Reports of the death of biotech as a result of the global recession may have been exaggerated, but the flight of venture capital
over the past 18 months has taken its toll, especially for startups. Meanwhile, almost half of the 330 publicly traded biotechs
in the US report that they are operating with less than a year's worth of cash. Still, there are signs that the sky may be
clearing, even if the IPO window remains shut. VC investments rose almost 50 percent in the second quarter of '09, while the
NYSE Arca Biotechnology Index is up nearly 30 percent for the year. Of course, the main driver is Big Pharma's panic to fill
its pipelines—the more desperate the giant drugmakers become, the brighter the prospects are for biotech.
For this year's annual "hot biotech" cover story, Pharm Exec picked 10 companies with bright prospects indeed. They run the gamut of disease states, including cancer (two), Alzheimer's,
women's health, superbugs, and good old-fashioned obesity. The lead products for two of the companies have already completed
Phase II trials, while three have Phase II in the works. The other five are still in early-stage development, including two
in preclinical, albeit with science of exceptionally high interest.
Beyond this diversity, these biotechs share two critical features: a medical goal that will make a major difference if
met, and a management team that recognizes that a good business model is every bit as important as good science. All but one
is privately held, but all remain interested in partnering with a Big Pharma (several already have codevelopment deals)—if
the price is right. So let the bidding begin.
THE NEXT RITUXAN
As big drugmaker's profit margins have fallen back to earth, cancer R&D has emerged as one of pharma's best investments. The
science may be as hard as ever, but the regulatory hurdles are at least predictable, additional indications are often forthcoming,
and the pressure on payers to reimburse remains high—even for products with five-figure price tags whose benefits amount to
a few extra months of patient survival. The ongoing national debate about healthcare reform, may eventually scuttle that status
quo, but for now the sun is shining on biotechs with products in Phase II oncology trials.
Carol Gallagher, CEO, Calistoga Pharmaceuticals (CASSIE REDSTONE)
Calistoga Pharmaceuticals is one of the most promising. The three-year-old, Seattle-based company's lead product, CAL-101,
targets the PI3K pathway—a very crowded area of cancer R&D. PI3K, or phosphoinositide-3 kinase, is an enzyme that plays a
key role in a cell's growth, differentiation, and survival; mutations and other dysregulations along the pathway result, not
surprisingly, in cancer.
But Calistoga shows no sign of suffering from a little-fish-in-a-big-pond complex. "We're first-in-class and, we believe,
best-in-class," says Carol Gallagher, the pharmacologist who took over last fall as CEO. CAL-101's data appear to back her
up, showing a 50 percent response rate across a range of different blood cancers, including chronic lymphocytic leukemia,
acute myeloid leukemia, non-Hodgkin's lymphoma, and multiple myeloma. "The first patient enrolled a year ago, and there was
an almost immediate regression of tumor," she recalls. "Since then, we've seen 12 out of 24 patients show improvement."
PI3K may be a big target, but scoring a clean hit is tricky. Precisely because it is involved in critical cell functions,
messing around with it can cause plenty of unwanted effects. Unlike many of its rivals, CAL-101 is highly selective for a
single variation of the enzyme, allowing for more drug and greater efficacy before toxicity sets in.
Calistoga has deep roots in Seattle's biocluster. It was launched in 2006 by a team of local scientists, including Michael
Gallatin, the company's president, who had joined ICOS Pharmaceuticals in 1990. Calistoga's chief medical officer, Albert
Yu, and Clifford Stocks, chief business officer, are also ICOS alums. ICOS is famous for developing Cialis, and then being
bought by Lilly and promptly shut down, casting a temporary pall of unemployment over the Seattle-area biotech community.
On its way to erectile-dysfunction riches, ICOS shelved its PI3K-inhibitor platform (including 700 compounds), which was inherited
by local VC firm Frazier Healthcare and would later become Calistoga's dowry.
Gallagher hooked up with Gallatin and company via Frazier, but her claim to fame dates back to her days at IDEC, where she
headed the team that made Rituxan, a cancer blockbuster, and helped design the program for the monoclonal antibody's successful
transition into rheumatoid arthritis. "Rituxan offers benefit everywhere you add it in a malignancy, and it has low toxicity.
It's a great drug," she says. "That's the model we are looking at."
With Cialis and Rituxan in its corporate DNA, Calistoga boasts some serious commercial smarts to inform its scientific work.
Gallagher has no illusions about the challenges, especially in crafting one version of the compound for blood cancers and
another for autoimmune disorders. "You have to think strategically and long term," she says. "It's essential to have squeaky
clean data. But because the markets are so different, you need a dose that is more about modulating immune cells."
At the annual American Society of Clinical Oncology confab in June, this class of compounds made headlines—though less for
the data than the deals. San Francisco-based biotech Exelixis said that it was licensing its two lead PI3K inhibitors to Sanofi-Aventis
for up to $1 billion in milestones, while Merck and AstraZeneca seemed eager to codevelop two of their candidates in a single
program. But when the glitter had settled, the actual results from Phase I were less than glowing, with only a single patient
response among the Exelixis, Merck, and Genentech candidates. (The trials were in solid tumors, a much tougher target than
blood tumors. Calistoga is preparing its own solid-tumor PI3K inhibitor for Phase 1.)
Gallagher says that the biotech has met with potential Big Pharma partners, and is weighing that option. But after a $30 million
series B in May from Frazier and other top-tier VC firms, Calistoga may have pockets deep enough to bankroll its own Phase
II trials, taking on greater risks in the short term for greater potential gain in the down the road.
"If there's a signal across all these cancers, how big do we want to go with the trials?" asks Gallagher. That's a question
every young biotech would love to have to answer. "I don't want to sound boastful. It always takes a little luck. And in the
end, we have to wait and see what the data tell us."