Industry Roundtable: Neurotech Execs Discuss Innovation, Challenges, Next Steps (part 3 of 4)

Panelists discuss asset valuation, the scarcity of viable candidates in some parts of the neuro sector and the need for novel ways of funding early development.

Neurotechnology Industry Organization Executive Director Zack Lynch, three member CEOs and the COO of a therapeutic foundation sat down in Boston Sept. 10 to share with "The Pink Sheet" DAILY their views on the challenges facing developers of central nervous system therapies.

In addition to Lynch, the panel included Acorda Therapeutics CEO Ron Cohen, EnVivo Pharmaceuticals CEO Kees Been, Alseres Pharmaceuticals President Mark Pykett, and Melanie Leitner, chief operating officer of Prize4Life, a foundation focused on ALS cures.

[Editor's note: This is the third in a four-part series. Part 1 was published in "The Pink Sheet" DAILY ¹ (Also see "Industry Roundtable: Neurotech Execs Discuss Innovation, Challenges, Next Steps" - Pink Sheet, 17 Sep, 2008.), and Part 2 ran ² (Also see "Industry Roundtable: Neurotech Execs Discuss Innovation, Challenges, Next Steps (part 2 of 4)" - Pink Sheet, 19 Sep, 2008.).]

"The Pink Sheet" DAILY : I assume that all of you are keeping your eyes out for expanding your portfolios and having business development discussions. Even as there is a need for more R&D funding, are the asset values going through the roof, as well?

Mark Pykett: I think actually perhaps the opposite, especially earlier stage. There's compression of valuation across the board. Certainly smaller companies, development-stage companies you could safely say are routinely undercapitalized, so we leave no stone unturned in looking for sources of capital, be they government funding, foundation funding, corporate sources - meaning partnering, licensing, that kind of thing - private capital markets, venture, and then the public capital markets.

And the quarterly management style and objectives of public capital markets are probably fundamentally misaligned with the objectives that you need in a development organization, where you're thinking about long-term development cycles. So when you look to corporate partners as potential sources of capital in some cases there you can realize better valuation for your assets if you can identify those corporate partners for which your assets are strategic or intrinsic in some way, that there is some risk that they're trying to address, that there's some exposure they're trying to address, there's some synergy they might be able to capitalize on.

But even in those cases our experience has been this is a tough environment for the valuation of all technologies across the board. Now, when there's a very noteworthy success that's widely recognized, then maybe there's a little bit more competitive bidding in an environment that allows valuations to expand. But I certainly wouldn't say that valuations for companies or assets are going through the roof today.

Kees Been: My company is at a stage - although it's still early, we've spent a lot of money in the past - so we're at a stage where we cannot start with completely novel opportunities. We have to focus on things that VCs can recognize and can put in our models that will generate value in a few years.

What we did over the last two years was what we call 'boil the ocean,' and we set some parameters. It had to be earlier than Phase I, because we were not going to [compete for and get] any Phase II compounds. But they had to be about no more than two years away from the nomination of a preclinical candidate, so about three years from the clinic. That was the range.

We looked at it, of course, with the same eyes that VCs look at it. My team grew up in big pharma and biotech, and almost everything we looked at didn't stand up to our diligence. We passed on a lot of opportunities of companies that were in desperate state; they were not getting any finance. But we passed on almost everything.

I actually think there isn't really a lot of great stuff out there. Everybody's focusing on the same things. In Parkinson's, there hasn't been any innovation. The only thing people are working on is trying to delay putting patients on L-dopa. In Alzheimer's disease - well, it's encouraging, but I think we're still far away from really understanding what's going on.

I think there needs to be a lot more money spent on basic research, trying to understand what is Alzheimer's, really? And that's not going to happen in my company. That's not going to happen, I think, in VC-backed companies, unless it's something that's recognized.

"The Pink Sheet" DAILY: Is more basic research the answer? What about translational research, developing discoveries into candidates of interest to VCs or industrial partners?

Ron Cohen: I don't actually think that having more basic research by itself is a solution. More basic research is - it's a good thing in and of itself. It's great. But if you're allocating funds, I think you need to have a balance. And where I see the imbalance is in the right side of the graph, on the output side, where people are not doing enough empiric trials. People are so obsessed with figuring out mechanism and hypothesis-driven science that they are not, in my view, willing to take enough chances based on sufficient information but not perfect information.

There is not enough of a willingness to say, 'Okay, let's make sure things are safe, but if there is a logical reason and sufficient data to hypothesize that this might work clinically, let's try it.' Because no matter how much basic research you do, no matter how much animal research you do, you are not going to know anything real until you try to put it in people. And that's the bottom line.

"The Pink Sheet" DAILY : Do you mean more empirical trials by industry or academics or both?

Cohen: Both, ultimately. The real question is, where's the money coming from? You've got a situation now where on the industrial side, venture capital is drying up, the public markets are drying up, and even corporate cash is drying up.

Been: I actually don't think we disagree. I would like to see more basic research done to identify a few more targets that you could take risks on. In Alzheimer's there are not many targets. I think our industry is short of targets. I mean, if I talk with my guys about something that hasn't been proven yet, they don't want to touch it. So what are the new targets? And then you're right. What other money is there to actually take the bet?

Pykett: On the flip side, in things like nerve repair in stroke, traumatic brain injury, spinal cord injury, we're seeing too much data - too many targets come out unproven. They're high risk. Some of them have had applications in other areas and are well-known. Some of them are fully uncharacterized.

But there's this gap between taking that information - which is very compelling in the literature, very strong science at a basic science level - and, because it's more than three years from the clinic, because it's an unvalidated target, because nobody really knows what to make of it, finding the resources and funding to be able to focus on translating that bench science into a clinical development program.

Cohen: There needs to be some new way of going about it and getting capital formation and getting access to capital to fund these sort of activities. I have a sense that we're just mired in the past. We're just mired in the old way of doing things. There is not enough creative thought and impetus to novel ways of getting consortia together, getting empiric trials together and really trying to drive some programs forward.

It's a question of balance. You need the basic science, you need the hypothesis-driven science. But we have a dearth of the other side. How do you fund ideas that are credible but which are so risky that you just can't get funding from traditional sources today? How do you do that?

One of the ways you do it, and we're seeing more of it, is on the private foundation side, where people who are advocates for a particular disease are willing to cut through a lot of the bureaucratic stuff and old assumptions and just say, 'We're going to raise a lot of money because we're passionate about this, and then we're going to put our money down ... and we're going to see what happens. And most of the time it's not going to work, but every now and then they're going to come up with a winner.

Melanie Leitner: Right. And I think you're seeing a lot of innovation in the foundation arena, just in terms of trying new models, trying to change business as usual to see if we can shake things up. Foundations are also really trying to create opportunities for face-to-face between academic and industry thought leaders.

Cohen: What you need is the academic thought leaders to get together with the industry thought leaders in consensus panels and say, 'We have this set of opportunities. How do we address the inherent issues that are giving people pause, these conflict of interest issues?'

There are ways to do it, but you need people of good will to sit together and agree that we're going to do it. And then, once we've set the framework, how do we get innovative designs for drug development that will marry the best of academia and of industry, and in so doing cut through some of the hesitancy that has characterized all these fields for taking risk. And, by the way, government, you need to fund these pilot projects taking more risk, and let's see if we can find new ways of doing things.

-Shirley Haley ([email protected]) and Mark Ratner ([email protected])