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To Sign Pharma Deals, MDSP Shifts Focus Towards Downstream Services

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Ten months ago, when MDS Proteomics held an opening ceremony at its flagship facility in Toronto, a panel of scientists and managers trumpeted the advent of a new age in drug discovery that proteomics would make manifest. It was a giddy time for the subsidiary of Canadian health care giant MDS, which had sunk millions into assembling an impressive suite of mass spectrometry, computational prowess, and scientific expertise. The presumption, as Jessica Chutter, an MDSP panel member and co-head of biotechnology for Morgan Stanley put it at the time, was that pharmaceutical companies would have to rely on proteomics and related technologies or “they will not survive.”

That may still be true, but certainly things have sobered since November 2001. While the biotech sector as a whole has struggled to finance itself in the face of a market downturn, companies like GeneProt and MDSP have failed to sign up the pharma partners they anticipated would supply them with near term revenue as they developed their own drug pipelines. MDSP in particular has not snagged another partner since signing Abgenix in May 2001 to a partnership built around antibody therapeutics.

How MDSP is responding to these challenges presents a case study of what it may take for proteomics companies to survive – or fail. Over the last 18 months, the company said it has changed its strategy from marketing its services as a discoverer of new drug targets to becoming a provider of more tailored services, built predominantly around using proteomics to select out promising drug targets, and guiding candidate small molecule drugs through the later stages of the drug development process.

“We’ve realized that the big issue with pharma is not so much in identifying new targets,” said MDSP’s chief scientific officer Mike Moran. “In many instances the targets are there. [The issue is] trying to make decisions between targets,” and helping pharma companies choose between prospective drug candidates, even at the clinical stage, or when there are unanswered questions about drugs currently on the market, he added.

“We’ve long since moved away from large-scale systematic mapping of the proteome to hone in on specific drug discovery-related populations of proteins,” he added.

To do this, MDSP has begun trying to demonstrate to potential partners that its approach to analyzing the phosphopetides in a sample, for example, represents a proteomics technique that can give researchers insights into a drug’s mechanism of action, as well as potentially help define the drug’s toxicity, Moran said.

“Looking at the profile of phosphorylated proteins provides a powerful measure of what’s going on inside a sample,” he said. “[It’s value is in] tying those patterns into the actual signaling pathways in the cells, so someone could have a cell signaling readout of what a compound was doing.”

It remains to be seen whether pharma and biotech companies will go for MDSP’s pitch, but MDSP executives said they are in various stages of discussion with several partners, and expect to sign at least one in the fall, said MDSP CEO Frank Gleeson. When asked why it might take so long for the company to sign a deal, Gleeson attributed the slow pace to pharma’s distrust of new technology, and the time and effort required to convince partners of its applicability to their problems.

But MDSP may be following the proper course, according to Brian Musselman, president of SciMarket Strategies, a proteomics consulting firm. “It sounds like MDSP is turning in the proper direction,” he said. “Before, people thought you could just cut up gels, and because this was expertise only a few had, people thought you could be successful. Now, if I’m big pharma, I need to know what I’m going to buy from these people.”

In the meantime, MDSP is keeping busy with its work for Abgenix, as well as with its own discovery initiatives. Under the agreement with Abgenix signed in May 2001, MDSP was to provide 150 protein drug targets in return for a $15 million equity investment. Although Gleeson declined to describe MDSP’s progress towards that number, he said in May of last year that the company had identified seven targets in preliminary screening for antibody development. “The relationship [with Abgenix] is at a preclinical stage,” Gleeson said last week.

Said Moran: “The goal was to start delivering targets to them and that’s where we’re at. We’ve done that.” Moran added that the two parties are currently developing investigational antibodies, and applying MDSP’s proteomics platform to help sort through them.

But minus any breakthrough with Abgenix that could trigger milestone payments, MDSP may soon find itself knocking on parent MDS’s door for more money. The company burned through $53 million during 2001, much of it presumably to build facilities, hire staff, and purchase its battery of 30 MDS Sciex and Thermo Finnigan mass spectrometers. In addition to funding from MDS, Abgenix and IBM threw in a combined $25 million in equity financing during the first half of 2001.

In November of last year, MDSP’s chief financial officer Anil Amlani said that the company had enough cash at a burn rate of $49 million to last through 2002. Gleeson declined to disclose the company’s current annual burn rate, calling it “less” than $49 million, but said MDSP has two to three years of cash on hand.

At least until the climate for IPOs improves, MDSP will have to continue to rely on MDS to keep it afloat. But Gleeson is confident MDSP won’t be forced out on its own prematurely. “They’re strong enough in their markets to have support from their shareholders to wait for the markets to improve before forcing us to do something foolish,” he said.

– JSM

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