may spend years getting to the point of proving the particular concept that will drive development of their products’ initial indications. Once there, they must design the preclinical and early clinical studies as carefully as possible to address safety and effectiveness in the targeted areas.
Rabin of ACT emphasizes getting the right experts to plan those studies. “Many of our scientists are trained as developmental biologists and have the ability to elucidate the conditions that occur during ‘organogenesis’ for any type of tissue — that is, to figure out the natural signals that occur as an embryonic stem cell becomes a differentiated cell as part of an organ in the body.”
That solves the challenge of producing stem cells, but none of the company scientists had worked with animal models, so ACT turned to academic collaborations to explore how the cells might treat human diseases. Now, Rabin says, the company has some of the leading scientists in its targeted disease areas to guide its clinical development programs. It has achieved U.S. and European orphan status for its Stargardt’s disease program, shortening the timeline and offering possible compassionate use, and its dry AMD program may be eligible for accelerated approval and priority review at the FDA, after Phase 2 studies.
“Some of the common issues in development include figuring out which ‘box’ your product fits in for the FDA or other regulatory agencies — particularly for cell therapies, how to be regulated as a drug versus device (and especially avoid being regulated as both) — and developing a strategy for educating regulators about your product so that your safety and efficacy studies are approved in a way that maximizes the chance for success,” Rabin says.
“Another possible common feature relates to drug pricing and reimbursement. There are set CPT and HCPCS drug and product codes, and those existing codes may not always be ideal (or even work) when it comes to completely different approaches to treating a disease where existing therapies exist and can be equally problematic where there is no existing treatment for a particular disease.”
Melinta is expediting its development programs under the U.S. Generating Antibiotic Incentives Now (GAIN) Innovation Act, passed in July 2012 to encourage drug development aimed at resistant pathogens. Delafloxacin was one of the first compounds to receive Qualified Infectious Disease Product (QIDP) designations under the Act, for ABSSSI and community-acquired bacterial pneumonia (CABP). Companies with QIDPs gain incentives such as an additional five years of market exclusivity, priority review, and eligibility for fast-track review status.
One critical component of drug development that generally seems to receive the least forethought is securing a supply of the product for clinical trials. ACT is exceptional in having a solid manufacturing capacity — an early priority for the company and its investors. “The reality is that GMP manufacturing capability is an absolute must for us to advance into human clinical trials, and it must be in place far earlier than the commencement of the trials,” says Rabin. “We needed to demonstrate to the FDA that the RPE cells we intended to inject into human patients, when made by our GMP process, were safe in animal studies and showed some evidence of effectiveness.”
Rabin says the company had to rely either on contract manufacturing — putting its special products in the middle of multiple, unrelated programs at a premium price — or building its own GMP facility where it has control over its process. “In the end, the cost of building our own GMP space has proved to be far less expensive than the CMO route and probably far speedier in terms of the time to get to clinical trials.”
CATCHING THE WAVES
Every micro-innovator company confronts common as well as unique challenges. Others in the life science industry will recognize the situations and choices they share with the companies described here. Every company must build a foundation, find funding, focus its research, and forge through development. But not every one must cradle a unique and original creation along the way. Novel discovery and development are self-imposed burdens, a singular mission requiring special skills, resources, knowledge, and above all, persistence.
Sometimes, the persistence is in vain — spent in trolling aimlessly among endless possibilities for applying groundbreaking research. Other times, though, when science and business find a happy marriage, a company is able to tap the power of an unbroken, consistent, and dedicated line of development from invention to application.
That is the point of picking three companies out of the arguably elite club of micro-innovators to share their real-world experiences. The universe is full of business models and theories. It only makes good common sense to take a deeper look at the details of what happens to actual companies as they attempt the entire journey from lab to market. The surfer rises, steadies on the board, and catches the wave — will this one make it to the shore?