Date: Nov 13, 2004 Author: Penni Crabtree Source: (
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For Greg Tibbitts, the demise of Elitra Pharmaceuticals strikes a painful and personal chord.
In 2002, Tibbitts' 2-year-old daughter, Cassie, almost died from a drug-resistant strain of pneumonia. An antibiotic of last resort, vancomycin, finally knocked the bug out.
But now a medical crisis is brewing. Vancomycin, the medicine most physicians use to kill bacteria when no other antibiotic works, is slowly losing its clout as more bacteria gain resistance to it.
Tibbitts, Elitra's former chief financial officer, had hoped that the privately held San Diego biotech could harness its genomic tools to find new ways of killing or disabling the kinds of drug-resistant bacteria that nearly took his daughter's life.
But Elitra ran out of money this year. It has laid off what remained of a work force that once topped 70, and recently sold its intellectual property assets to Merck & Co.
Elitra is not the only bacteria-minded biotech to flounder. Two weeks ago, Carlsbad's Quorex Pharmaceuticals laid off most of its employees and is now looking for a potential merger partner. Quorex was trying to develop drugs that jammed the chemical communication system that bacteria use to signal one another.
And another cash-strapped local biotech, NewBiotics, which had research programs in antibiotics and cancer, was acquired in July by Canada's Celmed BioSciences.
"The community will wake up in several years and wonder what happened to all the young antibacterial discovery companies," said Tibbitts, who is overseeing the final dissolution of Elitra. "Right now antibiotics are taken for granted, but it's a matter of time before they won't work -- and then everyone will be asking 'why aren't there new drugs?'"
San Diego's cluster of failing antibacterial biotech companies underscores a lingering problem within the larger biotechnology community: a fatal lack of funding for startups that don't have drugs nearing clinical trials or regulatory approval.
That funding squeeze has taken its toll on other San Diego biotechs this year: companies such as Triad Therapeutics, MitoKor, Epicyte Pharmaceutical and Digital Gene Technologies have either been sold, usually at fire-sale prices, or have quietly gone out of business.
Though the investment climate has improved -- seven local life science companies have gone public this year and venture capital funding has picked up -- it is mostly companies with late-stage or approved products that are benefiting.
"In the current biotech cycle, people are looking for products that are in the clinic, preferably in Phase 2 testing," said Thomas Bologna, chief executive of Quorex. "A lot of early-stage, drug discovery companies are having a tough time."
Bologna declined to speculate about Quorex's financial prospects. He said a "significant" number of employees were terminated, but declined to say how many. Quorex has employed as many as 60.
While life science companies with late-stage products can raise capital -- through IPOs, secondary stock offerings or venture capital -- funding that once nurtured discoveries still in the test tube has dwindled.
Traditionally, venture capitalists provided cash to risky but innovative fledgling companies and counted on making a sizeable profit once a company went public or was bought by a big pharmaceutical company.
Today, the public market and the drug giants are reluctant to bet on a company that might take a decade or more to prove itself, so venture capitalists are retreating as well, some industry observers say.
"In the old days, the public would co-invest with you, it was willing to co-develop discovery ideas by participating in IPOs, but not anymore," said Ivor Royston, a partner in Forward Ventures, a San Diego life sciences venture capital firm. "Therefore we can't invest in early-stage discovery companies in the conventional way, because we won't be able to get an increased value over time until there is a product."
Royston said biotechs and venture capitalists are having to find creative ways to fund new, risky enterprises. Some venture capitalists are investing smaller sums and requiring companies to do more with less by operating in "virtual" mode, farming out research to academic labs and piggy-backing on federal grants.
One such company, Rx3 Pharmaceuticals, was formed recently from the remains of Trilogy Pharmaceuticals. Trilogy was a last-ditch effort by Elitra to reinvent itself as a new company by combining its antibacterial technology with select technology spun out from another San Diego biotech, Syrxx.
Trilogy was not able to raise the needed funding, and Elitra's key assets went to Merck. Earlier this week, Merck also paid $300,000 to San Diego State University for rights to the underlying patents on which Elitra was founded.
John Finn, president of Rx3 Pharmaceuticals, said his company is building on its Syrxx technology and a $3 million federal grant transferred from Elitra. He said the company has hired eight former Syrxx and Elitra employees.
Rx3, which is focusing on the development of antibiotics to treat hospital-acquired infections, will try to do what Elitra wasn't able to accomplish, Finn said. And this time around, instead of looking for tens of millions of dollars in early funding, Rx3 will seek low single-digit millions.
Finn said many early stage companies in recent years grew too big too quickly, spending freely and eventually winding up with more debt than value created.
"The founders and (venture capitalists) were looking for a short-term turnaround on their stocks -- do an IPO and get out," Finn said. "To me, that's sick. The only thing that matters is innovation at the level of the patient."
Penni Crabtree: (619) 293-1237; penni.crabtree@uniontrib.com
