Candid Advice For Cash-Strapped Startups From A Biotech VC; Success At Lumena Pharmaceuticals

Candid Advice For Cash-Strapped Startups From A Biotech VC
July 21, 2014
By Josh Baxt, Exclusive Story

In a sense, Niall O’Donnell, Ph.D., and his colleagues at RiverVest Venture Partners run a biomedical adoption agency. They track down innovative discoveries, help raise them for a while and then find a good home, either at a pharmaceutical company or through public markets.

For cash-strapped startups, this represents an opportunity, but they need to understand the rules. RiverVest is trying to build companies in five years or less, and that means having excellent IP and a collaborative team to take it towards the finish line.

Trials and tribulations: Old drugs, new indications
In the movie Raiders of the Lost Ark, one of the final images is the Ark being wheeled into a cavernous warehouse, never to be seen again. Pharma companies also have assets tucked away on the shelf. Sometimes a drug intended for cardiovascular disease has a more promising future in cancer—but the company doesn’t have an oncology division to help develop it. Sometimes the drug works well, but not as well as a competitor’s product.

“We like to find little gems that are squirrelled away,” says O’Donnell, a managing director at RiverVest. “Perhaps we know a scientist who worked on an asset, or one of us worked on it personally during our time in big pharma.”

These “found” pharmaceuticals have great potential and value. For example, they’ve often been proven safe. “There’s no glory in failing for safety,” notes O’Donnell. “Once we’re sure it’s safe, we start hunting for an indication. It becomes an engineering problem.”

Well-executed strategy: Lumena Pharmaceuticals For RiverVest, this strategy worked with Lumena, a company they formed in 2011 with Pappas Ventures. Circumstances had sidelined two cholesterol drugs with similar mechanisms. One drug was developed by Searle, which was acquired by Pharmacia, which in turn was bought by Pfizer for $60 billion. Since the pharma giant had no room for a drug that competed with Lipitor, Pfizer ended up shelving it. Meanwhile, Sanofi saw a crowded cardiovascular market and parked their compound as well. Lumena licensed both drugs in 2012.

Having acquired these compounds, Lumena had to determine the best indications. The former Searle drug lowered cholesterol by blocking bile acid reuptake. They started looking at other conditions that might benefit from that mechanism. In addition to two adult conditions, Lumena found Alagille syndrome, in which children suffer from extreme itching, and Progressive Familial Intrahepatic Cholestasis, which can cause liver failure. “These are two rare, ultra-orphan diseases,” says O’Donnell. “Too much bile acid can kill these children.”

As a result of these findings, Shire bought Lumena for $260 million in May 2014. Two drugs that had been gathering dust were revived and repurposed to create value for patients and investors.

“Selling Lumena was bittersweet,” says O’Donnell. “Shire made us an offer we couldn’t refuse. But to bring hope to these children and their parents—that’s one thing I’m most proud of in my career.”

Building a partnership: VCs and entrepreneurs
RiverVest is also taking a more traditional, entrepreneur-driven approach. They’re looking for partners who can create valuable therapies, and they’re hands-on about it.

“Some companies say, ‘Go ahead and find a CEO and we’ll invest,’ but I think that’s a terrible message to a budding entrepreneur,” says O’Donnell. “If you really believe [in your company], why not become CEO the first year? Why not become chief medical officer? Get the company off the ground.”

When looking at potential investments, RiverVest is after safety and a relatively quick exit. But they’re also looking for the right kind of partner. They like entrepreneurs who are not only passionate, but also open to guidance.

“Come in with the story, acknowledge where your story is strong, but be honest and say: ‘I don’t know anything about reimbursement, so I’m going to need help with that,’” says O’Donnell. “Together we can map out the route.”

But most importantly, they want to develop a stategic plan, frontloading key issues so they don’t bite back later. In other words, take care of the boring stuff early.

“Everyone likes designing a nice efficacy study, but they forget the FDA is focused on three things: safety, safety, safety,” says O’Donnell. “You better take care of that on day one. Also, if you can’t reproducibly make your drug to scale, and make it cheaply enough to be commercial, you’ve got serious problems.”

The view beyond venture capital
Scanning the biotech horizon, O’Donnell sees a lot of interesting innovation. He’s particularly impressed by bluebird bio’s recent success.

“I really like what we’re seeing in gene therapy,” says O’Donnell, “and I never thought I’d live to say that.”

RiverVest is also interested in personalized medicine; they’re just not sure how to commercialize it.

“A patient could have one type of cancer with mutations associated with a different cancer,” says O’Donnell. “You can use a drug off-label and get remission. It’s great for patients, but it’s a big headache for payers. That’s where we’re trying to find a business model that works.”

For O’Donnell and colleagues, the fun is in the challenge. And when the stars align and a drug helps patients, that’s the best reward of all.

“It’s double bottom line investing,” says O’Donnell. “Not only do we get paid, but there’s good karma in there as well.”

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