If you had decided to start a proteomics company two or three years ago, you may have been one of the lucky ones. Raising venture capital to start a biotech company has never been easy, but the heightened expectations and hoopla surrounding the (stated) completion of the human genome allowed many entrepreneurs with stories of quick and easy drugs to collect hundreds of millions of dollars from venture capitalists eager to capitalize on the promise of genomics and proteomics.
Now, selling that story has become a bit more difficult. To be sure, proteomics as an industry — if in fact one can call it that — has yet to reach the maturity of the DNA microarray sector. But the success that proteomics companies have had over the past few years raising money has put constraints on the current availability of capital for new ventures in the proteomics space. There just aren’t enough new ideas, some VCs say. Furthermore, VCs and other private investors are now laboring under the assumption that only companies with products in their near future are worth funding, forcing entrepreneurs — and even well-funded proteomics companies — to scramble to find something to sell besides access to a platform technology.
“The market has no interest in ’omics and technology platforms, [because] there’s been a lot of investment already,” said Jean-François Formela, a principal with Atlas Ventures. “People should be talking about what it is they do that is relevant to drug discovery. The hurdle is much higher now.”
Part of the blame for these changes in fortune lies at the foot of proteomics companies themselves. In their attempts to solicit funds, many entrepreneurs overbilled the value that their technologies would bring to drug discovery in the near-term. Proteomics experiments, such as differential protein expression, are quite adept at delivering new targets for drugs, but with pharmaceutical companies overloaded with targets from their earlier sorties into genomics, many big pharmas have been less aggressive about dumping large chunks of money into the hands of proteomics companies. Deal-making has been slow, said Michael Lytton, a general partner at Oxford Bioscience Partners, because pharmas “are still digesting tools from the early ’90s, and mid-size biotech companies can’t afford to pay what the pharmas paid earlier.”
As a result, Lytton and other VCs say, startups relying on proteomics technologies have to choose from a limited number of paths: develop an in-house drug discovery program, financed in the short-term by contract research to pharma, in-license a clinical stage therapeutic with more immediate prospects for reaching the market, or tie the startup’s proteomics technology more closely with applications further down the drug development pipeline, such as diagnostics or aiding in the screening of patient candidates for clinical trials.
Several companies are already making a go at the first of these options. Affinium Pharmaceuticals, which recently changed its name to reflect its new focus, has hired ex-biotech executives such as Molly Schmid, formerly at Genencor, to build a drug discovery program aimed at antibacterial and antiviral therapeutics, and just last week scored a research contract with Pfizer valued at $30 million [story p. 1]. GeneProt and structure-based proteomics companies such as Syrrx are also hoping to follow this model by funding in-house therapeutics programs through their research relationships with Novartis and Pharmacia, respectively.
Celera hopes to succeed with the second of these options. Through its acquisition last year of Axys Pharmaceuticals, a company with several pre-clinical drug candidates, Celera has attempted to jump-start its therapeutics program, while maintaining its proteomics platform to supply its chemists with druggable targets in the years to come. Nor is this approach restricted to companies with a billion dollars in the bank. Startups are also finding that access to venture capital comes easier when a business plan includes the promise of revenue from an in-licensed drug program. Chris Ehrlich, a senior associate at InterWest Partners, said he recently reviewed the business plan of a company looking to use protein-protein interaction studies to identify protein targets. Although the company had “really cool science, and a good CEO,” it wasn’t until he realized the company had in-licensed a validated target that he seriously considered funding the venture.
But applying proteomics to downstream drug development applications may be a startup’s best chance at the moment to secure early-stage funding, some VCs said. Given pharma’s bloated inventory of targets, there’s an opportunity for companies to help streamline ADME and toxicology studies, as well as work at the interface between chemistry and biology, by using small molecules to select protein targets that are more easily druggable, said Formela of Atlas Ventures. Recent publicity around a study by Emanuel Petricoin and Lance Liotta of the NCI/FDA joint proteomics initiative published in The Lancet has also made clinical applications of proteomics seem viable as a business plan. “A real breakthrough in the clinic may get more attention,” said David Stone, a managing director of Flagship Ventures. “If [you] could show an impact on clinical medicine, or clinical trials, that might be more likely to attract funding,” he said.
Other VCs seconded that assessment, and emphasized that the bottlenecks may lie further downstream. “There are huge numbers of targets, but really trying to determine which of those targets are important for various diseases states or various abnormalities —that’s really key,” added Lyle Hohnke, a principal with Tullis-Dickerson. “Validating those targets and making the determination [as to which targets to take forward] is certainly more where the action is right now.” — JSM