Guest Post: Arthur Hiller, CEO of SciFluor: Biotech Companies Add New Dimension to Creative Partnering Trends
In April alone, there were $33 billion in healthcare mergers, all with the idea of trying to create novel relationships to address the pipeline challenges that life sciences companies face (1). The 71% drop in U.S. Lipitor sales in the first quarter following its loss of patent is a glaring example of the why there is excitement around other industries like tech (think Facebook) and deep depression around companies in the life sciences industry (2). Sanofi-Aventis faces a similar fate with $8 billion in Plavix sales in jeopardy as its patent expires in the coming weeks.
The challenges in our industry cover a range from economics to science, from governments struggling to pay the health care costs of an aging and obese population to scientists attempting to identify new targets in areas of disease complexity that were previously not even imaginable. Replacing $8-$12 billion in sales is not solvable by discovering a single drug for a niche disease, or by opening new sales channels in small, emerging markets. Because our industry doesn’t return investment capital at 5-10x levels in three years or less, and because drug development is more costly and more risky than uncovering the next Facebook, the money flows now favor social connectivity over health outcomes, and near-term “friends,” over long-term quality of life.
There are, however, many rays of hope on the horizon. New technologies are finally starting to hit stride, and we’re close to seeing the $1000 genome and the insights this new knowledge will drive. More importantly, some of the big biopharma industry players are expanding their portfolios and recognizing that investing in start-ups and relationships with academia can drive more long-term value than buying back their shares. A sampling of these initiatives is indicative of the creative thinking that is underway:
- At the JP Morgan Annual Healthcare Conference this past January, even as his firm was still acclimating to its acquisition of Genzyme only months earlier, CEO Chris Viebacher announced that Sanofi-Aventis was partnering with Third Rock Ventures to launch Warp Drive Bio, providing up to $125 million in early-stage, high-risk initial funding to accelerate the development of Warp Drive Bio’s platform and establish proof of concept.
- Following a trend toward using the “virtual” company model to enhance efficiencies, Astellas recently announced that it was allying with several venture firms to create Telsar, a virtual company developing a drug to treat ulcerative colitis from Astellas’s pipeline.
- Speaking in Los Angeles at the Milken Institute Global Conference in April, Andrew Lo, an MIT-Sloan School of Management professor, presented the concept of using CDOs, Collateralized Drug Obligations, to fund drug research. In contrast to equity investments that rely on high, double-digit equity investment rates of return, he proposes a multi-sponsor, debt-grade investment fund with return expectations in single-digit ranges to attract a longer-term investor with lower expectations for investment return.
In keeping with this increased interest across the industry to identify innovative approaches to spur industry growth and excite skeptical investors, SciFluor Life Sciences, LLC has recently announced a “Request for Proposals” to apply its transformational fluorine technology to compounds in company portfolios that might benefit from the addition of fluorine atoms to the underlying molecules to improve their efficacy or safety profiles. In the same manner that testing existing compounds’ applications in new clinical settings may uncover unexpected utility, the addition of fluorine may increase drug half-life, tissue penetration, selectivity, potency, or result in reduced side effects.
This proposal is a reversal of the usual business model where start-ups court big biopharma companies to engage in partnerships where the big industry player’s resources drive development of the start-up’s new discoveries. Instead, SciFluor is making available its technology and its capabilities in a low-risk, capital-efficient model to drive value for patients around assets that may otherwise be left to drift aimlessly in some long-forgotten compound portfolio.
These are indeed interesting times in the industry that call for interesting and creative approaches. We’d all like to change the perception that social media investments are more attractive than investment in the life sciences. Take a look at the RFP and our website at http://www.scifluor.com and let us know if you think this idea can help move us all in that direction.
Arthur Hiller is Chief Executive Officer of SciFluor Life Sciences, LLC. Prior to joining SciFluor, Mr. Hiller served as CEO of Heartscape Technologies, Inc., where he built a team that raised $22M in B-round venture financing, achieved placement and sales growth across 30 prestigious institutions nationwide, and ultimately reached an exit for sale of the company to a medical device subsidiary of a $5B Fortune 1000 company. Prior to Heartscape, Mr. Hiller was senior vice president at Millennium Pharmaceuticals, and vice president, worldwide human health marketing, hospital products, at Merck & Co.