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BETTING ON THE RIGHT DRUG
have a chance to recoup the investment on the second product. The compounds should also be critical to the future value of the biotech company. In other words, they should be something the firm would want back someday. If the biotech firm decides not to buy back its Instead of investing in companies, SYMPHONY CAPITAL drug candidates, Symphony is left holding finances drug candidates that meet strict criteria the bag. LISA M. JARVIS, C&EN NORTHEAST NEWS BUREAU “If you put all of that together, at any given time there are relatively few companies that fit our model,” Taranto says. He estimates that about 300 companies meet Such financial stability can have a transFUNDING CONSTRAINTS are the downfall those criteria. Each year, Symphony talks formative effect on a company. Frank Karbe, of many small biotechnology companies. to roughly 150 of them in discussions that chief financial officer at Exelixis, which These firms usually live hand-to-mouth, could span from merely touching base with formed a collaboration with Symphony in with their next windfall—a payment from a a company that is interesting but not yet 2005, says his company couldn’t have built licensing partner or a jump in stock price— ripe for investment, to initiating a formal such a robust pipeline of oncology drugs linked to reaching milestones in the develmeeting that could lead to collaboration. without significant financial resources. opment of a product. As a result, the quality Overall, the investors try to establish pacts The transaction with Symphony “helped of their clinical trials is often dictated by with just two or three companies a year. us finance more extensive clinical trials how much, or how little, they can afford The firm’s biggest competition is big for several of our compounds, thereby until that next infusion of cash. That route pharma. For a biotech company, a deal often leads directly to a failed trial. with a big drugmaker is still considThe New York City-based private BIG SPENDER ered the ultimate validation, although equity firm Symphony Capital is trying Symphony has invested Taranto says he thinks Symphony is to interrupt that cycle. The fund’s invesmore than $350 million to date starting to challenge that notion. And tors believe they have found an inflecto date, he can recall losing out to big tion point in the drug development cycle AMOUNT PARTNER ($ MILLIONS) pharma on just two deals. where they can get the highest return for June 2004 Guilford Pharmaceuticals $40 Although Symphony’s universe is the lowest risk, yet also help a biotech June 2005 Exelixis 80 relatively small, the firm still must sift firm shepherd its precious assets along a April 2006 Isis Pharmaceuticals 75 through a lot of science to determine more rational development path. April 2006 Dynavax Technologies 50 which companies truly offer unique Rather than simply meting out cash December 2006 Alexza Pharmaceuticals 50 and robust technology. In setting up a for results, Symphony forms a separate June 2007 Lexicon Pharmaceuticals 60 deal, Symphony assesses whether the company with its partners and then SOURCE: Symphony Capital partners science is strong enough to support invests a lump sum in specific drug the indication the company is pursuing candidates. The biotech firm has the and whether the safety data are adequate substantially increasing our chances of option to buy back the drugs at any time for for that indication, says Alastair J. J. Wood, success,” Karbe says. “At the same time, we an agreed-upon price. If it doesn’t choose a managing director at Symphony. were able to transfer the financial risk of to buy them back, the drugs revert to Symfailure to Symphony, minimize dilution to phony. Thus, both companies have a vested our shareholders, and retain future partinterest in the products’ success. TO CONDUCT the assessment, the team nering opportunities.” Harri V. Taranto, cofounder and managtaps into internal expertise that spans acaYet the universe of companies that can ing director of Symphony, points to clinical demia and industry. For example, Wood, tap into Symphony’s coffers is small. The trials where having 150 patients rather than a clinical pharmacologist, is the former investors are interested only in companies 100 might have been the difference beassociate dean at Vanderbilt University’s that are innovators in their particular field tween proving that a drug works and failure School of Medicine. He served on Food & and that can contribute at least two drug of the trial. “There are lots of underpowDrug Administration advisory committees candidates to the new company that will ered studies out there, and we are trying to and was the drug therapy editor for the be created with Symphony. The products avoid that,” he says. New England Journal of Medicine. should be in different therapeutic areas Symphony antes up at the very start Taranto worked as a consultant to the and be between preclinical development of the collaboration, giving partners the biotech industry, starting in the early 1980s and early Phase II trials, in which a drug’s money to plan a solid clinical development as one of the cofounders of the Wilkerson biological activity is tested. The rationale program. “The key is to design the best trial Group, a life sciences strategy consulting is that if one drug fails, the partners at least and then make sure you have the funding firm. Together with the experience of their in place to complete it,” Taranto says. “We commit the funding up front, so companies don’t have annual, or even quarterly, changes in cash position forcing them to redesign a trial or take shortcuts.”
“There are lots of underpowered studies out there, and we are trying to avoid that.”
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other partners, Taranto and Wood say they can get a good feel for the scientific, clinical, regulatory, and commercial potential of a given drug candidate. Importantly, they also have a long list of contacts to turn to when vetting the science and market potential for a particular drug. “There are other firms that can assess what’s real and what’s not real, and there are a lot of firms with money,” Taranto says. What differentiates Symphony, he believes, is the combination of skills and experience it brings to bear on a deal. Symphony GenIsis, a joint venture formed in 2006 with Isis Pharmaceuticals, demonstrates how those abilities come together. Isis is a leader in antisense technology, an approach that targets the RNA that controls the production of disease-causing proteins. The antisense approach has been around for decades, but it fell out of favor after several high-profile drug failures. It seemed first-generation antisense drugs were safe but simply not potent enough to interrupt disease. “When my partner first brought up Isis, we all rolled our eyes,” Taranto says. But
on second look they realized that Isis had several second-generation drugs in its pipeline. Combine that with some compelling clinical data in both diabetes and cholesterol control, and the partners decided a deal was worth pursuing. “There’s nothing more powerful than an idea whose time has come,” Taranto says. Symphony GenIsis turned out to be Symphony’s first success story. Carlsbad, Calif.-based Isis was able to buy back its drug candidates in just 17 months, thanks to an influx of cash from a licensing deal with Johnson & Johnson for diabetes drugs. Symphony put $75 million into the collaboration; last September, Isis agreed to buy back its products for $80.4 million in cash and 3.4 million shares of Isis stock, at the time valued at $39.6 million. IN ADDITION to vetting a company’s
science, Symphony examines its development plan to gauge how long it will take for a partner to want to buy out its stake. After all, the goal is for Symphony to make a return and for the biotech company to have more leverage when negotiating with
potential commercialization partners. Isis was a particularly quick turnaround; Symphony expects most biotechs will cash out in three to four years. So far, Symphony appears to be on the right track. The first fund is nearly complete, with six collaborative companies formed and a seventh in negotiations. The firm’s first partner, Guilford Pharmaceuticals, did not buy back the drug it had contributed to Symphony Neuro Development Co. Involving only one drug— albeit one being studied across several indications—that deal was perhaps an early warning that a collaboration needs multiple candidates for it to be successful. Symphony was able to recoup some of its investment by selling the assets to GliaMed. Time will tell whether the remaining companies will produce the kind of return that Isis offered; the three- to four-year mark is just around the corner for partners Exelixis, Dynavax Technologies, and Alexza Pharmaceuticals. In the meantime, Symphony is getting ready for its second fund. It doesn’t plan to stray from what it considers a unique financing model. ■
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