News Article

Testing New Business Model, Araxes Pharma Signs Deal with Janssen
Date: Feb 28, 2013
Author: Bruce V. Bigelow
Source: xConomy ( click here to go to the source)

Featured firm in this article: Wellspring Biosciences LLC of La Jolla, CA

In a short announcement yesterday, a previously unknown San Diego startup called Araxes Pharma said it entered into an exclusive partnership with Janssen Biotech of Horsham, PA, to develop a new group of cancer drugs that target an undisclosed signal pathway.

Terms of the deal were not disclosed, and CEO Troy Wilson wrote in an e-mail, "We can't say much beyond what's in the release, but it's a great deal for both parties."

So much for that deal, right? But there is part of the Araxes story he's willing to discuss—and it's an example of an innovative business model for pharmaceutical startups that's gaining a foothold in San Diego.

Wilson (who is a San Diego Xconomist) was previously a co-founder and CEO at San Diego-based Intellikine, which was acquired by Japan's Takeda Pharmaceuticals just over a year ago in a deal that could eventually pay out $310 million. The sale culminated years of work, but to Wilson, the experience also underscored one of the frustrating aspects of today's drug development business.

In creating a pharmaceutical startup, he explains, "You get a team together and start working on a problem, and they're smart people, and they almost invariably come up with more than one answer to the problem. That's what happened at Intellikine and that's what happened at Ambrx," a specialized developer of antibody-drug conjugates where Wilson worked a decade ago. Many early stage pharma startups end up with a group of promising compounds under development.

Troy Wilson

"The problem comes when you want to do a partnership or an acquisition with a big pharma," Wilson says, "because they just want to buy from the a la carte menu." In many transactions, the acquiring pharmaceutical company is only interested in the lead drug candidate, and the other compounds become castoffs.

This is the same issue that Amira co-founder (and San Diego Xconomist) Peppi Prasit sought to address when he founded Inception Sciences in late 2011. With help from Menlo Park, CA-based Versant Ventures, Prasit structured Inception Sciences to operate as a holding company with the ability to incubate and spin out a variety of affiliated drug development programs.

Wilson is testing a similar concept.

As it turns out, Araxes Pharma is merely the first drug development program to be rolled out by Wellspring Biosciences, which also is a new startup in town. Wellspring, as the name suggests, is intended to serve as a font for new drug programs, and Araxes is the trial run testing the concept. Two UC San Francisco researchers, Kevan Shokat and Frank McCormick, are the scientific founders at Araxes, and Wilson serves as the CEO at both Araxes and Wellspring.

So did Wilson study the business model at Inception Sciences?

"Peppi and I have compared notes, yes," Wilson confirmed. In the process of creating Wellspring, he said he used the same lawyers, tax people, and accountants that Prasit used to create Inception Sciences.

Wilson said the business structure gives people in his position more flexibility. "You can finance it or partner it—and you can sell it without having to take apart the whole enterprise."

One difference from the business model at Inception Sciences, Wilson noted, is that Wellspring has taken no venture capital. "We were financed by the founders, and friends and family," he said, and now the work at Araxes is being financed through the partnership with Janssen Biotech.

Wellspring has 15 employees, and the company has minimized its overhead costs by moving into the Janssen Labs incubator in San Diego. Both Janssen Labs and Janssen Biotech are units of Johnson & Johnson, but there was no quid pro quo requirement to do the deal with Janssen Biotech, Wilson said. As a longtime cancer drug specialist, he already had contacts at Janssen Biotech.

Under the deal, Wilson said the Wellspring-Araxes team has retained control over its drug development program, and will continue to advance the experimental compound through Phase I to clinical proof of concept.

Araxes did not identify its drug target. For what it's worth, though, yesterday's statement notes that Wilson, Shokat, and Wellspring's chief scientific officer, Yi Liu, and senior vice president of chemistry, Pingda Ren, previously worked together as co-founders of Intellikine, which was focused on developing drugs to block the PI3 kinase pathway, a biochemical signaling process shown to control critical cell functions like proliferation, migration, and cell survival.

"Our plan is to move as fast as possible with this project through Phase I," Wilson says. "After Phase I, we should have a very good idea of where we stand," and Janssen Biotech can assess whether to take over development from there.

"If we're successful," he adds, "this will be a huge opportunity for them.