Thoughtleader: Small Cost, Big Win

Aug 31, 2006
By Pharmaceutical Executive


J.J. Finkelstein
You don't get much leaner than RegeneRx. The company's headquarters in Bethesda, MD, houses just six executives and two support staffers. In the past five years, it has spent just $15 million of the $30 million it raised through venture capital funding.

But those half-dozen people and $30 million have been producing results. RegeneRx's lead compound is thymosin beta 4, a synthetic version of a peptide found in most mammals' cells that contributes to healing and regeneration. In animal trials, it is active both topically and systemically, and the company expects it to be useful in a wide swath of indications, including burns, diabetic ulcers, ocular surgery, and colitis. The company currently is conducting three Phase II clinical trials to test whether it promotes the healing of skin wounds, and another to test thymosin beta 4 for ophthalmic wound healing. Clinical trials for cardiovascular indications should begin later this year.

The key to getting so much done with so little, says CEO J.J. Finkelstein, is outsourcing. Though the buzz about "virtual pharma companies" has died down in the past two or three years, the concept is far from dead. And RegeneRx is one of a growing number of companies using the strategy—outsourcing any function it can, from R&D to clinical trials to manufacturing—to conserve operating cash and bring products forward at remarkably low costs.

Here, Finkelstein discusses why outsourcing suits RegeneRx, how he manages to stay in control of operations, and why he's still able to sleep at night.

Pharm Exec: Why did you turn to an outsourcing model?

Finkelstein: When we first started, this company was very small, and we didn't really have the ability to raise large amounts of capital—which was a good thing, because we weren't tempted to raise a lot of capital and build up a huge infrastructure.

What we thought, based on our technology and based on my history in the industry over the past 25 years, was to build an outsourcing model, where we raise just enough capital to get to the next set of milestones. Assuming that we were successful in attaining those, we would raise the next amount of capital and build that way, presumably with higher and higher valuations.

That's what we've done; we've raised about $25 or 30 million or so in the last five years, mostly at higher valuations. By not building up a large infrastructure, we don't have a huge amount of capital investment, making us more flexible and, I think, nimbler. Thus, we've been able to outsource just about every task that is necessary to develop a pharmaceutical product—from clinical trials to manufacturing to formulation, even R&D.

Are there concerns that you lose the direct oversight and control that you'd have if those functions were in-house?

Yes, always. It makes me a little nervous, but we've hired some really good in-house people at high levels, and they manage the vendors and contractors. You have to manage outside companies more closely than you probably would internal staff. Just because they're experts does not mean everything will happen exactly the way you want it to. If your contractors aren't working out, you have to get rid of them and find someone else. There's a lot of oversight. That's the biggest effort, I guess, involved in outsourcing.

Do you see outsourcing as a trend—will more companies move in that direction? Or do you see this model responding to the business environment of a fixed point in time?

I think it's a trend for a couple of reasons. First, there are a lot of contractors out there, from CROs that manage clinical trials to companies that manufacture all sorts of biopharmaceuticals, lots of small companies that didn't exist 15 or 20 years ago.