Michael Gilman sounds just a touch frazzled when he first picks up the phone. The co-founder of Cambridge, MA’s Stromedix has been chained to his desk for days, attending to all the investors, lawyers, calls, e-mails, paperwork, i-dotting and t-crossing that need to come together to in order for his 2-year-old startup to close its Series B financing round. “It’s the first time I’ve done this,” he says of the $25 million deal.
Come again now, I say, checking my notes to confirm that this is, indeed, a second round. Technically true, Gilman answers, but “in some ways I’ve inverted the normal process.” Most entrepreneurs start with some sort of asset and go looking for the cash to commercialize it, he explains. But when Stromedix got off the ground, “I had money but no asset.”
The money was a little more than $4 million in Series A cash from Atlas Venture and Frazier Healthcare Ventures, with whom Gilman had connected in early 2006 after leaving a post as research executive at Biogen Idec (NASDAQ: BIIB). Gilman and his Atlas and Frazier colleagues knew they wanted to build a company around the idea of targeting fibrosis—a cellular process that plays a role in a host of different diseases and for which there are no approved drugs. But that was all they really knew. The investors stuffed Gilman in an office at Atlas and said, “‘Go figure it out,'” he says.
Part of what Gilman needed to figure out was why so few drug developers were pursuing what could be a very large untapped market for anti-fibrotic drugs. Essentially a form of scarring that can be triggered by inflammation, infection, diabetes, excessive alcohol consumption, and a number of other factors, fibrosis is the process that ultimately causes almost all types of organ failure. “There are very few greenfield opportunities like this left in medicine,” Gilman says. What’s more, the biology of fibrosis is actually well understood. So why no drugs?
Well for one thing, Gilman realized, the recognition of the role fibrosis plays in organ failure came only a decade or so ago—which is very recent in drug-development terms. Also, because fibrosis is a pathology that affects a broad range of organs and tissues rather than a particular disease, he says, it doesn’t fit well in the traditional drug-company structure, where the heart guys don’t talk to the liver guys, the liver guys don’t talk to the kidney guys, and so forth. And while a wide-open market has its allure, it also “kind of gives people the heebie jeebies,” he says—no approved drugs means nobody has come up with the right clinical trial design and blazed the trail for approval.
Undaunted, Gilman took his first-round cash and went shopping for an asset for Stromedix—a drug candidate with anti-fibrotic activity that was ready to run the clinical-trial gauntlet. He found just what he was looking for in his old stomping ground. Biogen had been developing monoclonal antibodies to treat a certain kind of lung fibrosis, but had shelved the program as part of a priorities review. Despite the fact that big companies typically aren’t too keen on out-licensing (“There’s no glory in it,” Gilman says) he was able to work his old connections to secure full worldwide rights to the whole program, which includes several drug candidates. Biogen, meanwhile, took an equity stake in Stromedix as part of the agreement, which was finalized last May.
Gilman casts the deal as a win for all parties. “For the VC community, being able to get a really well-baked molecule out of industry is a great thing,” compared to the usual scenario of starting out with “stuff somebody ground up by hand in their basement,” he says. Biogen, meanwhile, gets the opportunity to recoup some sunk costs and hand the project off to a highly motivated management team that can focus on seeing it to fruition. And if Stromedix pulls that off, the benefits for both the company and for patients are pretty obvious.
Taking the bet that Gilman and his team will pull it off are New Leaf Venture Partners, which led the Series B round, as well as Bessemer Venture Partners and Red Abbey Venture Partners. Atlas and Frazier also participated in the new round, which closed on Friday, not long after my call with Gilman.
With his first “real” financing experience now behind him, Gilman is now focusing on proving the clinical mettle of Stromedix’s lead drug candidate for its first indication: “chronic allograft dysfunction” in kidney-transplant recipients. The condition, in which the donor organ responds to the various stresses and strains it encounters after transplant by becoming fibrotic, is one of the most common causes of transplant failure. Indeed, Gilman says, 70 to 90 percent of people who get kidney transplants show signs of fibrosis within a year after surgery. That’s a terrible prospect for transplant recipients, of course, but it’s one of the things that makes them “your dream date in terms of a patient population” in which to prove the value of drugs that prevent fibrosis, Gilman says.
Many other conditions that involve fibrosis (diabetic kidney disease and liver cirrhosis, for example) take years or decades to develop; this sort of time frame makes clinical trials of prevention drugs impractical. What’s more, for many ailments involving fibrosis, it doesn’t become apparent that a patient has the condition until the damage is extensive. And actually detecting fibrosis—and whether a drug is blocking the process—requires looking at a sample of the affected tissue, meaning that clinical-trial volunteers would have to be willing to submit to regular biopsies.
All these are problems that have historically made drug developers queasy about the prospect of taking an anti-fibrotic agent through clinical trials, Gilman says—and starting with kidney transplant recipients gets around all of them. Researchers know in advance that these patient will get fibrosis, they develop the condition quickly, and they already undergo regular biopsies (to look for signs of transplant rejection) as part of their standard follow-up care. And if Stromedix can prove that its drug blocks fibrosis in this condition, Gilman says, he’s confident it will work in other diseases as well.
Stromedix should get early indications of whether its first drug actually works within the next couple of years. Its first trial, a safety study involving 48 healthy volunteers, is already underway and should be completed in this calendar year, Gilman says, paving the way for a Phase II trial in transplant patients starting early next year. That trial should wrap up by the end of 2010, around the same time the current cache of funding is likely to be used up.
For such a young company with a staff of just eight people to already have a drug in the clinic is a testament to the efficiency of Stromedix’s in-licensing strategy—and, to Gilman personally, very exciting. Lawyers, paperwork, Is, Ts, and all, he says, “this is such a thrilling adventure for me.”