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For One VC, Turning From Technology to Drug Discovery is Dumb

This clarification notes that Novartis did not acquire Vertex for $800 million, but rather entered into a collaboration with the company in May 2000 for the same dollar amount to "discover, develop, and commercialize small molecule drugs directed at targets in the kinase protein family."


LONDON, Oct. 16 - Venture capitalist Gunnar Weikert has some opinions that genomics and proteomics companies might find hard to swallow. One: New-technology development should be left to the public sector. Two: Selling lead compounds is a losing battle. Three: Big pharmas shouldn't bother with small deals.


Speaking to GenomeWeb at an industry conference here this week, Weikert, CEO of the Montreux, Switzerland-based fund Inventages and former global head of physiomics for Bayer, said startups need to keep in mind the difference between academic- and private-sector endeavors. "In academic research, at the end of the day you get to give a paper and a presentation," he said. To the contrary, in pharmaceutical drug discovery, "no one cares how intelligent your science is or what the mechanism of action is. They just want the drug."


Weikert shared his view of the life-sciences landscape this week at Genomex, a three-day conference that attracted only a few dozen attendees despite a roster of high-profile speakers including Weikert, SNP Consortium chair Arthur Holden, HUPO cofounder Ian Humphery-Smith, and Oxford University's Denis Noble.


For one thing, Weikert is critical of young tech companies that try to sell pharmas on alternative technologies that will make only incremental differences. "If it's a new way of measuring protein interaction, nice. But what does it mean? Does it help me with my overall goal? ... It's like the old VHS versus Betamax systems. Who cares? At the end of the day, you as the consumer couldn't see the difference."


According to Weikert, Inventages reserves its $200 million-plus fund for companies that align with his understanding of how the pharmaceutical industry works. Though he declined to disclose which companies Inventages has invested in to date--all are private--Weikert said he's interested in high throughput, high quality, broad technology platforms, integrated bioinformatics and cheminformatics, and a focus on drug discovery as opposed to technology or science.


Technology that doesn't fit smoothly into the big-pharma paradigm won't get his support. "It's not about biology and scientific interest. We invest in companies that understand the entire [drug-discovery] process," he said. "Most stuff is single-technology oriented. You must have a systematic approach to the whole process."


He added, "I wouldn't invest today in basic technology development." Instead, Weikert believes that universities, governments, and other public money should support new technology development and that VCs should only step in when it is time to build the business plan.


Many genomics and proteomics companies that have tossed out their technology-platform business models to pursue drug discovery are naive, according to Weikert. He counts Celera among them. "That they will now become a drug-discovery company to me is nonsense. I would have 25 business models for Celera, but not the one they have chosen. My advice is, whenever you're in such a company, never follow the short term advice from the investment community." 


Weikert also dismisses genomics companies that suggest they have 20 targets that will lead to 10 clinical candidates and ultimately to a drug. "That's bull," he said. "It's all about averages. As a research manager or as an investor, you rely on statistics. It's unrealistic to think that you can start with 100 targets to get to market. If you want 30 clinical candidates, you need 300 targets."


Making a business of selling lead compounds is extremely difficult, Weikert warned. "If you calculate what pharmas pay per lead, depending on the definition, it's between $5 million and $20 million. But you see pharmas negotiating [lead providers] down to a half million dollars." And that isn't a high enough price tag to sustain one of these companies.


A more sensible model, he said, is the contractual relationship in which a pharma relies on a genomics company to provide 10 leads per year for five years. Weikert advocates supply-chain relationships, such as the one he negotiated between Bayer and Millennium, in which genomics companies contribute "intermediate discovery products" to pharmas similar to how parts manufacturers provide completed car parts to the auto industry.


In a supply-chain model, said Weikert, pharmas would tell vendors, "I'm not paying for work, I'm paying for deliverables. If you don't deliver, you don't get a check. There is a good reason this is working in other markets, even young markets like telecoms," Weikert added.


Weikert also warned that "deal size matters." A $5 million deal doesn't get the attention of top management, and without that, the technology won't be adopted into the drug discovery process. Weikert pointed to Novartis' $800 million drug alliance with Vertex as an example of a deal that, by virtue of its size, will get top-down support. For that kind of money, Weikert said, you can be sure that the CEO will see to it that the Vertex technologies get integrated into his company's processes.


But then, pharmas aren't exactly spending money like they used to these days. And Weikert wasn't the first one to note that the sparse attendance at Genomex was further evidence of that.

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