Vulcan’s Biotech Windfall, BiPar Sciences, Sparks “Fundamental” Cancer Advance

Vulcan Capital, the investment group that controls billionaire Paul Allen’s fortune, generates lots of headlines for its big losses in Charter Communications. But few people have made much of the fact that Seattle-based Vulcan generated one of the biggest venture returns in the country this year from a cancer drug developer it founded four years ago, BiPar Sciences.

Vulcan led the seed financing round for this company back in 2005, and pumped $13 million in capital into it through its lifetime. Now it stands to reap a payday of more than $100 million in cash through its sale to Paris-based drug giant Sanofi-Aventis for $500 million, says Vulcan Capital managing director Steve Hall. That kind of 7.5-fold return on investment has helped propel Vulcan into the top 10 percent performance tier of all U.S. venture funds over the past five years, Hall says.

“This is potentially a fundamental advance against solid tumors,” says Michael Kranda, who led Vulcan’s investment in Brisbane, CA-based BiPar. “When you talk to the leading companies and the leading doctors in this space, we’re seeing them compare the impact of this to (Gleevec). That drug obliterates tumors, and you don’t see many drugs get mentioned in conversation like that.”

If BiPar can really deliver results like that later this month, it will be one of the biggest stories in the world of cancer research this year. Novartis’ imatinib (Gleevec), was first approved by the FDA in 2001 as the first drug ever to turn off the signal of a protein that causes chronic myeloid leukemia. What used to be a death sentence is now a disease that has a 95 percent five-year survival rate. Not surprisingly, the drug has been a smash hit in the marketplace, generating $3.67 billion in worldwide sales in 2008.

BiPar has generated buzz because it aims to develop the first drug to block an enzyme called PARP. This approach—which is being pursued by Genentech and others—is designed to prevent cancer cells from repairing their own DNA, which is one of the deft little tricks tumors employ to bounce back after their DNA has been damaged by chemotherapies. BiPar’s lead drug, BSI-201, is being studied in mid-stage clinical trials for an aggressive form of breast cancer known as the “triple negative” variety, as well as ovarian cancer and other tumor types.

This drug will have a big coming out party on May 31—and we’ll see why Sanofi paid so much—when its latest clinical trial results will be detailed at the American Society of Clinical Oncology’s annual meeting in Orlando, FL. The drug will be showcased by ASCO’s PR machine for a press conference in front of all the major U.S. newspapers and wire services, and will be on display in a coveted plenary presentation, which usually draws several thousand leading cancer doctors in one room.

So does this mean Paul Allen might regain his appetite for biotech investing? This is a big question, because even though Allen has backed away from the sector in recent years, he can lay claim to being one of the founding fathers of the Seattle biotech industry. Since the early 1990s, the Microsoft co-founder (who had a brush with Hodgkin’s disease as a young man ) has supported many biotech companies, particularly cancer drug developers. The list includes Seattle notables like Dendreon, Seattle Genetics, ZymoGenetics, Rosetta Inpharmatics, and PathoGenesis.

The short answer from Hall was, essentially, don’t hold your breath. Despite the win with BiPar, Allen and his venture team are all too familiar with the staggering challenges of investing in drug development, which takes a decade or more, and hundreds of millions of equity dollars before seeing any real revenue. After all that, the success rate of drugs entering clinical trials is estimated to be only about one out of 10. So Hall made it sound like BiPar was potentially an exception rather than an example of a new and improved investing model for Vulcan.

“We still think there are big opportunities there, and certainly with our recent BiPar outcome, we are quite bullish on the return potential in general,” Hall says. “But overall, our challenge with biotech is that it’s a capital-intensive, higher-than-usual risk relative to other venture areas we invest in. You need upwards of $50 million to $100 million in capital to get to an exit inflection point. The IPO market which has traditionally been a key source of capital for biotech is closed, M&A has gotten more challenging as the Big Pharmas are trying to do more license deals to technology versus full take-outs. While we remain convinced there are opportunities at the science level, the structural dynamics to funding the biotech sector as a venture investor are really challenging. We deliberately dialed back our activity there as a result.”

BiPar’s backstory does sound like it would be hard to duplicate. The PARP inhibition science was studied for decades at UC San Francisco, where researchers cobbled together almost $30 million in funding over the years from a variety of corporate, government, and foundation sources to push it forward toward clinical trials, Kranda says.

Kranda, a former chief operating officer from the early days at Seattle-based Immunex, and CEO of U.K.-based Oxford Glycosciences, got the tip about the potential for this research from Kirk Raab, the former chairman at Oxford and the former CEO of Genentech. Instead of attempting to build a company with all the in-house expertise needed to take this drug forward, as Kranda’s previous companies did, he was determined to do the necessary development with a small team of no more than a dozen employees who directed outsourced contractors. This approach, called the “virtual” company model, is now becoming much more popular with VCs than it was in 2005.

The reason Kranda wanted to go this direction is that many biotech companies, even those with a lot of capital, spend it on building up in-house capabilities and then end up cutting corners for clinical trials. That means they fail to generate a bulletproof result that can stand up to scrutiny from Big Pharma partners and the FDA, and often end up failing in Phase 3, he says. Instead, the BiPar investors decided to place bets on the kind of rigorous clinical trials that would cost a lot, but provide a clear-cut answer about whether it works in the middle stage of clinical trials. This is the result the company plans to present at ASCO, from a randomized, double-blind placebo controlled clinical trial-the gold standard for determining whether a drug works.

“We gambled, and it paid off,” Kranda says.

Kranda left his full-time Vulcan position back in 2007, although he remained on BiPar’s board through the sale to Sanofi. Vulcan Capital’s venture team doesn’t have a full-time biotech expert in-house anymore, Hall says. But Kranda, who is now CEO of South San Francisco-based Anesiva (NASDAQ: ANSV) remains a consultant to Vulcan. “I certainly continue to feed Paul ideas, and will continue to do that,” he says.

I pressed Kranda on whether the BiPar success means Allen might have renewed interest in life sciences, and the answer, while non-commital, leaves the door open to the possibility. “It certainly doesn’t hurt to have a financial winner, and a very interesting drug to now be associated with,” Kranda says. “I’m certainly someone who likes to eat well, but I also like to sleep well, and we’ll sleep well knowing what this drug can do for cancer patients.”

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4 responses to “Vulcan’s Biotech Windfall, BiPar Sciences, Sparks “Fundamental” Cancer Advance”

  1. biobear says:

    How much of BiPar’s purchase price will be realized initially? Isn’t the entire purchase price contingent on more milestones being hit?

  2. It’s true that the BiPar purchase price depends on milestones. The companies didn’t disclose what they are, or how much of the purchase price remains to be received.