Knick-Knacks

Last month, I posted a review of a report on “The Global Health Social Enterprise” (R4D report) written by a team at Results for Development Institute’s Center for Global Health R&D Policy Assessment” (“For Fun and Profit”).  While I noted that the report was based on a limited information base that did not include any perspective from the many biotech/pharma industry analysts, I thought it provided a good description of the range of business models used by organizations/companies developing global health products.  The report also had a nice appendix that summarized ten such companies and I thought it worthwhile to take a closer look at them.

First, the group (60° Pharmaceuticals, AltraVax, Anacor, DesignMedix, Genocea, GenVec, Inviragen, Napo, PaxVax, and Sequella) included five developing therapeutics and five vaccines (I’m not sure why no diagnostics companies).  Second, all but one are still in the development stage and have no marketed or licensed products (Napo’s licensee, Salix, recently got FDA approval for the anti-diarrheal drug, crofelemer, although Napo is legal disputes with Salix [PR Newswire article] and its rest-of-world licensee, Glenmark [First Post article]).  Two other companies (Anacor, through DNDi, and Sequella) have products in mid-late stage trials.  Third, the companies vary widely in age from a few to multiple years (60° Pharmaceuticals was founded in 2010;  Anacor in 2002) and size (DesignMedix has five employees, two of whom I know from my technology transfer days; Genocea has about 40).  Fourth, and not surprisingly, the companies run the full range of funding levels and modes:  modest funding through government grants (e.g., DesignMedix) to millions raised from professional VCs (Genocea has more than $60 million from nine investment firms but also Gates and DOD grants [Boston Globe article]) to multiple millions from a pharma partner and public sale of stock (Anacor).

Last, although the R4D report’s authors stated the companies were chosen because they were “explicitly dedicated to the social purpose of developing new medicines, treatments, or technologies for diseases of low- and middle-income countries,” I found the degree to which the companies were explicit about their dedication varied.  My findings:

Company Global health mentioned in company mission statement Number of global health projects/total number of projects*
60° Pharmaceuticals Yes 4/4
AltraVax No 4/4
Anacor No 1/6
DesignMedix Yes 2/3
Genocea No 2/5
GenVec No 2/5
Inviragen Yes 4/4
Napo ? 1/6
PaxVax Yes 4/5
Sequella No 1/4

*Global health projects are those aimed at diseases afflicting many people throughout the world, e.g., HIV/AIDS, malaria, and hepatitis B, and not primarily in the developed world, e.g., herpes and peptic ulcers.

I find no fault in a company not being explicit in its dedication to a social mission or even mentioning or having a social mission.  How a company presents itself, whether to the public, its employees, or investors, is less important than the effort it makes, first, in developing a product for a global health need, and, second, in getting that product used by the many people needing it.  And as I noted above, while these companies are making progress, none has yet met an unmet need.

So what is needed as these companies get closer to marketing their products?  Of course, therapeutics and vaccine companies face major hurdles from having a manufacturing system to meet demand, regulatory approvals in relevant countries, approved and accepted pricing, and distribution to customers.  I expect that all of the companies mentioned have been on the hunt for partners to provide the capital and expertise to accomplish these tasks and have rationally assessed how they will get their products to market.  Or have they?  I put on my BD hat and took a closer look at PaxVax (PV) to see what it intends.  First, I noted the company is taking a practical approach in that it is only working on orally-administered vaccines which will avoid the complexity of the distribution system needed for current vaccines and may simplify the “fill and finish” step in manufacturing.  The approach will limit the diseases addressable by its products but increases the chances that the products will actually be used.  Second, the company is using proven technology.  For two of its products, vaccines for H5N1 ‘flu and HIV, PaxVax is using a proprietary technology (administration of antigen via live, replicating adenovirus but not the several of the 57 types that cause human respiratory and gastrointestinal illness) but one that has been used in humans to prevent adenoviral respiratory infections in the military (PV technology).  For its cholera and dengue vaccines, the company is using whole, inactivated virus, a technology used in currently licensed vaccines.  Third, PaxVax is backstopping its manufacturing by developing a robust and low cost process for its adeno-based vaccines, based on its own cell line that grows serum-free in suspension culture (GEN article).  Fourth, the company has a done a good job with its funding.  The company states it has raised more than $50 million from a VC firm, Seattle-based Ignition Capital (Ignition), and the Wellcome Trust and in grants from the US NIH and the Gates Foundation, although details are not provided.  A bit disconcerting is that the company is the lone biotech investment of Ignition, meaning PaxVax is on its own for its partnering and commercialization effort.  Also disconcerting is that the company has no VP for BD.  But it looked to me as if Paxvax is addressing the lack of commercialization experience by hiring last year a vaccine industry veteran, Thomas Monath, who was CSO of Acambis, a Cambridge-based company, for 1992-2006 and who piloted registration of one or more of its products.  I didn’t meet him when I interviewed for a BD job I did not get in 2005 but the company did well enough when it was acquired by Sanofi for more than $500 million in 2008.  So on my grading card, PaxVax gets “A”s for mission, funding, and technology and a “C” for business development, but it is not too late to get that ball rolling.

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PRIs for Global Health

The rubric for starting a company is that good management can make up for weak technology, but nothing can over come a shortage of funding.  With the (few) global health startups attracting experienced biotech executives (e.g., Una Ryan at Diagnostics for All [DFA] and Andrew Schiermeier at Medicines in Need [MEND]) and a surfeit of technology coming from academia, funding is the weak leg of the stool.  Global health companies are in the same bind as the 1200-plus ”pre-revenue” biotechs, haunting the halls of venture capital firms pleading for their next slosh of cash, or seeking angel investors whose potential capital has been deleted by depressed stock prices and who look for even shorter pay-backs than the professionals.  At one time global-health-specific investment funds seemed possible, but attempts apparently have gone no where (cf., no progress in two years at Commons Capital).  In the diminishing returns category, companies may seek government funding through an SBIR, although global health companies are at a distinct disadvantages by the numbers (see my posting of November 5, 2009).  The remaining source, albeit more leery of companies than the government, are the foundations who tend to give through intermediaries, which is inefficient and allows the intermediaries inject their own basis, and don’t really understand why and how incentives work.  Are there alternatives?

Fortunately, over the past ten years the not-for-profit and for-profit worlds have increasingly overlapped, and the tools and knowledge needed for foundations to make investments in technology-based global health companies are emerging.  Foundations, which are required in the US to disperse an amount equivalent of 5% of their assets each year, are allowed by the US tax code to make “program-related investments” (PRIs) in addition to giving no-strings grants.  PRIs may be in the form of below-market-rate-interest loans, convertible debt, or equity investments (for details see the Foundation Center), analogous to an investment bank making a loan to a startup at mezzanine or later stages of funding with the expectation of a return.  PRIs have been used by foundations since their creation in the US tax code in 1969, and the Foundation  Center estimated about $300 million are made each year, but primarily to non-profit organizations which have some potential of future income (like affordable housing development groups, see Philanthropy Journal).

Very few foundations use PRIs, though; the Mott, Kellogg, Ford (since 1974), and CARE USA are examples (it is funny that a foundation is willing to give its money away for no financial return is very conservative when there is a possible, but difficult to ascertain, return).  As for foundations making PRIs in biotech/life sciences companies, I found only two.  UK’s Welcome Trust will make a PRI in a company through its Technology Transfer/Translation Award program which is for R and D projects that address an unmet need in healthcare (Wellcome Trust); however, only a few companies have received such awards and it is not noted which were in the form of PRIs.  In the US, the Alzheimer’s Drug Discovery Foundation (formerly the Institute for the Study of Aging, ADDF) has funded projects in about five companies since 2002 via PRIs with values of $100-250,000 for one to two years each.

What about PRIs for global health companies?  It looks like the Gates Foundation may be taking the lead.  Last September, the Foundation’s Chief Financial Officer, Alexander Friedman, announced that $400 million would be used for PRIs across the Foundation’s philanthropic mission.  Further, four investments had been made and  “a range of new deals is in the works, including charter-school expansion, agricultural financing for small farmers in Africa, and investment in global health technologies” (Seattle Times article).  Details on how and how much will be invested in global health technology companies is not provided in the Foundation’s description of the PRI program (Gates PRI program).  Unfortunately, from what is provided, there are indications that the Foundation will be a cautious investor, co-investing with venture capital firms at a minimum of a 1:1 ratio but preferring a possibly unrealistic 1:5 ratio.  I am assuming that Mr. Friedman test-marketed his approach with his VC friends, although in my limited experience, VCs always say “yes” as long as there is no commitment.  Further, it is not clear if the Gates will operate as the professionals do:  conducting thorough due diligence to understand the opportunity and risk, investing the proper amount needed to get to the next value inflection point, and being closely involved in the management of the investee.  Further, if I remember correctly, the Gates decided not to jump into the venture fund business and passed on establishing its own global health-specific fund not long after the idea was mentioned at BVGH’s Partnering for Global Health Forum in March 2008.

As for likely recipients of the PRIs, the Foundation already has supported the beginning of the pipeline through its Grand Challenges Explorations program (Grand Challenges Explorations).  It would be great if Mr. Friedman looked at the successful projects as the basis of commercial ventures, assembled management, and funded them at traditional Series A levels.  Given that the foundation had made multimillion dollar grants to academic groups with no plans or experience for actually implementing their innovations, a multi-million dollar bet on turning one of these projects into a company seems pretty sound.  Also, there are a number of established companies that could use an infusion of cash (e.g., Sequella and DFA).  Although I am sure that the Foundation has dozens of capable advisers for this effort, it remains to be seen how meaningful and effective it will be in the development of global health products. Perhaps BIO Ventures for Global Health, which has announced that it will be helping companies with financial risk of developing global health products in 2010 (BVGH December posting), will use have some influence.  Obviously, I am new to PRIs and hope this posting will generate a discussion on how they may be used to speed innovations in global health.

Is there a Bottom Line Behind the Headline?

Recently, the Welcome Trust, the British giant philanthropy, and Merck and Co., a leading member of Big Pharma, announced a “first of its kind” joint venture to advance vaccine development for diseases of the low-income countries (September 17, 2009, Merck press release).  While the venture’s objectives and funding are commendable, after a closer look for the bottom line (i.e., creating affordable, new vaccines) I’m inclined to view it as a well-intentioned effort that will fall short.

As described in the release, Welcome and Merck, specifically Merck’s Indian subsidiary, MSD, are going 50/50 on about $130 M of funding in a 7-year commitment to set up and operate a R and D facility in India that will develop new vaccines and possibly improve existing vaccines for developing world use.  The facility, named the Hilleman Laboratories after Maurice Hilleman, the outstanding vaccinologist of the 20th century, has as its vision, as given in the press release but oddly not on the Laboratories’ website (Hilleman Laboratories):  “A Sustainable, Not-For-Profit Operating Model to Turn Innovative Science into Practical Solutions for Those in Greatest Need.”  Although not made explicit in the release or on the website, the Operating Model seems to be that the Laboratory will invent (or acquire from academia?) candidate vaccines, conduct preclinical studies (with direct help form Merck?: “The Hilleman Laboratories will work to advance projects to ‘proof of concept’ by providing key expertise in product development and optimization that is typically available only within large vaccine companies”), conduct some degree of CMC/manufacturing development (“The Hilleman Laboratories will also work with vaccine manufacturers to ensure production can be scaled and that the vaccines are affordable”), and then?  It is not clear who/what/how will handle the clinical testing, registration, manufacturing, and distribution, i.e., the heavy lifting needed to get a vaccine into people’s arms.  Maybe no-cost licensing to PDPs (product development partnerships) already working on vaccines like the Sabin Vaccine Institute, Malaria Vaccine Initiative, International AIDS Vaccine Initiative, and Global Solutions for Infectious Disease?  Nothing beyond “productive partnerships” is mentioned.  Maybe out-licensing to for-profits with dual market objectives?  The press release has no comment on a business development/licensing function, just a hint that the founders “envisage” that the Lab will receive compensation for its innovations when used in higher income markets.

Further, it is not clear who in the organization will have the experience to watch the bottom line and build a truly sustainable operation that can deliver the goods.  The Chief Executive Officer is Altaf Lal, clearly a highly experienced scientist and bureaucrat.  The two named advisors are from the UK government and WHO.  Granted Dr. Lal is probably building his organization now, but I would hope he is engaging professional (non-academic) vaccine developers as employees and former/current biotech/Pharma executives as advisors.  I’m sure BIOVentures for Global Health could be helpful in the recruiting process for both employees and advisors.

So what’s in this for Merck?  Certainly good (and deserved) PR.  A cynic may say also a chance to guide the Laboratories’ project selection away from the development of competing products, but this is not likely since Merck has a solid history of corporate responsibility in global health (its donation of ivermectin to treat onchocerciasis/river blindness began in 1987) and has substantial R and D and access programs (Merck GH CR).  I would hope that Merck sees the Laboratories as an opportunity to attract academic ingenuity and generate vaccine candidates for its pipeline, i.e., get serious about making profitable vaccines for low-income markets.  Although the funding is helpful ($10M per year is less than half of one percent of its overall R and D budget), Merck’s direct involvement in the commercialization stages (i.e., product realization) is needed and would truly make the Hilleman Laboratories a venture and an innovation in developing affordable vaccines.