Magazine Article | December 12, 2013

The Micro-Innovators Small Enterprises Make Outsized Contributions With Novel Drugs

Source: Life Science Leader

By Wayne Koberstein, executive editor

So simple in concept — interview three CEOs of companies developing novel drugs — so challenging in execution. Who would have guessed there is such a strong correlation between novel-drug development and small-company volatility? Since my investigation began, one company replaced its CEO and changed its name, another’s stock rose and fell repeatedly on news of a competing product, and a third one joined late in place of another that dropped out. All of those events are among the most common disruptions in business and communications for the micro-enterprises focused on unique paths of medical innovation. Thus, I stumbled upon a key insight into the lives of this industry’s micro-innovators — it’s never easy.

Examined from multiple angles, the three companies illustrate the essential capabilities, strategies, and stages small enterprises must master to discover and develop unique therapeutics for the industry’s innovative portfolio, despite all the obstacles. Overcoming hurdles in funding, clinical development, manufacturing, and many other areas, the companies teach valuable lessons in how to survive, grow, and bring potential breakthroughs to the world of medicine.

Many other companies may deserve coverage under the definition of “unique therapeutics,” however impractical it would be to include them all, and many others may claim membership in the elite club of micro-innovators. But the key, definitive point here is this: The featured companies discovered the entities they are now developing, rather than licensing or acquiring them. This article also excludes companies that have reformulated drugs, combined them, or retrofitted them with new delivery technologies. These three companies have chosen the toughest possible route in the life science industry: taking an innovative path from the earliest stages of research on 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 bravely strode 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 age-related macular degeneration (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. Like steps in a staircase, the tenets conform to a rough sequence that raises a company from the idea stage to a fully functioning business equipped and prepared to take a product through development. The steps generally range from initial management and funding through proof-of-concept (PoC), clinical development, and regulatory review.

There was an old scientist who lived in a shoe — a tightly laced refuge from the world, where all incoming funds for the scientist’s new company went into his lab. No taxes. No insurance. No administrative expenses. It was a wonderful fantasy land, but of course it was bound to collapse unless the scientist awoke to the realities of business. This sounds like an extreme and unlikely story even as I write it down, but in fact I’ve witnessed it or its close equivalent many times. In fact, I may have spotted a corollary: the more original the research, the more isolated the scientist-founder from commercial reality.

The point here is not to teach an entire course in business management but to draw lessons from experience. Among the basic elements that can determine a company’s fate is the quality of its leadership — a combination of board members, scientific advisors, and top executives. Much praise is heaped upon wearing different hats in entrepreneurial environments, but in companies formed to conduct original drug development, each of those functions should be filled by relevant experts.

Unfortunately, it seems few companies get it right from the beginning. All of our featured micro-innovators have gone through multiple management turnovers. One was as recent as April, 2013; Melinta, founded in 2000, is now on its third CEO — Mary Szela, who succeeded Mark Leuchtenberger after his three-year tenure, and after she had briefly served as board chairman.

But the company, whose cofounder is Nobel laureate Thomas Seitz, had taken a long time to meld science and business. Arguably, although no one can doubt the primary importance of a company’s scientific leaders, much of their value may be, in curiously apropos syntax, effectively wasted under effectively ineffective management. It is hard to put specific blame on the previous chief execs, who generally received good reviews at the time. But for well more than a decade, the company had not met its main goal of a successful commercialization.

Leuchtenberger represented a culture change from the previous CEO and cofounder, Susan Froshauer, a scientist who retained her position as CSO upon his arrival. He helped focus the clinical program on key development targets for commercialization. Szela was a further leap in the same business-oriented direction. Leuchtenberger had run a couple of small biotech companies that never achieved an approved product. Szela is from Abbott, where she helped launch Humira. Her appointment signals a hardened commitment by the board to get on with the commercialization of Melinta’s lead product, eteplirsen.

Another company languished for years in a kind of technological limbo, plagued by a lack of management focus on specific development targets. “Sarepta was not doing the critical path activities such as manufacturing, long-term animal tests, or study design, so there was some skepticism of its PoC data and whether its product candidates could be brought to fruition with the management teams in place,” says the company’s president and CEO, Chris Garabedian.

Consequently, he says, Sarepta was failing to land a key partnership or advance any development program. Once it turned its focus to DMD, and after Garabedian joined as CEO in 2011, the company restored trust among investors and potential partners, helped by his prior industry experience at Celgene, Gilead, and Abbott. Garabedian also continued to rally the company around a single development program.

Gary Rabin, CEO of ACT, spent some of his first years on the job cleaning up legal entanglements left by the previous management involving lawsuits over its private-investor stock pricing. There was no romance in the cleanup, according to Rabin. “It was just blocking and tackling,” he says. “You just have to go to the office every day and deal with it.” Rabin also inherited a financial hangover when he came to ACT in 2010 — the result of a weird funding history, which we’ll get into in Part Two. Good thing he is an economist, having spent most of his career raising funds for life sciences companies.

If putting the right top executives in place is a best practice, recruiting and keeping talent at all levels of the company is an absolutely critical one. Melinta has won several “Best Places to Work” awards that cite its loyalty to the people who helped build it, as well as its readiness to listen to even the newest recruit. Lesson: You can’t just relax and say your company is a cool place to work because it is entrepreneurial. You have to work at creating an environment that rewards people for going the extra mile in their jobs. People will be inspired by the common cause of developing a unique product, but inspiration is vulnerable; it will fade quickly if not accompanied by positive treatment in the workplace.

common failing of micro-innovator companies is to languish in the experimental stage without ever breaking out and moving toward a clear product goal. Sarepta is a particularly good example. Garabedian recalls how the company spent years investigating numerous disease areas — such as West Nile virus, polycystic kidney disease, HCV, and coronary artery disease — before settling on DMD.

“When I came on board, the company hadn’t yet done the type of early development, translational work that you need to optimize a drug and ensure you have an active dose and regimen in the clinic. Also, the company wasn’t attracting the right level of talent. Like many companies that exist on limited cash, the work is all science experiments, almost academic, and as private-enterprise businesses, they fail to achieve any success. We quickly homed in on the area with the most value.”

One of Sarepta’s experiments in the U.K. hit its target, yielding evidence that, with systemic delivery, an antisense drug could enter the cell and produce a desired protein, in this case, the dystrophin protein in Duchenne muscular dystrophy. Even though the study elicited a rather low dose response, Garabedian says, “It showed a hint of a promise.” He says the previous management could not envision the complicated path it would take to develop the drug further and sought to sell off the worldwide rights. But without further development work, they found no one was buying.

“They were prepared to give this program away,” he says. “I took the job because I believed we found the right application for this technology, and I wanted to put it on a fast track.” In December, 2010, Garabedian announced cancellation of a scheduled dosing study, saying it was the wrong study design, and the delay of a Phase 2b study. He spent his first month with his manufacturing heads and started producing more drug, while at the same time, directing the head of preclinical to start the long-term animal toxicology work. He spoke with key opinion leaders in DMD and used their advice to help design an optimal study. With a still limited supply of the drug, the study had a small sample size, eight patients treated and twelve patients in total when it began in 2011.

Additional evidence also encouraged Sarepta’s focus on DMD. Knowledge about the dystrophin gene had increased; academic researchers had done “micro-walks” along the genome to find the gene and were figuring out how to silence a part of the gene, called exon 51, and thereby correct translation of the gene to the protein in patients with certain genetic mutations.

Sarepta seized on the unique mechanism of using phosphorodiamidate morpholino oligomer (PMO) antisense technology to target precursors to messenger RNA, with the aim of skipping over an exon in the gene to restore dystrophin production. It also made the fateful decision to make dystrophin levels the primary biomarker and basis for regulatory approval. Now, news stories on Sarepta’s approval strategy, the regulatory response, and the fortunes of its DMD competitors appear almost daily. It has become a stock to watch as all of those variables play out.

(In September, Sarepta announced favorable data from the Phase 2b eteplirsen study at 96 weeks, showing a “continued stabilization of walking ability” in treated patients on a standard six-minute walk test. The company had previously reported the study met its primary endpoint of increased novel dystrophin. But in November, the FDA directed Sarepta not to file for accelerated approval for eteplirsen and asked for a new placebo-controlled trial, inevitably delaying a long-term follow up on the 2b study and causing the company’s stock to free-fall. No doubt the news-sensitive dynamics will continue indefinitely.)

As with Sarepta, Melinta might have chosen to build a business or partnership with its ribosome crystallography platform that targets the large (50S) ribosomal subunit of bacteria, leaving the drug development work to someone else. But the scientific DNA of the company obviously propelled it into using the platform to discover and develop its own antibiotics. At some point, most micro-innovators face a similar choice — sell the research, sell the platform, or bet the farm on product development. All of them, by definition, choose development.

ACT’s Rabin makes it clear why the company went beyond the platform-business model. “We see ourselves as a regenerative medicine company focused on the development of treatments, and as such, are oriented as a product-development company,” he says. “Because of our size, we tend to use common pluripotent cell platforms as our starting materials for our various product development efforts, such as embryonic stem (ES) cells and induced pluripotent stem (iPS) cells. However, in the end our focus is much more on the therapeutic product opportunity than on the underlying cell source we use as a starting material for manufacture.”

Once committed to the product-development path, companies typically begin to refine each product according to their understanding of how it will be used in practice — a step I have taken to calling “market modeling.”

For example, Melinta selected specific formulation and dosage/ delivery forms in consideration of how patients with serious infections receive treatment. Its lead clinical candidate, delafloxacin, has both IV and oral formulations, allowing patients who begin IV treatment in a hospital to transition to oral dosing for homebased care. “We believe this IV-to-oral switch has the potential to increase patient convenience, lower the overall cost of treatment, and reduce the length of hospital stays,” says Szela. Delafloxacin covers a broad spectrum of pathogens, and Melinta expects it to be a preferred treatment in hospitals because it avoids the need for doctors to specifically identify the pathogen and change medications in mid-treatment, adding cost and complexity.

We pause here, because I thought a normal article length was insufficient to share all the valuable experiences and lessons gathered from our three micro-innovator companies and their CEOs. When we return with Part Two, we’ll look at how the companies have embarked on the often rough road of drug development, paying for translational research and clinical trials, planning the development pathway and designing the needed studies, and conducting the trials aimed at regulatory approval. Please stay tuned for the next installment of “The Micro-Innovators.”