Forget About the IPO Market: It’s Time for Biotechs To Think Differently

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to a standard chemotherapy (although we don’t know yet how big the advantage really is).

Plexxikon’s management team has what most investors are looking for—a proven track record. Hirth was previously the president of Sugen, which created sunitinib, which is now a $1 billion-a-year cancer drug for Pfizer. Glaub, who has worked with Hirth for almost a decade now, had previous stints on the business and finance side of Cell Genesys and Genentech. They deflect credit to one another, do joint interviews, and can finish each other’s sentences. They clearly have good teamwork.

The science here, too, has a lot of appeal for the folks who dig hard-core structural biology. Plexxikon seeks to establish an in-depth 3-D understanding of the protein target it pursues on diseased cells, before it specifically crafts a drug to bind with it. And once it identifies the genetic malfunction it’s going after, it works on a companion diagnostic to make sure it gives its drug only to the patients most likely to benefit. The methods Plexxikon used to do this were outlined last fall in a paper in Science.

Critics could certainly argue that by following the partner-early/partner-often business model, and inking five partnerships, Plexxikon was giving away the crown jewels too cheap, too early.

But those deals did generate a regular cash stream, and with the cash flow came the ability to control its own destiny. Plexxikon’s last financing was in 2006. By staying lean, outsourcing a lot of functions, and avoiding hiring a bunch of expensive VPs, Plexxikon remained a 43-person organization to the end, and was running slightly in the black the last couple years, Hirth says. But while the partners helped pay the bills for building a discovery engine, Plexxikon was able to generate some drugs that it retained full ownership of, including one, PLX3397, being primed for Phase II clinical trials.

Plexxikon staked out this partnership model from the start, knowing that most drugs fail, so it was best to share risk with partners. Some biotechies scoffed, saying Plexxikon was “stupid,” Hirth recalls. There are lots of downsides to partnering, like when a biotech product gets lost in the shuffle of some vast portfolio of another company, teams from different companies don’t communicate well, and start pointing fingers at each other when things go wrong.

Peter Hirth and Kathy Glaub

Yet those who cling to a “keep the ball to myself and I’ll sink the half-court shot” attitude are behaving in a way that’s destructive to the industry, Hirth contends. While many companies still dream of becoming a FIBCO (fully integrated biopharmaceutical company) like Amgen or Gilead Sciences, this is really a one-in-500 kind of proposition, at best. Most companies are better off doing some of the innovative science upfront like Plexxikon did, and then find a partner to generate enough cash to keep the doors open, and to spread the risk around.

“We’d rather own 20 percent of a given product, not vertically integrate, and license it away at a value inflection point,” Hirth says. “The industry really needs to re-think itself. Most of the people we know are living 20 years in the past, and they don’t realize they need to change.”

I’m not sure I’d go as far as Hirth. Quite a few entrepreneurs I talk to are well aware the odds are against a successful IPO. Yet if everybody gave up on the FIBCO model, then you probably wouldn’t have seen important new drugs get developed in recent years by Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX) and Seattle-based Dendreon (NASDAQ: DNDN). But Hirth and Glaub are definitely onto something. It’s long past time for most entrepreneurs to start thinking about new ways to collaborate, and to spread risk around, while pushing forward with real work to prove one of your drugs works. Then, when you do, take the money. And then, maybe, do it again.

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