Tuesday, April 7, 2009

Westphal on the Life Sciences Innovation Paradox

I had a chance to sit down for a few minutes with entrepreneur and ex-VC Christoph Westphal at the Biotech Business Development Conference he organized today at the Charles Hotel. Mostly, we spoke about Westphal's assessment of the current environment for life sciences in Boston.

We're in the midst, he said, of "an unusual and profound downturn" in which big companies will get smaller, and some small companies will disappear.

On the VC industry: "They haven't done a good job of returning capital over the last ten years." Why? Too much focus on what's perceived as safe: specialty pharma, "retreads," and in-licensing. When venture capitalists do well, he suggested, it's by investing in innovative stuff -- and here, as examples, he offered up three companies he has been involved in starting (Momenta, Alnylam, and Sirtris). "People do pay for disruptive technology," he said.

But the paradox of today's climate, Westphal suggests, is that while big pharma companies seem to be saying they're still willing to pay for innovation -- drugs that are truly differentiated -- there seems less willingness of the part of investors to take risks on "big vision" companies. "There's less money available, and more contingencies on taking that money," Westphal said. The hurdles to getting money are much higher today than any time in the past ten years, he believes.

But while the screen is incredibly fine right now, the few companies that can get funding will be able to attract great people, he said, encounter fewer competitors in the marketplace -- and presumably see a payday at some point down the road.

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From the Biotech Business Development Conference

The packed house of attendees at today's Biotech Business Development Conference in Cambridge would seem to be a sign of the industry's health. But everyone here seems to have a long list of worries. (The event is organized by Christoph Westphal, co-founder of Sirtris Pharmaceuticals and now also an exec with GlaxoSmithKline, which acquired Sirtris last spring.)

Biotech CEOs working on new drugs are worried about FOBS: follow-on biologics. The US could soon make it legal for companies to produce generic versions of biological drugs (the biotech industry prefers to call them "biosimilars.") That could cut the profit potential of the very expensive new molecules now in development. John Maraganore, CEO of Alnylam Pharmaceuticals, said the industry needs to adopt "a science-based approach" to persuading legislators and the public that follow-on biologics ought to be tightly regulated, rigorously tested, and carefully evaluated by the FDA. In the past, Maraganore said, "we were obstructionists" about the very idea of follow-on biologics.

There's concern about new regulations that govern how biotech and pharma companies can discuss (or "detail") their products with doctors. "Detail times of 60 to 120 seconds is not much different from the UPS guy making a delivery," said David Pyott, CEO of Allergan. "The only difference is the drug rep is better paid, and sadly, better educated." Pyott predicted that drug companies will have to devote more resources to online education for physicians.

Privately-held biotech companies worry about losing negotiating leverage with bigger partners if it's perceived that they're running short on cash. Duncan Higgons of Archemix suggested that many big pharma companies have created their own lists of distressed little biotech companies, and are planning to do some "bottom-feeding" in this environment, buying them (or certain assets) at a discount. Having enough cash on hand to walk away from a deal is always a good thing, said Steve Bernitz of Concert Pharmaceuticals.

Publicly-traded companies feel like the markets aren't rewarding progress. David Meeker of Genzyme noted that the company has had three new drugs approved in the past three months, and yet the company's stock is down 30 percent.

Venture capitalists are finding it isn't so easy to raise that next fund. Jonathan Fleming of Oxford BioScience Partners told me his firm had put fund-raising "on pause" earlier this year, and described the fund-raising environment as "absolutely horrible." (But he said the firm would be out again talking to prospective limited partners "sooner rather than later.")

Investors and start-ups are worried about the focus on later-stage assets. How will new innovation be supported if everyone is focused only on getting products that are already in Phase III clinical trials across the goal line?

"There's a real failure of the capital markets to fund projects to the point where there's an ROI," said Craig Wheeler of Momenta. "If it continues, we could see real damage to the model that has supported innovation of the last twenty years."

Even Wyc Grousbeck, the Boston Celtics owner who'd previously been a healthcare investor at Highland Capital Partners, had a few problems to gripe about (despite sporting a glittery Celts' championship ring on his right hand), most notably injuries to Rajon Rondo and Kevin Garnett, two key team-members.

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Tuesday, May 20, 2008

From the Globe 100 Breakfast

I'm off coffee these days, so it was especially challenging to get over to the Westin Waterfront hotel early this morning for the annual Globe 100 Breakfast, honoring the best-performing public companies in Massachusetts. On the way in, ran into Emily Green from Yankee Group, Michael Gilman from Stromedix, John Lacey from Sirtris, and Scott Griffith from Zipcar. I sat next to William Leighton, CEO of Soapstone Networks (formerly Avici), whose company was #3 on this year's list.

Some notes from the proceedings:

- Five companies have been on the list each year for two decades: Eaton Vance, Raytheon, State Street, TJX, and UniFirst.

- The original list, in 1989, included no biotech companies.

- The morning's keynote speaker was Christoph Westphal, CEO of Sirtris Pharmaceuticals. This was something of a victory lap for Christoph ( as he's universally known in biotech circles ), and he was in fine promotional form. The three major events of the past year in biotech, he said, were the annual BIO trade show coming to Boston last May.... Takeda's purchase of Millennium...and Glaxo's recent purchase of Sirtris for $720 million. He mentioned the companies he'd previously helped found -- Alnylam and Momenta...and also noted that his two biggest investors at Sirtris were John Henry (of the Red Sox) and Peter Lynch. He told a charming story about asking John Henry for $50 million, and Henry offering $20 million. Henry's version of the story is that he showed up wanting to invest $100 million, but after he met Christoph, he decided on $20 mil. Both Henry and Lynch did pretty well after the Glaxo purchase...

- Globe business editor Shirley Leung showed a great video of a visit to the marshmallow Fluff factory in Lynn.

- You can find all of the other videos, stories, and interactive charts relatd to today's Globe 100 section here. I contributed two pieces .... a roundtable conversation with CEOs Henri Termeer (Genzyme), Paul Sagan (Akamai) and Emily Nagle Green (Yankee Group), and a look at five emerging sectors that could drive the Massachuetts economy over the next two decades.

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Thursday, May 8, 2008

Westphal to Keynote Globe 100 Breakfast

This year's Globe 100 Breakfast, on May 20th, seems like it has become quite the hot ticket. Keynoting is Christoph Westphal, CEO of Sirtris Pharmaceuticals, who started his company, took it public and sold it for $720 million in just four years.

This year is the 20th anniversary of the Globe 100, which honors the best-performing Massachusetts companies.

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Wednesday, April 23, 2008

Wow: Glaxo Pays an 84 Percent Premium for Sirtris Pharma

This one will be an HBS case study before long: how do you take some very early academic research from Harvard and generate $720 million of value in just four years?

GlaxoSmithKline is paying that amount, in cash, for Cambridge's Sirtris Pharmaceuticals, which develops drugs based on the chemical resveratrol. Resveratrol is an ingredient found in red wine, and it may help fight diseases related to aging. Even more fantastically, it seems to extend lifespan in mice.

Sirtris has no drugs on the market and no revenues. It was founded in 2004, and went public last year. Its most advanced drug candidate, SRT501, aims to treat diabetes, but it just completed Phase 1b trials, the results of which were announced in January.

The biggest question about this deal -- not addressed in any of the stories -- is, how long are Westphal and his key team members required to stick around after this acquisition? I wonder whether they'll have the desire, or the incentives, to stick around long enough to transform the company's early promise, which was clearly attractive to Glaxo, into actual drugs.

Here's the NY Times coverage ... and the story from today's Boston Globe. Forbes notes that the deal is part of a trend of foreign pharma companies buying US firms because of the weakness of the dollar. Bloomberg ran an earlier piece on the company, last November, 'Sirtris may fight diseases of age.' Xconomy has a Q&A with Sirtris exec Michelle Dipp, who handles corporate development and PR for the company.

I wrote about Sirtris and one of its predecessors, Elixir Pharmaceuticals, last November in the Globe.

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Sunday, November 4, 2007

Today's Globe column: The Elixir/Sirtris Rivalry

As a journalist, it's hard to resist writing about rivalries -- especially when big personalities are involved.

Elixir Pharmaceuticals and Sirtris Pharmaceuticals, two companies founded to exploit the science of sirtuins (which are enzymes thought to be linked to the aging process and age-related disease), have the big personalities: Jonathan Fleming and Ansbert Gadicke, heads of the two biggest biotech VC firms in Boston, are on the board of Elixir, and Christoph Westphal, the golden boy of Boston life sciences, runs Sirtris. (Westphal worked for Polaris Venture Partners before deciding to become a CEO.)

And Sirtris managed to go public first; Elixir is now trying to follow suit.

But the crucial difference is that Sirtris is still very much pursuing drugs based on the sirtuin work of local researchers like Harvard's David Sinclair, while Elixir has in-licensed a diabetes drug already approved in Japan (which has nothing to do with sirtuins), and is trying to get it approved in the US. Elixir, five years older than Sirtris, has decided to develop a near-term product, while Sirtris is still focused on the long-term vision.

“The decision was made that the company needed to really get commercial as quickly as it could,” Ed Cannon, Elixir’s first chief executive, told me. [His comments were snipped from the column before it ran.] “They needed later-stage molecules,” he says, referring to drugs that are closer to winning FDA approval.

Cannon is bullish on both companies' prospects (he still holds some stock in Elixir). “I think Christoph has been a magician,” Cannon says. “And it’s not just smoke and mirrors. He has surrounded the company with terrific scientists, and terrific business people and investors.”

Here's the video, featuring MIT prof and Elixir co-founder Lenny Guarente talking about his research:

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Sunday, August 26, 2007

Today's Globe column: 'Why biotech CEOs need to think like Steve Jobs'

Today's Globe column deals with the importance of being able to sell a big vision in life sciences -- especially when a start-up is trying to pioneer a new area of science.

Among the CEOs I mention as "poster child" communicators are several alumni of Millennium Pharmaceuticals, including John Maraganore of Alnylam, Steve Holtzman of Infinity, and Alan Crane of Tempo Pharmaceuticals. Then you've got Christoph Westphal of Sirtris, and Josh Boger of Vertex. All these guys have elements of Steve Jobs' ability to communicate something ambitious and exciting -- something that is sorely missing among tech companies in New England right now.

The video clip features Alan Crane explaining how Tempo is using nanotechnology to engineer a new kind of cancer drug.

Finally, a few quotes that didn't make it into the edited piece....

“Someone who is a great storyteller can win people over with relatively little substance,” says Michael Gilman, formerly executive vice president of research at Biogen Idec. “But other people tend to be rubbed the wrong way by it.”

“The scientist in me is never going to make assertions that I don’t think I can back up with data,” says Gilman. “That’s just the way I’m wired. If you promise too much and disappoint, it’s not good for you in the long run.” Gilman founded Stromedix, Inc. of Cambridge in 2005, licensing a product that Biogen Idec had started to develop. It’ll begin trials later this year.

“Companies undergo a brutal and challenging transition when they’re forced to be evaluated on the merits of their products,” says Steven Dickman, CEO of the consultancy CBT Advisors. Dickman worked with Alnylam in its early days...

That transition hasn't quite happened yet for all of the companies I mention in the piece; while they've got drugs in clinical trials, none are yet on the market.

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