Room For HCV-Focused Start-Ups If The Technology Is Truly Novel

Hepatitis C has been the focus of some of biopharma’s most expensive deals the past couple years. In the wake of the licensing, IPO, and M&A frenzy, not many new start-ups have emerged, but there are a still a few niches to fill if entrepreneurs can find funding.

Is there still room in the hepatitis C pipeline for start-ups? They’re certainly not easy to find anymore. Over the past several years, a number of small companies in that space grew larger; many went public, and then cut deals or were acquired.

The acquirers were a mix, as powerhouse biotechs Gilead Sciences Inc. and Vertex Pharmaceuticals Inc. and big pharmas Bristol-Myers Squibb Co., AbbVie Inc., and Merck & Co. Inc. revved up their late-stage pipelines, topped by Gilead’s record-setting $11.2 billion purchase of Pharmasset Inc. in 2011. [See Deal]

But a few start-ups are making the case that there’s still room for more. Okairos SRL and Spring Bank Pharmaceuticals Inc. both have lead programs in hepatitis C. They anticipate that the $20 billion annual market for HCV treatments that some Wall Street analysts are predicting will offer room for more good ideas. With Gilead and Bristol elbowing one another to be the first to market with a combination regimen of direct-acting antiviral (DAA) drugs for HCV, and other deep-pocketed players not far behind, what ground is left, if any, for a start-up to occupy?

“Hepatitis C is such a large, global market, there still is plenty of opportunity for the right assets to be brought forward, things that are novel or that may address some of the shortfalls or unmet needs showing up in the current development portfolios,” says Joe Truitt, SVP of business development and chief commercial officer of Achillion Pharmaceuticals Inc., which has several HCV candidates including a protease inhibitor in Phase II. The company went public in 2006 and has since raised cash from VCs and others in private placements. [See Deal][See Deal][See Deal]

“It’s getting harder because so many drugs have been developed and there have been real advancements in the field, but there are still opportunities,” Truitt says.

Niches for start-ups include novel therapeutic approaches, such as Spring Bank’s host immune response program and Okairos’ focus on producing a prophylactic vaccine to prevent HCV from becoming a chronic infection. Patients with genotype 3 of the disease, most prevalent in Asia, could be another HCV area to pursue; Gilead’s all-oral combination drug has produced disappointing data in those patients. In the Phase III FISSION trial, Gilead’s nucleoside polymerase inhibitor sofosbuvir, tested with ribavirin, produced strong, sustained virologic response (SVR) rates across most genotypes, but not in genotype 3. The regimen yielded a 56% SVR rate for genotype 3 patients in the study, compared with a 97% SVR rate for genotype 2 patients (Also see "Data For Gilead’s Rising Hep C Star Sofosbuvir Support Initial Filing" - Pink Sheet, 4 Feb, 2013.).

“That data opened up a window of opportunity to look at genotype 3, which is only about 9% of the U.S. market, but in some countries it is the dominant genotype,” Truitt continues.

No company has stepped forward into that space yet, at least not publicly.

Cyclophilin Inhibitors

Another privately backed HCV firm is Scynexis Inc., a North Carolina biotech with a cyclophilin inhibitor, SCY-635, in Phase II – the only one in clinical development. It’s no spring chicken; it was founded in 2000 and raised a $13.5 million Series C-2 round in 2008. [See Deal] Scynexis currently is seeking partners to include ‘635 in experimental HCV combination regimens.

Enanta Pharmaceuticals Inc., which went public this past March [See Deal] on the strength of a Phase III protease inhibitor it co-developed with Abbott Laboratories Inc.[See Deal], also is working on a cyclophilin inhibitor, EP-CyP546. Now in preclinical development, Enanta’s compound is on track for an IND filing this year and initiation of a Phase I study in first-quarter 2014. Novartis AG also was developing a cyclophilin inhibitor, Phase III alisporivir, acquired from Debiopharm Group, but it has been placed on clinical hold due to three trial patients developing pancreatitis, with one fatality. [See Deal]

Before its IPO, Enanta was privately held and venture-backed, but it also had significant corporate shareholders: Shionogi & Co. Ltd. and Abbott’s spin-off AbbVie Inc., specifically. [See Deal] Its protease inhibitor, ABT-450, now is part of an AbbVie three-drug regimen for HCV that recently obtained breakthrough therapy designation from FDA.

Steve Burrill of Burrill & Co. says the thin roster of next-generation HCV companies is more due to lack of investor appetite for new companies generally, not due to lack of innovative opportunity. Burrill’s firm was a principal investor in Pharmasset, and it still retains a stake in Scynexis.

Emerging Markets: Barriers And Opportunities

The opportunities in emerging markets also present a barrier. Marketing any drugs, let alone HCV drugs, in China and India may be beyond any start-up’s capabilities, but Okairos says it is undeterred and its vaccine candidate presents a big opportunity in China, India and other Asian countries.

“There are regions of the world where the incidence of HCV is still very high and, particularly in the developing world, a preventive vaccine will be of great impact given the high costs of drugs to treat chronic infection,” says Okairos Co-founder and Director of Immunology Antonella Folgori.

Based in Switzerland and spun out of Merck in 2007, Okairos thinks it has the vaccine niche all to itself. Chronic HCV often remains latent and even undiagnosed in many patients, but eventually it grows more virulent, presenting the threat of serious liver disease such as cirrhosis.

“Our aim is to induce T cell [response] that will lead hopefully to the clearance of virally infected cells and [ultimately] to the resolution of chronic infection,” says Folgori. “This is why we think we have a good advantage, because most companies are developing [HCV] drugs to treat chronic infections, while our aim is to develop a prophylactic vaccine.”

The primary market would be people whose work puts them at risk for infection, such as health care workers, police officers and firemen, she adds. Subsequent markets could be intravenous drug users and pre-adult patients in nations with high HCV-infection rates.

After being spun out, Okairos licensed adenovirus technology from Merck. The company has raised €23.2 million through a 2007 Series A [See Deal]and a 2010 Series B. [See Deal] Investors in those rounds included Life Sciences Partners, BioMedInvest AG, Novartis Venture Fund and Boehringer Ingelheim Venture Fund.

Okairos also has raised more than $25 million in grant funding from sources such as the National Institutes of Health and the European Union, which helped finance study of a therapeutic vaccine for HCV. That candidate, TerCVax, remains stalled in Phase I and Folgori says Okairos has no plans to develop it further. But the prophylactic ProCVax is entering Phase II trials.

Like Okairos, Spring Bank hopes its candidate will prove to be pan-genotypic. Spring Bank of Milford, Mass., raised a $10.5 million Series A from two boutique investment banks, Brock Securities LLC and Gilford Securities, in February, with plans to use the funding for a Phase I safety and efficacy trial of lead candidate SB9200. [See Deal] Developed with the biotech’s small molecule nucleic acid hybrid (SMNH) technology platform, SB9200 is thought to work by targeting the patient’s cytosolic sensor proteins RIG-1 and NOD2, resulting in selective activation of a host-immune response in cells infected with HCV.

New Classes Spur Interest

President and CEO Douglas Jensen is certain his company would have gotten nowhere with investors if it presented just a variation on the DAAs now in development. But he thinks SB9200’s ability to activate a host-immune response could make a compelling case to be part of next-generation combination therapy.

“We heard exactly what you’d expect: ‘How can a little firm like yours expect to compete in this landscape?’” Jensen said. “Clearly, Gilead has established a pretty senior position, but what’s emerged is that no one company has a lock on the field. Every one of the major players has weaker elements to its overall portfolio, whether it’s a genotype 1a or 1b or genotype 2 and 3.”

In a 40-patient Phase I trial that dosed its first patients in April, Spring Bank is testing the oral compound in genotype 1a, 1b, 2 and 3 patients who are infected but remain healthy for now. Jensen says his scientists believe SB9200’s mechanism of action will lend to being pan-genotypic.

“There is opportunity if you have a unique drug,” he says. “Now, if we were to come into the market with another polymerase inhibitor or an NS5A inhibitor, I think we would not have gotten any traction whatsoever. But given that our molecule is unique and because its mechanism of action is synergistic with other classes of drugs … there is significant opportunity [for it] to be used in a variety of different combinations to help each one of those [other drugs] improve.”

[Editor’s note: This story was excerpted from the original version appearing in the May edition of START-UP. For information on START-UP, contact customer care at 800-332-2181 (U.S.) or 908-748-1221 (international).]