Allozyne, After a Stealthy Year on a Slim Budget, Re-Emerges with MS Drug and Fat Pipeline

Xconomy Seattle — 

Seattle-based Allozyne has been operating in stealth mode for more than a year, prompting some biotechies to wonder if it had quietly run out of cash and closed its doors.

Far from it.

Allozyne, one of the startups that graduated from the Accelerator biotech startup incubator, has been making huge strides behind the scenes, based on what I gathered from an exclusive interview this week with CEO Meenu Chhabra. The biggest news is that Allozyne has now gathered what Chhabra calls “very promising” results from its initial clinical trial of a longer-lasting multiple sclerosis drug. Full details aren’t yet available, although Allozyne is planning to issue a press release and to present the data in a scientific forum, Chhabra says.

That might have been enough to secure more capital, but the company didn’t stop there. It has also shown that its technology, originally licensed from the Caltech, could be used to make scalable and reproducible quantities of a two-pronged “bi-specific” antibody drug for a hot target against inflammatory diseases. The company has shown it can do more than just make small proteins and fragments of antibodies in fermenters with E. coli bacteria. Its techniques can also be extended to commonly used mammalian cell hosts that are better at producing full-length antibodies like the ones that sell for more than $30 billion a year to treat cancer, rheumatoid arthritis, and other diseases. And last, Allozyne has secured a research partner in the form of an undisclosed Big Pharma company that will extend its cash runway.

Allozyne has done all of that in the past couple of years with 25 employees, and without completely burning through the $30 million it raised in October 2007 from MPM Capital, OVP Venture Partners, Amgen Ventures, Arch Venture Partners, and Alexandria Real Estate Equities. Chhabra, a former Novartis dealmaker, said she’s done it with line-by-line budgeting in which she personally scrutinizes the tiniest expenses. She has saved more than $1 million in salaries by insisting that she and chief scientist Ken Grabstein handle all the key executive functions—operations, business development, finance, medical affairs—by themselves. She provides box lunches, not fancy dinners, for board updates. The CEO with the Novartis pedigree even flies coach herself, uses frequent flier points, and only lets her team attend a couple key conferences a year.

Meenu Chhabra

Meenu Chhabra

It might just sound like prudent business in a downturn, but OVP managing director Carl Weissman says the company’s recent achievements amount to “incredible progress.” Chhabra and the Allozyne team have adapted, he says, to “the new realities of venture-backed biotech.”

Chhabra, who says she likes to use visual analogies to explain things, put it this way:

“I had this beautiful bulb in front of me to plant when I joined Allozyne,” Chhabra says. “We’ve planted the bulb, and it has sprouted a lot of things.”

Before I dive into the nitty-gritty details of Allozyne’s progress from the past year, a little background is required. Allozyne was founded in 2005 with technology from William Goddard and David Tirrell at Caltech, and incubated at Accelerator in Seattle. The Caltech scientists, as I described in this October 2008 feature on Allozyne, discovered a way to essentially snip out a certain amino acid found in the backbone of protein drugs (methionine), and replace it with a genetically modified amino acid that can stick like Velcro to other molecules. This is sort of like plugging in a Lego block, which performs a certain function wherever researchers want on the backbone of the molecule.

This was thought to be important to provide the rock-solid consistency that is often lacking when biotech companies try to improve the properties of existing drugs. One example is with pegylation, in which polymer molecules are attached to protein drugs, to make them last longer in the bloodstream so they can be taken with less frequent injections. This pegylation feature has been vital to the growth of interferon beta drugs that make up a multi-billion dollar market for Biogen Idec, Merck KGaA of Germany, and Bayer.

One of the problems, though, is that proteins that are pegylated sometimes clump together, creating a different 3-D structure that’s no longer effective and can cause side effects, like welts at injection sites. Companies have been working for years to make pegylated proteins that can avoid the aggregation problem, and which can remain stable long enough in the bloodstream to enable patients to switch from every-other-day or once-weekly injections to a greater ideal in convenience—once-monthly dosing.

So Allozyne has set a goal of making a pegylated interferon beta drug for MS that could be manufactured consistently to avoid the clumping problem, and to enable once-monthly dosing. By snipping out the amino acid (methionine), Allozyne is able to consistently make a pegylated drug that won’t aggregate, Chhabra says. A well-financed competitor, Biogen Idec, has been testing its own versions of longer-lasting interferon beta drugs that are further along in clinical trials. San Diego-based Ambrx is another venture-backed company with its sights set on making a longer-lasting MS drug, in partnership with Merck KGaA. Neither of those companies have yet presented full data at a medical meeting from the middle or late stages of clinical trials.

Allozyne’s contender, AZ-01, entered its first clinical trial in the first half of 2009. The first study enrolled 40 patients who were randomly assigned to get the experimental drug or a placebo, Chhabra says. This trial was only designed to measure safety, not effectiveness, so Allozyne can’t say for sure how well its drug might be working to reduce the progressive neurological damage patients suffer from multiple sclerosis. That kind of test will come later in development, Chhabra says.

But for now, the company learned its drug was safe, that it has potential for once-monthly dosing, and that it doesn’t cause skin damage around injection sites like other products, Chhabra says. More detailed results will come in an Allozyne press release in a couple weeks, she says, and results from a second Phase I clinical trial should arrive by the end of the year. The next step will be to run a mid-stage clinical trial, and possibly start a final-stage clinical program for AZ-01 within 24 months, Chhabra says.

The second big thing that Allozyne has done is to continue to invest in its basic platform technology, and not bet the entire company on a single compound, like many other startups have been forced to do in the downturn.

“We don’t want this to become a one-trick pony,” Chhabra says.

So Allozyne put its scientists to work on using its pinpoint protein modification technology toward one of the big challenges in biotech today—the making of “bi-specific” antibodies. This is an old idea that no one has yet solved. The concept is essentially that certain complex diseases, like excess inflammation found in rheumatoid arthritis, might be more treatable if a targeted drugs could hit two targets instead of just one. I wrote an in-depth profile about Biogen’s program to do this back in December.

Allozyne, it turns out, figured it would have something really valuable if it could hit two specific inflammatory proteins that are part of the Th17 inflammatory pathway, Chhabra says. A number of Big Pharma companies—and Cambridge, MA-based startup Lycera—are in hot pursuit of drugs that work through this pathway. Allozyne has shown in a series of tests that it can modify protein fragments to hit both of these targets, and that the drug can be made soluble, scalable, and in a reproducible way, Chhabra says. This experimental drug, AZ-17, is currently in animal testing which could go a long way toward determining how useful this new two-pronged drug really is, and what sort of shot it will have in human beings. The animal data will be available in the second half of 2010, Chhabra says. The drug is initially being tested as a treatment for Crohn’s disease, an inflammation of the intestines.

Even before the animal data comes out, Chhabra says that a half-dozen Big Pharma partners have come calling, itching to strike deals to co-develop such a drug for a hot target like Th17. She said she’s resisted doing a deal at such an early stage, preferring to wait until the animal data arrives to strengthen her bargaining position, and get better terms. It’s possible Allozyne could strike a partnership before the end of 2010, she says.

The third big thing Allozyne has done is show that its technology can cross over and be used in not just one, but two major platforms for manufacturing biotech drugs. The first two drugs are incubated in fermenters filled with E. coli bacteria, which is a relatively cheap and commonly used way to make fragments of protein drugs. But since many of biotech’s biggest selling drugs are made in mammalian cells, and are relatively much bigger Y-shaped antibody proteins, it has sought to show its technology can really work at that major-league level.

That’s what Allozyne has now done with yet another drug candidate, AZ-21. This drug is a genetically engineered copy of the fibroblast growth factor family, known as FGF-21. The growth factor is thought to have potential as a future key to treatment of Type 2 diabetes, because animal studies have shown it can lower blood sugar and increase susceptibility to insulin. But the effect requires repeated dosing, which is the sort of thing Allozyne believes it can do with a less-frequently injected product. Allozyne has shown it can make this drug candidate in both E. coli and mammalian cells, which gives it different options for future manufacturing, and opens the door to potential production of antibody drugs in mammalian cells, Chhabra says. Animal data for that drug should also be available by the end of the year.

If you sense a lot of things are coming to a head for Allozyne at the end of 2010, that would be correct. Data from all three big drug programs is expected soon. Allozyne has received “commitments” for another round of financing from its existing venture backers, and is seeking to track down one or two outside investors to participate as well, although none of the firms have written checks yet, Chhabra says. Allozyne could strike its second Big Pharma partnership. And it is even in talks to acquire an oral drug candidate for multiple sclerosis that could beef up its pipeline with two MS drug candidates with potential to enter clinical trials within 24 months, Chhabra says.

This is all leading toward what Chhabra calls her “yellow brick road.” It involves raising less than $100 million in total capital to build a company with two convenient drugs for multiple sclerosis in the final stage of clinical trials, and a pipeline with opportunities to generate many more enhanced protein drugs. If Allozyne can do all that, it will certainly be operating on a much more visible plane, maybe even in the public markets, Chhabra says.

If the market appetite for biotech has really returned, Allozyne plans to be ready to pounce. “And by then we will be a company that’s T-minus 24 months from having two assets in Phase III clinical trials for MS, bispecific antibodies that take us beyond pegylation, a platform that can work in E.coli and mammalian cells.”

She added: “We can do it if we spend our money wisely.”