Playing Ball With Big Pharma
Monday, April 1, 2002
Curing one or many forms of cancer and finding a vaccine for HIV are perhaps the two most publicly talked about goals for modern medicine — the way landing on the moon was the driving force of space exploration in the 1960s. And yet these medical goals are hardly pie-in-the-sky fantasies anymore.

Vical Incorporated, a biotech firm based in San Diego, is one of many companies chasing, among other things, these two elusive medical goals. But blending a public company’s quarter-to-quarter survival with the all-consuming pursuit of scientific discovery is no small task, and life for biotech firms is getting more complex as the industry matures.

The task of keeping Vical on track falls to CEO Vijay Samant, who left a 20-plus year career at pharmaceutical giant Merck before joining 15-year-old Vical in November of 2000. He is charged with ensuring that Vical — which had revenues of a mere $11 million dollars in 2001, versus $47 billion for a company like Merck — will survive. The company is still immersed in the arduous period of trials and scientific development required for any biotech company to grow from compelling technology to the huge revenue generation that characterizes major pharmaceutical firms.

What’s obvious from an hour spent with Samant is that although biotech is often compared to high-tech as a fast-growing industry, building and managing a biotech firm couldn’t be more different from building and managing a high-tech business.

“In the high-tech arena, as long as you knew the concept and you had the vision and you were on the cutting edge, you could deliver and you could float a company because it was the idea that you were selling,” says Samant. “The biotechnology field that I’m in is a different field. It requires a lot of historical knowledge, and the knowledge is expanding very rapidly.”

Samant is a chemical engineer by training and graduate of University Department of Chemical Technology (UDCT) at the University of Mumbai. He is fiercely proud of his school, and also proud that he stayed with his field and didn’t migrate like so many to the high-tech industry.

He counsels graduating students: “Stick to your field of education. Don’t be a mechanical engineer or a chemical engineer then go off and become a software programmer in Silicon Valley!”

Though many high-tech companies are based on complex technologies, the idea of a technology that takes a decade or more to develop and commercialize — as is often the case in the biotech industry — puts Biotech in a league of its own. How can you convince investors for a decade that your products and technologies will one day become a commercial reality? That, in essence, is what Vical has done.

Delivering DNA
To start with, you develop hugely compelling technologies. The science behind Vical’s gene-delivery technology platform certainly awakens the imagination. It can be understood in the context of an HIV vaccine.

“Traditional vaccines actually take the pathogen or the bug, kill it or attenuate it and inject it into the human body. It normally doesn’t cause the disease but it teaches the immune system to react to it,” Samant explains. “The problem with HIV is that even if a small percent of the people get the disease because of the vaccine, that’s a horrible disease to get. The goal is how do you develop a vaccine with sterilizing immunity, assuring 100 percent who get the vaccine are protected.” Faced with this major obstacle in developing a potential HIV vaccine, Vical is working towards a possible DNA vaccine, which uses a distinguishing feature of the HIV pathogen or bug, takes the genetic code for that feature, introduces it into a DNA delivery system, and injects it into the body. The cell takes instructions from the genetic code and makes the feature appear to the immune system. As soon as it appears, T-cells and antibodies swarm. So the reaction to the bug has been pre-programmed into the body’s immune system, without the use of anything from the pathogen itself. As a result, the person getting the vaccine would have no chance of getting the disease.

The ability to effectively inject genetic information into the body opens up a host of applications. “We’re developing a vaccine for melanoma [a type of cancer], which you actually inject into the tumor,” Samant explains. “One of the things with melanoma is that the body’s immune system does not recognize the tumor cell. We teach the body to recognize it. We inject into the tumor the instructions for making a particular protein. And once the protein is formed, the immune system recognizes it as foreign and destroys the tumor.”

Obviously, the potential benefits of this kind of technology are huge. According to the Harvard Center for Cancer Prevention, about 1.2 million Americans are diagnosed with cancer annually. Vical is even working with the U.S. Navy on a vaccine for malaria.

Is it realistic to expect that these kinds of innovative vaccines will come into being in the foreseeable future? Perhaps, and the opportunity could be a huge commercial windfall for the pharmaceutical industry.

Asked when there will be a cure for AIDS, Samant responds, “Will there be an HIV vaccine that will offer sterilizing immunity to healthy individuals? That’s a long way off. But will there be a vaccine that can be given to individuals that are HIV positive that will delay the onset of the disease? That it is a distinct possibility.”

Selling Innovation
You wouldn’t see Ford CEO William Clay Ford basing his business on an as yet un-proven future car, but the life of a mid-sized biotech firm like Vical involves a lot of betting on the future. The challenge is to manage the business well enough so that the company can actually survive the arduous growth phase, and then prosper when its technology is really commercialized.

“Every company in the biotech arena claims to have an exciting technology platform and product portfolio,” says Samant, talking about how biotech firms ensure that Wall Street investors will stay the course over years of development. “One of the most important things is to help investors understand why your platform and product portfolio is unique, and why your products have a better chance to reach a commercial status than your competitors’,” he says.

Going from small revenues to serious business in biotech requires effective deal-making.

“The business model in biotechnology is you start off modestly. You do some licensing of your technology, develop credibility, validate your technology platform and then expand into your own drug development, in a moderate way,” says Samant. “You can’t go out and do what the large pharmaceutical companies do. Occasionally you do enough development and advance a product closer to commercialization and a partner comes in and either licenses the product, buys equity in the company, or acquires the company.”

The distinction between large pharmaceutical companies and biotech firms may be somewhat misunderstood, given that large pharmaceutical firms are very much biotech companies as well. The opportunity for potential treatments and cures is so huge, however, that smaller biotech firms with the maneuverability to hone in on a particular cutting-edge technology or drug target can work with the pharmaceutical heavyweights to develop commercial avenues for that technology. “We want to go after those unmet medical needs where the big pharma companies don’t go,” says Samant.

For Samant, managing his relationships with the large pharmaceutical companies is the key. “Having blue-chip partners is important. Partners want a good deal for a minimum amount of money, and all kinds of rights. You have to strike a balance and get what you want without giving too much away. The mistake a lot of biotech companies have made is giving away too much early on,” he explains.

Vical must find a way to broker the right kinds of deals, without being overrun by big pharmaceutical players. Currently, Merck has licensed Vical’s DNA delivery technology platform to develop an HIV vaccine.

“The technology model is: Initially your platform is not validated. You license it to big pharma. They help you validate it. You do your own work. You work on narrow niches such as cancer where you can get products approved in the field very quickly, and as you become more capable and your organization matures, you then start doing bigger things,” Samant explains. “The dream of all biotech companies is to eventually be the Genentech or Merck of the world.” That clearly involves getting some successful drugs into the marketplace.

New Frontiers
But the need for support goes both ways. If the pharmaceutical giants have the resources to conduct clinical trials for drug development and the muscle to market and lobby for those final commercial products, they are also under tremendous pressure to add revenue streams. “They are expected to produce operating income and sales growth of 10 to 15 percent per year. In a $25 billion sales company, that translates to $3.5 billion worth of new products every year,” Samant points out.

Thus the technologies within biotech companies are appealing, even if they promise only future revenue. As a result, the opportunity for startups in biotech, despite the long development cycles, is increasingly large.

But Samant, once again pointing out a difference with high-tech, confirms that the biotech industry is hardly a place for opportunistic business people hoping to get rich.

“Why would someone want to come work for a small biotech company when they can work at a company like Pfizer? Pfizer can pay better, can give you great security, a great pension plan. The challenge is to find people that are good and are motivated by science — not motivated by money alone,” Samant explains.

Indeed, the heavy focus on pure science that exists in biotech is also a management challenge, since a company can’t survive for years on investors’ money, simply chasing obscure scientific goals. Samant explains that good project management is required to ensure that resources are committed and focused in a certain direction, and that scientists are compelled to work in a measurable way toward the achievement of specific goals.

Samant compares biotech companies to kids in a candy store — with so many potential targets to chase. He says that the biotech business is just beginning to heat up. “In the next three to four years the explosion of knowledge in this field is going to be absolutely mind-boggling.”

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