23andme: It’s all about the data

By Steve Dickman, CBT Advisors

There was a flood of news in late November about the stinging letter that Mountain View, California-based 23andme received from the U.S. Food and Drug Administration (FDA). Because it ignored FDA instead of continuing a years-long dialogue, 23andme was forced, over howls of protest, to stop selling its direct-to-consumer genetic testing panel.

Almost lost in the controversy was the company’s now derailed core strategy: to collect a million customers’ worth of genetic data, then mine the data for valuable insights that can give the company an insurmountable competitive advantage.

You could try to convince me that the strategy is moot now that 23andme has run into a brick wall at FDA. That aggregating data as a way both to derive medical benefit and to make money is now as dead as 23andme’s consumer genetics business.

23andme blimp

Grounded?

But I would push back. I think this regulatory battle, which 23andme has apparently lost in a rout, is just the first skirmish in what promises to be a game played over a much longer term and at much higher stakes. More about that below.

A year before the FDA’s letter, 23andme cut the price of its service to $99 and announced that it would attempt to reach one million customers by the end of 2013 after attracting only a reported 180,000 in its first six years on the market.

In my view, this change in business model explains much. The test used to cost $699, then $299 and, despite economies of scale, it is hard to imagine that 23andme was making much money selling it for $99.

What happened is this: when adoption was running way behind what it would likely have taken for 23andme to become a profitable testing company, there was a purposeful shift toward aggregating data. In the words of CEO Anne Wojcicki, “One million customers can be the tipping point that moves medicine into the molecular era.”

In my view, what stood behind this shift is the same widespread belief that informs much of the research being done on longer genome sequences: that the aggregation of enough “Big Data” will yield insights more valuable – and profitable – than anything that genomics has yielded until now.

This is why BGI in China, in its Million Human Genomes project, is attempting to sequence more genomes faster than has ever been done before.

It is also why Foundation Medicine has raised over $200 million in venture funding and IPO financing to be the first to market with a 200-gene test for cancer. Foundation does not simply want to be a first mover in massive sequencing of cancer genomes. As I have written before, I believe that it wants both the data that patients will provide as well as the high-margin revenue that will come from providing sequences of the relevant genetic segments at $5,000 or so per patient. It remains to be seen if it will get either the data or the revenue.

Journalist Ezra Klein, nailed it in his Dec. 5 column on Bloomberg View when he wrote “… the long-term play is [the] more interesting [one]: 23andMe wants to aggregate the genetic information of millions of individuals, then mine that data to make medical connections, find disease markers and discover treatments at a faster rate than would be possible using traditional techniques.”

In Klein’s view, the company “fumbled” its chance to work in concert with FDA to jointly develop regulatory guidelines under which it – and presumably its competitors – could live. This “fumbling” by 23andme, wrote Klein, has created “an opportunity for the political system to reassess an old law and determine whether it suits the newest technologies.”

I beg to differ. I do not think 23andme was that foolish. I think that by flagrantly waving its tests in the face of FDA, even going so far as to run national TV ads for them while spending six months not returning FDA’s calls, the company sought out the chance to challenge the very idea of its test being regulated as a medical device.

Indeed, Lauren Fifield, a senior health policy expert cited by MedCity News, predicted in late November that the company has purposely taken a stand. “My gut tells me,” Fifield is quoted as saying, “that the company isn’t challenging process but is instead challenging the very regulatory definition of what it is to be a device.” Fifield, the blog says, works closely with startups, the FDA, and other federal health agencies in her role at electronic medical records company Practice Fusion. “What remains to be seen,” she continues, “is whether the company and tech industry can convince the government that safety can be increased, or at least balanced, by innovation rather than set at odds.”

Look not just at the fact that 23andme lost. Look at how the company lost. The FDA letter stated that, after “more than 14 face-to-face and teleconference meetings, hundreds of email exchanges, and dozens of written communications, you have not worked with us toward de novo classification, did not provide the additional information we requested necessary to complete review of your 510(k)s, and FDA has not received any communication from 23andMe since May.”

You might try to persuade me that 23andme acted inattentively or naively when it gave FDA the cold shoulder. That is the argument made in The New Yorker blog on Nov. 27, 2013, by 23andme co-founder Linda Avey, who left the company in 2009. The FDA decision “…surprised me,” she told the New Yorker writer David Dobbs. “But she pointed out,” wrote Dobbs, “that 23andMe’s general counsel, whom she understands was leading the negotiations with F.D.A., left the company this summer; [so] perhaps it fell through the cracks. “The whole time I was there,” Avey told Dobbs, “we were in an outreach mode with the F.D.A. I can’t imagine there was that much of a cultural shift since then. It might be they weren’t paying close attention.” She admits this sounds strange, Dobbs wrote, but thinks that it is no stranger than any other explanation.

Look at what was at stake: the very future of the company, not to mention the option for consumers to have hundreds of thousands of their genes scanned for health-related variants. 23andme was the only remaining provider among the initial crop of consumer-focused companies to continue to offer these tests.[1]

With so much on the line, I have to believe that 23andme went into this battle with its eyes open. It initially conceded defeat – though even that took a week – in a press release put up on the company web site stating, “We have received the warning letter from the Food and Drug Administration. We recognize that we have not met the FDA’s expectations regarding timeline and communication regarding our submission. Our relationship with the FDA is extremely important to us and we are committed to fully engaging with them to address their concerns.”

Wojcicki was quoted in a New York Times blog saying that the company should have responded to FDA’s requests sooner rather than ignoring them for six months. “We completely recognize we’re behind schedule; we failed to communicate proactively,” she said. “They’re a very important partner, and everyone is focused on resolving it.”

But 23andme may also be borrowing a page from its investor Google in not necessarily attempting to resolve the tension with FDA but rather by trying to trump FDA’s factual and legal arguments with evidence of the utility of the data and widespread support of consumers who willingly share the data in order to see a bigger picture. How better to go into a regulatory or legal proceeding than to be armed with medical advances that were only made possible by data collection that, one could later argue, existed in a regulatory grey zone?

Now that the initial thrust by 23andme has been parried by FDA, the company will face a much tougher road to getting its tests back on the market, if it ever does.

But I would not underestimate the power behind the company, which might include the full force of Google, despite the public separation of Wojcicki and her husband, Google co-founder Sergei Brin. After all, Brin himself took an interest in the company when it revealed his increased risk for Parkinson’s disease, which he knew ran in his family. Furthermore, Anne Wojcicki’s sister, Susan Wojcicki, is Google’s senior vice president of ads and commerce. In addition to Facebook billionaire Yuri Milner and several venture capital firms, Google would appear to remain one of 23andme’s largest financial investors.

Aside from Google, enough consumers believe that they have been helped by 23andme’s tests that a court case or at least an impassioned appearance at Congressional hearings might start to turn things around.

The implications reach far beyond 23andme. In an interview published (paywall) in the Financial Times on Dec. 20, 2013, PayPal co-founder  and billionaire investor Peter Thiel lamented “how technological ambition has gone from the world, leaving what he calls an ‘age of diminished expectations that has slowly seeped into the culture.’ Predictably, given his libertarian bent, much of this is traced back to regulation.”

This is his explanation for why the computer industry (which inhabits “the world of bits”) has thrived while so many others (“the world of atoms”) have not: “The world of bits has not been regulated and that’s where we’ve seen a lot of progress in the past 40 years, and the world of atoms has been regulated, and that’s why it’s been hard to get progress in areas like biotechnology….”

The argument in favor of consumer genetics the way 23andme wants to practice it will be easier to make after there is overwhelming evidence in favor of its utility. I, for one, am not a customer. I have not been convinced that a 23andme test would do more for me than increase my anxiety about my genetic risks for a variety of ailments.

In that regard, FDA has a point beyond a merely procedural one. A clinical trial showing an advantage to a genetic test such as 23andme’s would go a long way toward that test achieving acceptance among both regulators and consumers.

23andme might go away as a provider of medical data. (The company still provides genealogical services.) But its skirmish has paved the way for a fight that could take the better part of the next decade and might result in either radical reform (no more FDA regulation of consumers’ own genes at all?) or in the offshoring of genetic analysis, with all its benefits and pitfalls, to more lenient regulatory environments, whether those turn out to be in China, in Iceland or somewhere in between.

END

Steve Dickman will be moderating a panel on Big Data in healthcare and drug discovery at Biotech Showcase in San Francisco on Jan. 14, 2014, at 8am Pacific time. He is CEO of consulting firm CBT Advisors, based in Cambridge, Massachusetts.


[1] Navigenics was acquired in 2012 by Life Technologies (now Thermo Fisher) and its consumer-facing business was shut down. DecodeME was discontinued before its parent, Iceland-based Decode, was acquired by Amgen in 2012. Pathway Genomics shied away from direct-to-consumer testing through Walgreens after a warning from FDA came in 2010.

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Futuristic “human-on-chip” models will drive better predictions for efficacy, safety

By Steve Dickman, CEO, CBT Advisors

Note: A shorter version of this piece ran on Xconomy.

The pharmaceutical industry needs better scientific models for testing drugs before they get to the proving ground of human clinical trials. Current lab dish models and animal testing models are time-consuming, expensive and chronically unable to predict which drugs are going to work in clinical trials. The industry is crying out for new modes of early testing that can shorten the timelines, reduce the cost and increase the odds of success in clinical trials.

Both lab dish models and animal models have run into serious limitations. Cell culture (“in vitro”) assays offer some real advantages. Many can provide true, “human” answers to fairly simple questions. But they lack complexity.

Therefore, due both to regulatory requirements and convention, pharmaceutical companies have for decades progressed their testing from cells into animals, where the testers can see the impact on an entire organism with all its interconnecting systems.

But animal models are in some ways even worse. As Dylan Walsh pointed out in his timely New Yorker blog post last week, most animal testing – the kind done in rodents – is crude and ineffective, not to mention how it feels for the mice.

The cosmetics and consumer products companies are in just as tough a bind. For them, safety is paramount but animal testing has been banned as of 2013 for products marketed in Europe and soon to be eliminated in China. If non-animal models that show safety became available, then L’Oreal, Proctor & Gamble and Unilever would be queuing up to use them.

Fortunately, the reliance on this unfortunate patchwork might be about to crack. If cell models could be shown to predict efficacy in a reliable way, ineffective therapeutic candidates would fail faster – and cheaper.  Better safety testing would drastically reduce the sacrifice of animals while yielding more predictive results. Here, though, any changes there would likely take many years due to the immense difficulty of making regulatory agencies like the US Food and Drug Administration comfortable with new regulations.

In fact, futuristic models are beginning to appear. Walsh’s New Yorker post features Harvard luminary Don Ingber, who has been working, organ by organ, on establishing better in vitro models since the founding of his Wyss Institute (the delightful full name of which is the “Wyss Institute for Biologically Inspired Engineering”). His strong academic work in sophisticated in vitro tissue engineering reaches back to the early 1990s. As Walsh writes, “Recent efforts have led to fully functioning “organs-on-a-chip,” named with a nod to their roots in microchip manufacturing. A critical and deceptively simple benefit of these organs-on-a-chip is that they simulate, in a rudimentary way, the mechanical motion essential to organ function.”

Ingber’s lab is in the lead in this area, especially in lung models. I wrote about Ingber’s work here in 2010. Walsh writes:

“The physical mechanics of organs-on-a-chip—the lung-on-a-chip can “breathe” like a normal lung—provide an essential advantage over inert cells grown in a petri dish. For instance, in a recent experiment conducted by Ingber’s lab, when a set of the lungs-on-a-chip that could “breathe” were dosed with the cancer medication interleukin-2, they were afflicted by a well-documented side effect of the medication in humans, severe pulmonary edema; only mild symptoms appeared in a model of the lungs-on-a-chip that didn’t breathe. ‘We’ve ignored mechanics for a century,’ Ingber said.”

These single-organ models are impressive. In October, 2013, the Wyss Institute signed a collaboration at undisclosed terms on the development of human and animal “organs-on-chips” for safety testing.

The Wyss Institute's human breathing lung-on-a-chip mimicked pulmonary edema in humans

The Wyss Institute’s human breathing lung-on-a-chip mimicked pulmonary edema in humans (Image courtesy Wyss Institute http://wyss.harvard.edu/viewpressrelease/99)

In some cases, less sophisticated models in tissues such as liver and skin have already become industry standards. I wrote about these models, and the likely future of this field, here in 2009.

Europeans take the lead

More ambitious models are on the way. A US government initiative, which was showcased in an invitation-only symposium in Europe in September, 2012, recently put up $140 million to develop a network of ten “plug-and-play” organs that survive for four weeks and can, like Legos, be easily rearranged in different orders.

The effort by NIH and DARPA to address European product developers – and get an update on their progress – was done with good reason. As Walsh’s post mentions in a brief aside, there are a few efforts from “a handful of labs worldwide [that] have so far constructed a system with more than one organ.”

One of these is in Berlin, Germany, where the company TissUse, a CBT Advisors client, is pioneering perhaps the most advanced of these efforts. Recognizing that the secret to mimicking complex biology in culture lies in a combination of organ architecture and live circulation, TissUse, spun out of Berlin’s Technical University in 2010, has built its platform around organoids, the minimal functional units of organs. These include liver lobules, skin segments, kidney nephrons and the lining of the intestine. They might eventually include pancreatic islets, where insulin is produced. These organoids can be bathed in appropriate nutrients, and have waste products taken away, at the same scale at which they are served by capillaries in the body. Scale is extremely important in biology. This effort to mimic the natural scale of organ biology makes the TissUse system both robust and modular.

It’s not a perfect analogy, but organoids can be thought of as similar to the transistors that started to replace vacuum tubes in the 1950s. Transistors made modern electronics – laptops, mobile phones, tablets – possible. Similarly, organoids open up vast possibilities. The technologies for first creating them and then packing them optimally onto chips are still in their infancy.

Putting multiple tissues – with all or most of their attendant cell types – into culture and connecting them with tiny “blood vessels” in a physiological order – first intestine and liver than all other organs – will require a virtuoso combination of architecture, engineering and biology, all done at micro (not nano) scale. No wonder we have not been able to find more than a couple of companies that are talking publicly about their work on the topic.

Besides TissUse, the most advanced company that we found to be working on multi-organ models is Hurel, founded in 2006 by Michael Shuler of Cornell University. Hurel raised Series A funds from hedge fund Spring Mountain Capital in April, 2013. The Hurel web site talks about “products under development for future release” that involve “fluidically mediated metabolic interaction of different cell-based models drawn from or representing different bodily organs, such as liver-with-heart and liver-with-kidney combinations.” (Shuler’s January, 2013, review article on lab-on-chip systems including those incorporating several organs is here, behind a pay wall. None of these efforts appear to be company-led.)

Hemoshear of Charlottesville, Virginia, has set an emerging industry standard for “vascular pharmacology” by including the impact of dynamic blood flow on cells in culture. Founded in 2008 out of the nearby University of Virginia, Hemoshear was reported in 2012 to have ten biopharmaceutical industry customers. The company puts cells of different organs, most recently liver, into their dynamic systems that push blood past the liver cells. That allows them to get a high-quality look at liver toxicity, drug metabolism and drug-drug interactions. Aside from the useful combination of different organs with vasculature, the company has not reported multi-organ approaches, let alone organoid-based ones.

Another interesting one is Zyoxel, based in Oxfordshire in Great Britain. Zyoxel was founded by Zhanfeng Cui of the University of Oxford based on technology from Cui’s lab and the lab of Linda Griffith of MIT. The Zyoxel chip is liver-only. That is the single-organ focus of many in vitro testing companies that have created “3D liver” systems. According to the web site, the Zyoxel chip’s key distinguishing feature is “a scaffold whose dimensions have been engineered to recreate the capillary bed structure of the liver sinusoid.” That approach sounds promising and it will become even more so once scientists have actually shown that they can grow the capillaries on the chip.

Eleven organs – the true “human” on chip?

By comparison, the science at TissUse is both advanced and extremely ambitious. The early TissUse chips feature a combination of organs, liver and skin, connected with channels that circulate culture medium and, soon, human blood that moves through “vessels” comprised of endothelial cells that will grow directly inside the channels.

Liver and skin were chosen in part because they are the most complex single-organ systems currently in use in vitro. Moreover, liver is the gatekeeper for oral drugs entering the bloodstream and skin is the gatekeeper for cosmetics. TissUse is tying them together both because the company has strong expertise in both but also because they can create some interesting and useful models with them, for example, models that allow them to study potential liver toxicity of skin-penetrating chemicals or skin sensitivity to liver metabolites of drugs. Furthermore, such a combination allows TissUse to study distribution, metabolism and toxicity, three components of the “ADMET” profile of a substance, which is the basis of current safety testing in animals. “ADMET” stands for absorption, distribution, metabolism, excretion and toxicity.

TissUse’s two-organ chip

TissUse’s two-organ chip. Photo courtesy Tissuse GmbH

Used singly, both liver & skin have severe limitations. TissUse is trying to remedy these. Most of the company’s work is not yet published but one observation is that liver cells, when encouraged to form organoids and then combined with skin tissues, can live in homeostasis for a long time. This allows the company to conduct extended repeat-dose testing over weeks, much longer than the current standard of several days for single-dose drug testing on liver or skin cell culture routinely performed today in industry. The practical time limit for culturing liver organoids in the TissUse system has not yet been reached. Early published results point to a time frame of at least 28 days.

The powerful nature of TissUse’s system becomes evident when you consider the next step: to test “A” and “E,” adsorption and excretion, all you have to do is add intestine and nephrons from the kidney. The company is already working on doing just that. Eventually, TissUse’s founder-CEO Uwe Marx envisions up to eleven organs connected by “blood vessels” on the company’s chips. The initial chip design takes that goal into account.

Head-to-head data is starting to emerge comparing multi-organ chips with standard efficacy and toxicity assays. That will prove their predictive ability. Such a system will then address industry’s need for verisimilitude in therapeutics and cosmetics testing without sacrificing animals or accuracy.

The future human-on-a-chip?

The future human-on-a-chip? Image courtesy TissUse

“You on a chip”?

Another level of utility not yet addressed by TissUse but surely on the horizon is patient-specific testing of medications outside the body using iPS cells (inducible pluripotent stem cells). Scientists create these cells from human skin or other tissues and “reprogram” them to become cells of almost any tissue. Companies such as Cellular Dynamics in Madison, Wisconsin, are already beginning to deliver large quantities of iPS cells on an industrial scale and with pharmaceutical quality controls in place. In my view, that source of supply alone is a game-changer for drug testing. The company had a surprisingly strong IPO given the “picks-and-shovels” nature of its business, probably because its revenues are growing nicely. It won’t be long, I predict, before innovative companies start to offer outside-the-body testing especially for patients with chronic or long-term diseases who can therefore afford to wait to have their cells custom-grown.

But without the multi-organ and organoid-based nature of TissUse’s technology, it is hard to see that patient-focused business reaching its full potential. Indeed, a company called iPierian backed by the illustrious US venture firm Kleiner Perkins and other top VC firms was founded in part to industrialize just such iPS-cell-based, patient-centric disease models. I heard iPierian’s then-CEO John Walker describe this approach a talk at an investor conference in 2010 and it was captured in this 2010 blog post on Xconomy by Luke Timmerman. That company has since changed its business model and I have not heard of others.

Forward-minded venture investor Founders Fund of San Francisco laments the “medieval” approach used in traditional pharmaceutical discovery. The right sources of capital combined with the right industry partnerships, both currently emerging, might give Hurel, Hemoshear, Zyoxel, TissUse and other companies a path to preclinical testing that is both more accurate and more humane.

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Disclosure: TissUse is a client of CBT Advisors.

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Foundation’s IPO Isn’t Bubbly, It’s a Jolt for Genomic Diagnostics

By Steve Dickman, CEO, CBT Advisors

September 25, 2013

(Originally published on Xconomy)

Foundation Medicine, the Cambridge, MA-based cancer diagnostic company, reminded me of the 2000 genomics bubble when it went public this week. The company sold its IPO shares at $18, and the stock almost doubled in its first day of trading, closing at $35.35, a 96% increase in stock price off an already bumped-up IPO price. That gives the company a market value of almost $1 billion.

Frothy, yes, but not quite bubbly

First day froth? Or sustainable value creation?

This impressive rise represents one of two potential outcomes. It could be that either genomics is here to stay as a diagnostic tool and Foundation is a harbinger of this change. Or, this could be the peak of another bubble featuring a money-losing company hyped by scientific leaders but still unproven in the marketplace. In that view, Foundation’s IPO is not just hazardous to the company’s most recent investors. It may be damaging to the whole field of genomics-based healthcare and to biotech stocks in general.

Foundation faces a long road but I am inclined to take the optimistic view. Genome sequencing is a powerful technology that has declined so much in price, so fast, that it has outpaced Moore’s law. The real value in sequencing is not the raw data, which are becoming a commodity, but rather the interpretation of that data for specific patients. In ways I will explain below, Foundation sits just at the nexus of that new data and its own increasingly powerful interpretation engine.

My first take-home from FMI’s monster IPO is, don’t worry so much about the company’s past losses ($22.4 million as of 2012, according to the IPO prospectus). Look instead at the amount of money raised ($106 million on top of $99 million raised since the company was founded in 2009) and consider its practical value: research funding.

When the 2000 genomics “bubble” was inflated, companies such as Incyte, Human Genome Sciences, Celera and Sequenom raised eye-popping amounts of cash at even more eye-popping valuations (one day in February, 2000, Sequenom hit a $4 billion market cap on nearly nonexistent revenue), there was no way for that money to create value in a reasonable time frame. What followed was a decade of retrenchment as one company after another started the arduous process of home-growing its own drugs (Incyte has notably succeeded at this) or shifting to a more sustainable business (such as Sequenom’s prenatal  test for Down syndrome and other chromosomal abnormalities).

The fresh money for Foundation Medicine, plus the inevitable follow-on offerings, will fuel a powerful research platform that is in a position to discover and then apply a number of new insights into how genetics influence patients’ response to cancer therapies. That, in turn, has the chance to improve the success rate for physicians in treating cancer using both marketed and experimental drugs.

My second take-home is that the large fundraising gives the company a greater survivability in the absence (until now) of reimbursement. You don’t have to read the prospectus to know that one of the key risk factors for FMI is the lack of buy-in from payers. As Ben Fidler of Xconomy wrote, “Foundation began selling its diagnostic, known as FoundationOne, at the American Society of Clinical Oncologists in June, 2012. And while demand has been rampant—-some 1,500 physicians in about 25 countries have ordered the test since—FoundationOne isn’t covered by any plan. Rather, coverage is determined on a case-by-case basis, meaning the company is likely going to have to gather meaningful evidence from clinical trials to prove to payers that its test is making a big difference for patients.” Reimbursement is still a hurdle, probably the biggest. Hold a big IPO and voila – funding is there for these trials.

Personally, I am thrilled that Foundation’s approach reflects a strong shift toward using personal genetic tests (in this case whole genome sequencing) to drive medical care. The term “personalized medicine” has been overused for so long as to become a sad cliché. But changing a patient’s treatment based on a genetic test and especially initiating a treatment that would otherwise not have even been considered – that is a watershed. An idea like Foundation’s, in which you scan the genome of an individual patient for variations in more than 200 genes, is a medical reality today that was barely even conceivable five years ago.

Furthermore, Foundation is barely dependent on its test revenues at the moment. The bulk of its revenues (something like 85%, I’ve heard) still come from partnerships with pharmaceutical companies. Its investors, both private and public, may well grant Foundation the time it will need to achieve reimbursement and make a compelling case to enough physicians to drive test adoption and growth.

Critics have correctly observed that there is little evidence for the utility of most of the genes on Foundation’s first panel, FoundationOne. Something like two hundred genes are assayed when barely twenty are known to be drivers of cancer. As I understand it, this is where Foundation’s entrepreneurial strategy comes into play. By aggregating data on the next 180 genes rather than focusing just on the 20 genes of known relevance to cancer patients, Foundation hopes to bring a much greater degree of clarity and utility to cancer therapy, which has traditionally been based on a brutal process of trial-and-error. Many patients (and their physicians) don’t have enough time or scientific insight to go through a series of single-gene diagnostic tests to find out which drug might be best for them. Even if patients demanded this one-at-a-time approach, it is not at all part of current medical practice. For the sake of cancer patients, I hope Foundation Medicine succeeds with its broader approach.

Critics have also observed that Foundation’s business model is predicated on the company being paid $5,000 or more for a test (according to Xconomy, recently out-of-pocket payment by patients or one-off payments from insurers have been running more at the $3,800 level). But the cost of sequencing is very low! Can’t the test be less expensive? Where does all that money go? The answer, to me, is clear: the money goes to research. The model reminds me of crowdsourcing, a funding mechanism that has just become a viable mechanism for funding biotech companies. In Foundation’s case, it is a way to raise money from people who have a real need (cancer patients), provide them with sufficient value (sequences of genes with known implications for cancer therapy) and then increase the incremental value of the test for the next round of patients.

To succeed, this approach has to scale. That is, insights obtained from the first 3,000 patients have to become more valuable for the next 30,000 and so on. There have to be increasing returns or else there will be a backlash at the level of pricing and adoption. In the absence of reimbursement, the only way to make this work is to raise a lot of money (through IPOs, secondary share offerings, pharmaceutical industry partnerships, self-pay from patients, international adoption or whatever) and pour it back into the company. The field of genomics spent several years wandering in the wilderness of “genome-wide association studies” (GWAS) which were supposed to identify canonical mutations that affected large numbers of individuals. That barely turned out to be the case. Now mutation hunters have come to the opposite conclusion: it is individual mutations, perhaps even those with an “n” of just one person, that will matter the most in improving cancer therapy. The company or entity that builds the largest database of these mutations – and applies them in cases where there is an “n” of two or 20 – will become a go-to source for insight into specific patients’ cancers.

There are three dangers here: first, that scaling cannot be achieved quickly enough to justify reimbursement. The tests Foundation is doing are by their very nature outside of the parameters such as sensitivity and specificity that are traditional metrics for payers. So their results have to be so overwhelmingly good that payers change the rules in order to reimburse for the tests. That is likely to happen slowly if it happens at all.

Second, unless great insights arise from the additional genes, Foundation – with no real intellectual property on the content of its assay – will fall prey to commodity entrants offering tests at much lower price points. That is reminiscent of the dynamic I see playing out in non-invasive prenatal testing (NIPT).

Third, what if Foundation succeeds and gains insights from its database (paid for by patients) that lead to a true competitive advantage? Won’t there be a clamor for public release of Foundation’s data, similar to what happened when Myriad Genetics lost its Supreme Court case and no longer had patent coverage over its BRCA1/2 test? It will be interesting to see this play out.

In my view, Foundation’s IPO is a turning point that will only boost the many efforts to make the genome a powerful ally in the fight against cancer. Given the massive drop in sequencing costs and today’s vote of confidence, it will not take too long for similar insights into other diseases to follow.

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Biotech VCs, Stung by Startup Returns, Elbow into Royalty Financing

By Steve Dickman, CEO, CBT Advisors

Aug. 21, 2013

(Originally published on Xconomy)

The new landscape for venture capital investing does not seem to leave much room for classic company formation. Investor after investor has shut down or moved beyond startups into what seem like greener pastures.

So it should come as no surprise that at least a few VC firms are now expanding into the royalty space, as shown by a deal announced this week. Aisling Capital and Clarus Ventures, two top-tier VC firms, acquired 20 percent of the royalty stream created by sales of ibrutinib, a novel tyrosine kinase inhibitor developed by Pharmacyclics (NASDAQ: PCYC) and partnered with Johnson & Johnson (NYSE: JNJ) for use in B-cell malignancies such as chronic lymphocytic leukemia (CLL).

According to the press release, Aisling and Clarus each invested $48.5 million for matching 10 percent shares of a $485 million royalty-financing deal that Royalty Pharma struck last month with Quest Diagnostics Inc. (NASDAQ: DGX). Ibrutinib recently was designated by FDA as a “breakthrough” therapy. Analysts cited by FierceBiotech expect the drug to hit $5 billion in revenues in a short time, making the royalty stream very valuable. Under a deal structured like this, Aisling and Clarus are essentially wagering that the drug will be a blockbuster, and will provide them much more than $48.5 million in steady royalties over the lifetime of the product’s patent – if they or their limited partners do not choose to take profits first. It would not surprise me to see some of the royalties later bought back at higher prices by Royalty Pharma or acquired by third parties.

There is no doubt in my mind that the choice to invest in royalties had to be explicitly approved by the funds’ limited partners (LPs), either in the fund charter or, more likely, in an ad hoc fashion before this deal was done. I can’t imagine there was much resistance when the Aisling and Clarus general partners described the risk-reward in the ibrutinib deal. The LPs probably asked them to do more of this type of investing, given the product’s high-reward/low-risk profile.

The announcement answered two questions in my mind: first, what will VC funds do now that the returns make it harder to justify raising more money to support traditional models? Second, what will royalty funds do to make money now that they are facing a more efficient (read: barbarously competitive) market for the royalties of approved drugs?

Royalty deals as likely winners

In some ways this deal looks like a one-off: maturing VC funds that need to deploy large amounts of capital setting themselves up for near-term (if more modest) returns in lieu of typical home-run, long-term bets on early-stage biotech. Once they get a few of these out of their system, the VCs will swing back to their true nature as swashbuckling, entrepreneurial investors, right?

I am not so sure. In fact, I would argue that actually the royalty play illustrates the “new normal” in life sciences VC investing: a search for investments with short time horizons; a lack of faith in preclinical or even phase I molecules and the teams developing them; and an irresistible pull to “sure-fire” deals of a more financial nature.[1]

These are the same trends that have led to the rise of the asset-based strategies deployed by life science VC funds like Atlas Venture and Index Ventures. Those strategies build portfolios of assets, rather than management teams, and flexibly deploy those teams in ways that can be changed depending on the success of the molecules.

The trends have also led to a much more active market in secondary positions of VC funds. In secondary investing, funds buy up positions in VC-backed companies. They buy them either from general partners who are exiting the business or choosing not to manage older funds all the way to exit; or from limited partners who prefer up-front cash to hoping for later exits from their illiquid VC investments. Sales in the secondary market of overall private equity investments, including those in venture capital, were reported to hit a record $26 billion in 2012.

Some long-time VCs have told me recently that their firms are promising limited partners to do secondary investing as part of their core business, just as secondary funds such as Omega Funds have branched out into direct investing. Whereas royalty investing is more of a numbers game, secondary investing to me feels like a true hybrid of VC skills (assessing value in early-stage or mid-stage companies and managing portfolios of such investments skillfully) and financial engineering skills (pricing the portfolios well enough to stave off competition and still leave room for an arbitrage).

Late last year, a client approached my firm CBT Advisors and asked us to make a case for investing in life sciences venture capital. The client, a family office with a private equity bent, was preparing to deploy some capital in life sciences and wanted to know what strategy made the most sense for a potential limited partner.

CBT Advisors teamed up with Fred Meyer, another Boston-area consultant, and the team carried out some strategic and financial analysis based on our knowledge of the industry and on the limited available data. The upshot of our work: there are several alternatives, including secondary investments, that can provide what look like better returns than VC (especially when considering the 10-year historical figures) at what looks like considerably less risk.

One of the approaches on our list was royalty investing. We concluded that, strictly from a risk/return perspective, royalty firms were a very attractive way to participate in pharmaceutical finance. Royalty Pharma, in particular, has built a stellar track record investing in the royalties on marketed drugs such as sitagliptin (Januvia), a diabetes drug from Merck that accounted for $5.7 billion in revenue in 2012 and adalimumab (Humira), a treatment from AbbVie for autoimmune diseases that recently hit  $9.3 billion in annual revenue, making it one of the best-selling drugs of all time.

But Royalty is at some risk of becoming a victim of its own success. The fund, which had little competition when it was founded in 1996, has grown to over $10 billion in assets, and it is facing a much more competitive market for royalty streams of approved drugs.

So the announcement of what is, according to VentureWire (paywall), one of Royalty’s first three investments in a not-yet-approved drug was not a total surprise. Today’s press release completes the picture. Royalty Pharma got an assist on the due diligence on ibrutinib from Aisling and Clarus and the VC funds got a piece of the action.

The end of VC? Hardly

Where does this all end? To me, it does not spell the end of VC as we know it. To the contrary. Even those investors (like Aisling and Clarus) making headlines for investing in royalties are still actively looking at direct investments into startups and (especially) later-stage companies. At the end of the day, most venture capitalists like these funds who have made it to 2013 with any dry powder at all are in a position to make the case that early-stage, high-risk investing will continue to play out well for selected investors. The recent wide-open biotech IPO window has certainly bolstered their case.

Part of my argument has to do with both the skill sets and the personal wishes of VCs, who are usually more adept at (and more interested in) the messy reality of picking management teams, intellectual property and assets that will make companies work instead of primarily crunching the numbers. Many VCs would rather find other jobs if all that was left in VC was financial analysis.

But more of it has to do with the returns. When I look at the stellar track records of folks who have recently raised funds (Jean George, Mike Carusi, Jim Broderick, Chris Christofferson and Hank Plain of Lightstone Ventures; Martin Murphy of Syncona), I am encouraged in thinking that royalty investing is just one of many ways that VCs are finding to raise new funds that they hope will make money for investors. First, the ibrutinib deal has to go well, along with others like it that are undoubtedly in the works. At least in this case, the likelihood of ibrutinib becoming a commercial success is high and the timeline is short. If the drug and deal do, in fact, succeed, then the benefits will accrue to the entire ecosystem.

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[1] VentureWire (paywall) quoted Clarus managing director Nick Simon saying that Clarus invests “opportunistically” in royalties and that late last decade, Clarus had obtained a royalty interest in Lexiscan, a medication used in cardiac stress testing, and later sold that interest to Royalty Pharma.

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A Rock Star CEO Places an Unusual Bet on a Biotech

By Steve Dickman, CEO, CBT Advisors

July 29, 2013 (originally published on Xconomy)

Just because a biotech company has landed a high-profile chief executive, does that mean its product is going to work? I’ve been asking myself that question in the wake of the unexpected July 11 announcement of the hiring of a biotech superstar, the Novartis veteran and former Millennium Pharmaceuticals CEO Deborah Dunsire, by the Boston-area central nervous system (CNS) therapeutics company EnVivo Pharmaceuticals. Dunsire takes the reins in mid-August.

Deborah Dunsire, CEO of Envivo Pharmaceuticals

Photo courtesy Millennium: the Takeda Oncology Company

At the very least, the hiring of Dunsire is a bullish sign for EnVivo’s late-stage product, an alpha-7 nicotinic receptor agonist. The product, called EVP-6124, is in the midst of two 700-patient, late-stage clinical trials in the very challenging indication of schizophrenia. Given the lack of new therapeutics for schizophrenia, that is exciting enough, but the real potential for EVP-6124 is in the even more challenging indication of Alzheimer’s disease. Two Phase 3 trials are due to begin by the end of 2013 and run through 2015.

It is impossible to say today whether any of these trials will result in an approved drug. But Dunsire’s choice to join EnVivo was deeply surprising to a Boston biotech community that had eagerly awaited news of her next move. A look at the reasons we were caught by surprise will illuminate the risks in drug development for tough CNS indications; the side benefits that will accrue if the drug works; and the synergies inherent in the combination of Dunsire and EnVivo.

When I considered why Dunsire’s choice was so unexpected, I came up with three basic reasons:

(1) EnVivo has flown a bit under the radar. With a single VC investor, the company is anything but a “Boston mafia” biotech investment. Under the steady-handed direction of its former CEO Kees Been, EnVivo has quietly grown from perhaps 30 people when I briefly consulted there in 2005 to a recent headcount of 130. So it has competed successfully in the region’s ever-sharper “war for talent.” But in terms of its stakeholders at least, it is far from the biotech mainstream.

(2) The indications that EnVivo is pursuing are exclusively in the CNS arena. They do not include cancer. That seems like a jump for Dunsire, who focused on oncology for much of her time at Novartis and all of her time at Millennium.

(3) Unlike at Novartis, where Dunsire was in a position to work with a whole portfolio of therapies and focus on the ones likely to perform the best, and unlike at Millennium, where the blockbuster product Velcade (bortezomib) was already approved and on a path to success when she joined in July, 2005, here Dunsire is jumping into a very tough field, betting most of her chips on a single product and doing so without the benefit of CNS experience.

Let’s take those one by one. They’re easy to demolish. First off, EnVivo is not, in fact, a traditional VC-backed biotech. The partners and staff at a single Boston-area venture firm, Fidelity Biosciences, have played a very active role in managing it. One staff member negotiated the license for EVP-6124 in 2004 and a different one, partner Robert Weisskoff, has actually been running the company as interim CEO since March of this year. Still, the company is, according to a Boston-area biotech CEO, “not market tested” because it never had to raise money from other (skeptical) venture capitalists. One could say that comments like this are motivated by jealousy: what CEO wouldn’t want a company to run for which he or she is unlikely to ever have to raise outside capital? But there is also some substance to this critique, since it points to a higher than usual level of uncertainty about the company’s products and its value proposition.

This uncertainty about EnVivo’s prospects would stand – were it not for the general eagerness that I’ve heard about in the pharmaceutical industry to offer generous partnership terms for EVP-6124, terms that EnVivo has chosen not to accept. Pharma has been wrong about neuro compounds many times before. But EVP-6124 has plenty of would-be backers in the industry and I have to believe that Dunsire spoke to at least some of them before making her decision to join.

Second, EnVivo does not work on cancer therapeutics. The highlight of Dunsire’s 17-year career at Novartis was when she led the launch of Gleevec (imatinib), which at the time of its launch in 2001 was the most exciting (if narrowly applied) cancer drug to come along in years.

At the Convergence Forum life sciences conference in Chatham, MA, in mid-May Dunsire appeared in a “fireside chat” with fellow Boston biotech entrepreneur Katrine Bosley. It felt like everyone in the room had one big question for Dunsire: What next? There, Dunsire spoke in tones both humble and proud of the impact Gleevec has had. Gleevec, she said, “has turned CML into a chronic disease.” One patient Dunsire knows personally was “told that she would die before being treated with Gleevec in 1998.” That patient, Dunsire said, “is still running marathons. People who lived three to five years are now living fifteen years and showing no evidence of disease.”

So, like an Olympic champion returning to competition after some time off, it would make sense that Dunsire would try to get “runner’s high” again from launching a meaningful drug. How many more Gleevecs will there be in cancer?  At Convergence, Dunsire said that there are “vanishingly few cancers in which we might get there.”

Perhaps more to the point: how many of those rare drugs are wholly owned by small biotech companies that are not financially compelled to partner them with the pharmaceutical industry? Sticking with cancer might well have pushed Dunsire over to the pharma side of the industry. And arguably, Dunsire could have joined an oncology-focused pharmaceutical company as CEO. She certainly has the street cred. But by getting out of cancer, she has given herself a chance for a second compelling success that outstrips expectation and, more importantly, helps patients. Dunsire even gave a clue to the audience at Convergence when she said “I want to focus on the areas where we don’t have good therapies. Cancer. Neurosciences.”

Finally, what about the risk? Isn’t EVP-6124 a risky bet? The answer to that has to be an unequivocal “yes.” No drug in this class (the alpha-7 agonists) has worked. Targacept, the publicly traded CNS company in North Carolina, in 2012 was the latest to fail with an alpha-7 agonist, albeit in attention deficit hyperactivity disorder (ADHD). The Targacept drug, TC-5619, is still in trials in schizophrenia and Alzheimer’s. Like EVP-6124, that drug had had positive data in an earlier Phase 2 study.

But in biotech, it is always critical to look not just at the risk but also at the upside. Imagine what will happen if EVP-6124 works. It will not only become a multibillion dollar blockbuster, the likes of which have not been seen in the pharmaceutical industry for some time. (Acetylcholinesterase inhibitors that act symptomatically, not mechanistically, and that cause unpleasant and debilitating side effects in briefly delaying the inevitable cognitive decline in AD, currently earn north of $2 billion in revenue). It will also help patients in a palpable way.

There is another factor to consider in contemplating the potential for EVP-6124 and for EnVivo. Any analysis of Dunsire’s motivation to join EnVivo cannot ignore the man behind its sole VC investor. That is Edward “Ned” Johnson III, 83, whose family owns Fidelity Investments. At a $6.5 billion net worth, Johnson is the 52nd-wealthiest person in the country according to Forbes. Among his many contributions to AD research, he founded and funded the important AD research portal Alzforum.org. As if to underscore his commitment to the company and the field, Johnson supported Fidelity Biosciences when it bought out all the other investors in 2008, becoming the sole shareholder in one of the few biotech companies developing a novel AD therapy. This is an unusual model but also one that might help explain how Dunsire could be convinced of the investors’ support for the company no matter what. The investor (singular, not plural) has a burning desire to leave a legacy.

The fact is that EnVivo is the rare biotech that can commercialize its own product. Johnson’s wealth makes that possible – even if, as some have speculated, the eventual cost to his firm’s fund for product development of this one product tops $600 million.

After so many failures of bold and not-so-bold products, AD drug development lately has contracted a bad case of incrementalism. The cost of Phase 3 trials is so prohibitive at $100 million per trial and up – and some products may require more than one Phase 3 trial before receiving regulatory approval – that until now only pharmaceutical companies have been able to afford these trials and even those companies are becoming skittish about anything but those approaches that, judged by today’s science, seem most likely to succeed. A successful EnVivo could change that paradigm and tackle the development of truly innovative drugs, including those based on full-on mechanistic approaches. Now that’s what I call upside. And it explains Dunsire’s choice better than any other explanation I can imagine. Now, EVP-6124 just has to work. As Johnson told me in a chance encounter on an airplane last year, it is way too early to credit him with improving the odds for Alzheimer’s drug development. Wait until we see if EnVivo’s alpha-7 works, he said.  “The proof of the pudding,” he went on, “is in the eating.”

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“Alternatives to VC” panel video (actually very much about VC, especially in Europe) – BioEurope Spring, March 2013

This is not a traditional post but rather a link to a video of a fun panel that I moderated at BioEurope Spring in Barcelona in March, 2013. The discussion touched on several hot issues in funding innovation in life sciences, especially translational research.

Here’s the link: http://www.partnering360.com/insight/showroom/id/0_p9ec32p3

To help you find points of interest, I’m listing some approximate time stamps below.

PANEL DATE: March 11, 2013

PANEL DESCRIPTION

With the shortage of classical VC investing and the ongoing boom in early opportunities and strong entrepreneurs, traditional VC is beginning to share the spotlight with alternative models. For therapeutics companies that have already raised some capital or especially those that have products in the clinic, there are some new alternatives to choose from, including option deals, one-product financings from VCs, and pre-IPO royalty-based financing.

Moderator:
Steve Dickman – CEO, CBT Advisors

Panelists:

  • Sinclair Dunlop – Managing Partner, Rock Spring Ventures
  • Joël Jean-Mairet – General Partner, Ysios Capital
  • Kevin Johnson – Partner, Index Ventures
  • Melissa Stevens – Deputy Executive Director, FasterCures

CONTENTS

  • 0:00 Panel intro (Steve Dickman)
  • 3:19 FasterCures (Melissa Stevens), channeling non-dilutive foundation cash into therapy development
  • 4:29 Index Ventures (Kevin Johnson) intro and description of pharma-backed fund
  • 4:50 Rock Spring (Sinclair Dunlop) intro – UK VC
  • 5:20 Ysios (Joel Jean-Mairet) intro – Spanish-European VC
  • 7:25 What are the mechanics of asset-based financings? We’ve done 27 of them… (Johnson)
  • 12:15 Ysios (Jean-Mairet) view on asset-based financing “experiment” in molecular diagnostics
  • 14:00 Why Index would love to invest in diagnostics but can’t do it (Johnson)
  • 18:30 How things are better in lean, asset-based companies (Johnson) “Working in a tinpot biotech is more fun” than in an old-fashioned fully integrated company.
  • 19:55 How Rock Spring (Dunlop) does early-stage platforms & products
  • 21:15 Refinancing risk has grown (Jean-Mairet)
  • 22:45 How times have changed in LS VC (Jean-Mairet)
  • 24:15 The key to avoiding “zombie” companies – suicide (Johnson)
  • 25:40 More (interesting!) details on FasterCures and how foundations are changing the investing game (Stevens)
  • 28:48 National MS Society’s “Fast Forward” venture-like group (Stevens)
  • 30:55 CF Foundation and its Vertex and now Pfizer relationships (Stevens)
  • 32:55 American Heart Association (AHA) learning more about venture philanthropy (Stevens)
  • 36:15 Venture philanthropy in Europe (Dunlop)
  • 46:15 Tech transfer report card (Dickman, panel)
  • 57:00 How European & Israeli seed funds are trying to bridge the venture gap (panel)
  • 1:04:00 How to ensure succession in biotech (Johnson, panel)
  • 1:08:00 Why there are not more young entrepreneurs in life sciences (Johnson)
  • 1:15:00 The Andrew Lo “Megafund”: will it fly (Stevens, panel)
  • 1:18:00 Other debt models for supporting translational work (Jean-Mairet)
  • 1:22:00 Cross-border seed-stage investing (Dickman)

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Moderna Therapeutics as the next Genentech? Not so fast

By Steve Dickman, CEO, CBT Advisors

December 10, 2012 (slightly shorter version originally published on TechnologyReview.com)

Quick biotech PR tip: When exiting stealth mode, heralding your company as the next Genentech is one way to get above the noise. That was the approach of Moderna Therapeutics, a Cambridge, MA-based startup that announced itself last Thursday, revealing that it had raised more than $40 million and attracted an all-star set of board members and scientific advisers.

Announcing that you just might be on the way to becoming Genentech II raises the bar a wee bit. And, at first blush, Moderna looks like it might even get over that very high bar.

Central Dogma of Molecular BiologyThe concept is intriguing, to say the least. Biology’s central dogma is “DNA to RNA to protein.” Although Nobel Prizes have been won for discoveries that expand upon that central dogma (the discovery of reverse transcriptase, for example), the core approach underlies the first several generations of biotech products. Think EPO, Neupogen or the grandfather of them all, human insulin. You manipulate the DNA in the lab and then express the protein in the production facility. Then you put it in a vial and sell it to the patient, who gets an injection or an infusion. The main role for the dogma’s middleman, messenger RNA (mRNA), is a passive one: get transcribed from the DNA then, in turn, get translated into protein.

Moderna turns the dogma on its head: go straight to the RNA, do some fancy chemical tricks to it and deliver it directly into the body. This makes the patient herself into the production facility. All of us carry around cellular protein factories, known as ribosomes, and if properly activated, those can be harnessed (at a much lower cost) to produce proteins in which we have deficiencies.

One report on Moderna, published on Xconomy, quoted venture investor Noubar Afeyan of Flagship Ventures as saying that the company “builds on lots of things that have been tried before.” One of those things is gene therapy, providing genes (that is, DNA) via viruses or other delivery vehicles and trying to get cells to express those genes. Those approaches, too, tried to use the body as a manufacturing facility. Unfortunately, with some recent intriguing exceptions, most of them have failed.

Aside from this novelty, three things make Moderna so interesting:

Breadth of application

Since the mechanism is potentially so universal, proteins could be produced that address any number of diseases. The company said it will focus first on areas where protein therapeutics are already well-established: oncology supportive care, inherited genetic disorders, hemophilia and diabetes. But the company also claimed that it can also induce production of intracellular proteins that could never be given exogenously due to efficacy or immunogenicity concerns. Should this approach work, and it’s a bit of a long shot, it opens up new areas of application to the pharmaceutical industry.

Repeat dosing

Unlike many gene therapies, which could potentially be curative, in Moderna’s case the patient will need to be dosed with the mRNA over and over again. Think “recurring revenue stream.”

Intellectual property

When Genentech and Amgen were founded, neither one had a monopoly on the production of all human proteins in bacteria. When monoclonal antibodies were invented in Cesar Milstein’s laboratory in Cambridge, UK, Milstein was discouraged from patenting the concept. But in Moderna’s case, filing broad and deep intellectual property was the company’s central focus and a big reason why the company remained in stealth mode for the past two years. This means that even if other companies manage to enable the use of mRNA-based techniques in areas not yet explored by Moderna, the company could still demand royalties.

Yet another reason to pay attention to Moderna: unlike many other biotech companies, Moderna was not based on work published soon after its founding. The original publication that drew interest from Afeyan didn’t involve using patients as protein factories at all. The paper, published by company founder Derrick Rossi in 2010, involved using injected mRNA to produce cells that resemble embryonic stem cells. According to the Xconomy article, Afeyan did not want to invest in a stem cell company, which he perceived as too risky. Instead, he suggested that Rossi use the mRNA as a way to induce protein production in patients. That led to the key experiments, as yet unpublished, that were the basis of the company’s intellectual property and its initial financing. According to Moderna’s triumphant press release, the publications are supposed to come in 2013.

At the same time, there are three big questions:

Delivery

Isn’t Moderna facing a double hurdle, first in selectively getting into the right kind of cell and then in achieving the right therapeutic dose level? The first of these hurdles represents the same kind of delivery problem that has presented such an enormous challenge to RNA interference (RNAi) companies like Alnylam. For all its promise, RNAi was born amid a hail of questions expressing doubt about delivery. How to use systemic delivery to propel nucleic acid molecules with strong negative charges and potentially vulnerable to ribonucleases into the right cell types in the right organs at high enough concentrations to have a biological effect? That was the question. (The early results, as I viewed them in a cramped biochemical laboratory in Kulmbach, Germany, in 2002, looked blotchy at best.) More than ten long years later, despite some powerful efforts that cleverly take advantage of biological reality, for example, the “leakiness” of tumors, those questions have still not been completely laid to rest.

The other part of the delivery challenge has to do with what happens to the mRNA once it is inside the right kind of cells. How many cells exactly has it penetrated? What are the expression levels over time of the desired proteins on a per-cell or per-tissue basis? Will the levels in one patient be the same as in the next one? Achieving appropriate dosing without setting off alarm bells at the Food and Drug Administration will be tough.

Where are the other investors?

The only institutional investor named in the press release was Flagship Ventures. If other VC firms were involved, one would expect to find them sharing the limelight. So either Flagship decided that what it had in Moderna was so good, it did not want or need to share or other VC funds were approached and said no. It will be interesting to learn over the coming weeks which of these explanations, or which combination of them, pertains.

What’s the value in its first applications?

Let’s assume that the Moderna approach works. Suddenly EPO, Factor VIII and beta-globin can all be produced in patients deficient in these proteins simply by dosing them regularly with mRNA. But so what? There are already therapies on the market that will be doing this. In fact, some of those will be going generic and will be joined on the market by “biosimilars” that will presumably cost less than the existing (expensive) drugs. Furthermore, many of today’s most successful protein therapeutics have been modified (e.g. pegylated) to improve their half-lives. Where would be the advantage of an injection of mRNA over one of protein, especially a second-generation, long-acting protein such as Amgen’s Neulasta®?

Perhaps the advantage would come in proteins that cannot be injected as such because they elicit unwanted immune reactions from patients. But there are not too many examples that come to mind (thrombopoietin is one). That might be one reason why Moderna CEO Stéphane Bancel said that the company would be partnering the largest-market indication areas, like cancer, while retaining only rare diseases (in which intracellular protein production might make sense) for itself.

In summary, Moderna reflects a novel approach. For that, its founders and visionary investors deserve their well-earned day in the spotlight. It is especially commendable that a venture investor in the current no-whip, Splenda-only funding environment would create a good old-fashioned full-fat latte of a biotech company. Funding it exuberantly, vigorously protecting the IP and keeping the shares to yourself are all probably wise moves. But for the rest of us to see Moderna as a new Genentech, Moderna will have to publish in a peer-reviewed journal, partner with a pharmaceutical company or at least explain how it addresses basic questions like delivery and consistent dosing across tissues and patients.

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