J.P. Morgan 2015: Notes, Thoughts, And Conversations From the Vortex

Xconomy National — 

The word “story” gets ill treatment at events like the J.P. Morgan Healthcare Conference. It often means an elevator pitch from a harried CEO to a distracted investor, or a few observations a journalist strings together with a headline, or Twitter snark trying to pass for insight.

But we heard a real story on Sunday night from Martha Rhodes, a former advertising executive who has written a memoir of her treatment-resistant depression and the treatment that saved her life.

Speaking at a dinner arranged by a Boston venture firm, Rhodes was a reminder that the short-attention span and shorthand skepticism that abounds at events like J.P. Morgan is, above all, a distraction.

With the help of a device that delivers transcranial magnetic stimulation, Rhodes is drug-free and, more important, feeling great. She hid her depression well during her career, she said, but she eventually attempted suicide to escape. “Imagine the Monday morning feeling of not wanting to wake up and go to work that everyone sometimes has,” she said. “Now imagine it happening every morning, and a thousand times worse.”

The dinner was an annual event meant to squeeze the press into a small space next to the firm’s portfolio companies, including the maker of Rhodes’s treatment. But it was no polished PR campaign (even though, yes, she is a former ad exec). Rhodes shook off obvious nerves to tell her story in front of several dozen strangers, and was warm and humble, if slightly frazzled, afterwards. It will be the one story that sticks with us for years to come.

There was, of course, plenty of news to report and conversations to relate. We’ve tried to gather some of them in this roundup and for those who haven’t lived it, we hope you get a flavor of what the four-day frenzy is like.

Bluebird Bio was almost Spark Therapeutics. When Nick Leschly was at Third Rock Ventures and began looking into gene therapy several years ago, Genetix Pharmaceuticals—the struggling company that Third Rock would later help turn into Bluebird Bio (NASDAQ: BLUE)—wasn’t his first target. Instead, Leschly did a “year-long dance” with a program being developed at the Children’s Hospital of Philadelphia for a rare, inherited form of blindness.

“We know that program inside out,” Leschly said. “But we said we just couldn’t build a company around that at that time. Too much infrastructure for a tiny, tiny indication.”

Yet that research educated Leschly, and Genetix, which he felt had “more legs, and broader legs,” because it was using lentivirus (a neutered HIV virus) to deliver its treatment, which less commonly used than the adeno-associated viral vector (AAV) the CHOP program was using.

“We thought if we played our cards right and learned how to manufacture it, that beta-thalassemia, sickle cell disease, and a whole bunch of other indications could be really interesting,” he says. “It had much less of an ecosystem around it than AAV at the time.”

That led to Bluebird. But the CHOP program has shown some legs, as well. It was the foundation of Spark Therapeutics, which sold rights to its hemophilia B program to Pfizer last month then filed for an IPO.

Why do so many diagnostics companies fail? They’re asking the wrong question. With the explosion of new technologies that let companies “measure things you were never able to measure before,” said Veracyte (NASDAQ: VCYT) CEO Bonnie Anderson, “the opportunities are there for diagnostics companies to emerge with new tests that change various standards of practice.”

Still, it’s hard to break in. Reimbursement is an enormous challenge, as is convincing doctors your test is good enough to change what they do. What’s the key? Three things in particular, said Anderson:

1) A clear strategy that identifies the “right” clinical question to answer.

2) Well-designed clinical studies leading to supportive evidence in peer-reviewed journals.

3) Demonstrating that a test improves care and saves money. “In today’s healthcare, if you’re not doing both, you’re going to have a tough time,” Anderson said.

Veracyte has developed a molecular test to tell doctors whether a thyroid lump is benign or cancerous. If it’s benign, patients can avoid unnecessary treatment, which in turn saves money. Some 20 to 30 percent of suspicious thyroid lumps that get biopsied are inconclusive, and many patients undergo expensive surgeries to remove their thyroid even though most of them are later shown not to have cancer.

Is the next Cubist even possible? Cubist Pharmaceuticals (NASDAQ: CBST) of Lexington, MA, is an anomaly: a startup that became an antibiotics leader capable of buying others—until, of course, it got bought by Merck. Can other antibiotics makers get that far, or are those fortunate enough to have a first product approach FDA approval destined to be acquired before long? The next case study is Watertown, MA-based Tetraphase Pharmaceuticals (NASDAQ: TTPH). It’s headed towards its first FDA approval, and was said to have begun exploring a sale in November.

“If you’ve got a great product and it’s well differentiated, I think it is becoming harder to get to the finish line on your own,” said Tetraphase CEO Guy MacDonald. “If someone comes along with an offer, we’d consider it, but if it doesn’t make sense, we won’t do it.”

He noted that a few years ago, five or six antibiotic companies had candidates in either Phase 2 or Phase 3 testing, and all said they were going to commercialize their products on their own—only to get bought.

Will Tetraphase? Like others in the past, it could soon be launching its first antibiotic in the U.S., and aims to start hiring a sales force in 2015. We’ll see if it’s still independent by then.

The Alkermes of the future: a Celgene-style dealmaker? It’s well known that Alkermes (NASDAQ: ALKS) has transformed itself from a drug delivery company to a drug maker with several neurology candidates in its pipeline, and in the process cut its corporate tax rate significantly by buying Ireland-based Elan Drug Technologies and moving its corporate headquarters to Ireland.

Investors have rewarded the shift, boosting shares from about $22 apiece in April 2013 to $68.24 as of this writing. CEO Richard Pops has always talked about Alkermes one day being a peer of Celgene (NASDAQ: CELG). With his company now worth about $10 billion, Pops is taking cues from Celgene’s creative dealmaking to plan its next stage of growth.

Celgene adapts deal structures to fit specific companies, while typically leaving those partners the breathing room to be nimble and independent. That was on full display at the American Society of Hematology’s annual meeting in December, when some 160 abstracts out were related to products Celgene had some degree of control over.

“That’s awesome,” Pops says. “That’s a force multiplier, you could never do that out of your own labs.”

It’s something we’ve profiled at length in Xconomy; it’s also something Pops hopes to eventually emulate should Alkermes keep growing.

Widening the regenerative medicine niche. Sangamo Biosciences (NASDAQ: SGMO) CEO Ed Lanphier is now chairman of the Alliance for Regenerative Medicine and lead cheerleader for everything that fits under the wide regen-med umbrella, from his own company’s “zinc finger” gene-editing technology to wound-healing programs to cell-based immunotherapy. With his new hat on, he began ARM’s annual update at the Biotech Showcase, a satellite conference during the week, by touting the field’s variety and promise, including of course CRISPR/Cas9, a popular way to edit genomes in research labs but still unproven in therapeutics. (He also made reference to the public radio show Prairie Home Companion’s Powdermilk Biscuits sponsorship song—talk about a niche audience.)

It was a stark difference from one year ago, when Lanphier sat down with a reporter on the final day of the J.P. Morgan scrum to explain, point by point, why zinc fingers outclassed CRISPR/Cas9 as a tool to create new therapies. He didn’t dismiss CRISPR’s potential out of hand, but he did his best to blunt the hype instead of fuel it.

He also hinted that Sangamo would do its best to block CRISPR’s therapeutic use through patent maneuvers. Here are his words from January 2014: “We file patents, we do it early, and we do it in a clever way. We believe we have fundamental patent in TALENs”—another type of genome editing technology—“that will be required to use TALENs in therapeutic settings. I won’t say what we may or may not have done in CRISPR, but shame on us if we haven’t been equally thoughtful.”

The nonprofit crowd. Ros Deegan of Trevena, a Philadelphia-area biotech with a pain and migraine pipeline, was in town for a second reason. She’s trying to launch a new nonprofit crowdfunding platform called Be Impatient. It aims to connect donors with for-profit biotechs that need funding for Phase 2, proof of concept trials—the kind that show the world whether a drug has a serious chance of becoming a real product. She needs to raise seed capital to get the bones of it together.

Donors who participate would get in return only the satisfaction of helping drugs to market. If that happens, some amount of royalties would be pledged back to support low-income access to those drugs. Xconomy will soon post a guest column from Deegan with more explanation, and you can decide for yourself if it’s a viable model.

Making the case for more HCV transformation. Regulus Therapeutics (NASDAQ: RGLS) CEO Kleanthis Xanthopoulos argued a big stock bump for biotechs based on tiny clinical sample sizes, as was the case for Regulus in October and Bluebird in December, can be a sign of rational exuberance. In Regulus’s case—14 patients in a hepatitis C study—early infectious disease data are often predictive of later, larger results (whereas cancer and neurology data are often not).

The next test of investor sentiment comes next month, when Regulus will release more early-stage data from its hep C program, this time based on patients receiving a larger dose of the company’s RNA-based medicine. Xanthopoulos said he has not yet talked to payers and formulary negotiators, who have shaken up the HCV world by demanding price cuts from competitors Gilead Sciences (NASDAQ: GILD) and AbbVie (NYSE: ABBV).

Life at the early end of the venture spectrum. Jay Lichter, the top biotech guy at San Diego’s Avalon Ventures, said the firm’s investors are happy with the lower-risk, lower-return approach of Avalon’s collaboration with GlaxoSmithKline, which they unveiled nearly two years ago.

Avalon, which has kept its tech and biotech investors under the same roof for a long time, will be raising a new fund this year, Lichter said, and the same risk-sharing scheme—whether with GSK or another pharma—should be part of the structure. So far Avalon has created three tiny startups, with a couple more yet to be announced, that GSK has the option to acquire when they reach the milestone of choosing a clinical candidate. “It was two years ago at this meeting that we finalized the term sheet, and we were basically right in how we constructed it,” Lichter said.

Those collaborations aren’t built to go public, at least not in the premeditated way early stage investors like Third Rock, Arch Venture Partners, and Flagship Ventures often launch companies.

“The stage where I invest, I mainly can’t build for an IPO,” said Lichter. “The fact that the public markets are there is pretty much irrelevant. Even though public investors are reaching farther back into the pipeline, no one’s going back to an early-stage target without any chemical matter. And when that happens, that’s the end, because they’re going to get burned.”

Microbiome moves and high-fives. The lead bacterial-cocktail product from Vedanta Biosciences of Boston is now in the hands of Johnson & Johnson (NYSE: JNJ) division Janssen Biotech, as we reported here.

As Janssen moves it toward clinical trials in either Crohn’s disease or ulcerative colitis, Vedanta will turn to other as-yet-undisclosed programs, said David Steinberg and Bernat Olle, the two PureTech people who built Vedanta. During our 30-minute conversation, the pair received congratulations on the deal from a couple passers-by, including Forma Therapeutics CEO Steve Tregay. But Steinberg is ready to step aside and work on other PureTech projects; a search for a new CEO is underway. Olle, the chief operating officer, will stay with the microbiome company.

Pfizer’s Dolsten contemplates bugs. J&J has been the most aggressive pharma company in the microbiome space, but Pfizer (NYSE: PFE) also has a research deal around the role of the gut microbiome in obesity with South San Francisco, CA-based Second Genome (which also had clinical news to share this week).

When asked about Pfizer’s approach to the microbiome, head of worldwide research and development Mikael Dolsten chose his words carefully: “In the longer term, understanding the interplay between the microbiome and human tissues will be important, but we see it more on a longer time horizon.”

Dolsten said it was still “very early days” for the Second Genome collaboration. “It’s still about collecting data and trying to understand correlations.”

Any there any other programs inside Pfizer? “Pilot explorations. If you look at our small molecules, antibodies, vaccines and even gene therapy, and precision delivery of drugs to the brain, beyond that comes the microbiome given its complexity.”

Second Genome is developing small molecules. Seres Health is producing bacterial spores. Vedanta has handed to Janssen a live bacterial cocktail. What does Pfizer think is the best kind of material to treat microbiome-related disease? “I expect the microbiome landscape will evolve with a continuum of small and large molecules and complex organisms,” Dolsten said. “But if you had to choose you’d always prefer for the patient the most simple, well controlled product.”

Ben Fidler contributed to this report