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Ex-Lilly execs take on diabetes with Carmel startup

November 6, 2006

Four former top scientists at Eli Lilly and Co. have formed a Carmel-based company to develop diabetes therapies--a venture observers say has the potential to become the kind of blockbuster success BioCrossroads was built to stimulate.

"I wish we had 10 stories like this," said David Johnson, CEO of BioCrossroads, the life-sciences initiative launched four years ago. "But I'm really glad we have this one."

The chairman of 6-month-old Marcadia Biotech is Gus Watanabe, 65, a retired Lilly executive who now chairs BioCrossroads. In addition to three other former Lilly executives, the management team includes a former Guidant Corp. executive and a former general partner of the local venture capital firm Twilight Venture Partners.

The firm aims to build upon the research of former Lilly executive Richard DiMarchi, 53, now chairman of Indiana University's Chemistry Department. DiMarchi serves as chief science officer of the new company.

Capping a 22-year Lilly career, DiMarchi served as group vice president of biotechnology research labs from 1996 to 2003. In that role, he oversaw development of nine drugs and was co-inventor of the mealtime insulin Humalog.

Lilly's worldwide Humalog sales last year approached $1.2 billion. In August, the Central Indiana Corporate Partnership named DiMarchi Indiana's Innovator of the Year.

Marcadia plans to announce on Nov. 6 that it has reached a licensing deal with IU to commercialize and market DiMarchi's more recent diabetes discoveries. The first product the company hopes to roll out is a drug injection system for hypoglycemics.

Company officials see lots of potential for that and other products in part because the diabetes market is enormous. The United States alone has more than 20 million diabetics.

The opportunity is music to Johnson's ears. Through its $73 million Indiana Future Fund, BioCrossroads already has helped form several biotech companies, such as the Lilly spinout CoLucid Pharmaceuticals Inc., a locally based migraine drug developer that raised $16.5 million in January.

But most of BioCrossroads' results so far have been indirect, thanks to constant marketing of Indiana as a life sciences hub and frequent efforts to promote networking among local medical industry leaders.

Marcadia is a perfect illustration of the initiative's networking paying off.

In 2003, when BioCrossroads developed its plan to target eight life sciences niches where Indiana boasts a strength, Fritz French, then a Guidant vice president, led the initiative's cardiovascular team.

That experience ultimately led Marcadia's founders to meet. French is the new company's CEO.

"BioCrossroads can't claim the credit," Johnson said. "But if you bring talented people together into a genuine network that's focused on specific opportunities, sometimes some really good things happen."

Marcadia already has raised $3 million to underwrite startup costs. The first $1 million came from a handful of insiders and California-based seed capital firm 5AM Ventures. Indiana kicked in the rest through its 21st Century Research and Technology Fund.

"These guys are ideally suited for what we're trying to do with the [21st Century] Fund these days," said Bruce Kidd, the Indiana Economic Development Corp.'s director of small business and entrepreneurship. "They have a unique product with lots of validation, a talented team and a big market opportunity. And it's of no small importance that it can have a positive impact on people's lives."

Marcadia's initial product is an improvement on Glucagon, a substance diabetics inject during severe bouts of hypoglycemia. Glucagon emergency kits now on the market must be refrigerated, and the ingredients must be carefully mixed before being poured into a hypodermic syringe.

That's a time-consuming process that intimidates many nurses, DiMarchi said, especially during a child's sudden hypoglycemic attack.

"These emergency kits could mean the difference between life and death," DiMarchi said. "You may be dead before you get to give the injection."

Marcardia aims to produce a version that wouldn't require mixing and would be administered through a user-friendly automatic-injection system. The founders hope to bring the system to market in just a few years.

Henry Rodriguez, director of the diabetes clinical program at Riley Hospital for Children, sees ample demand.

"I think the product is a very attractive one," he said.

And perhaps not just for emergencies. Many of diabetics' worst long-term health problems stem from the daily peaks and valleys in blood sugar they experience, DiMarchi said.

Current insulin therapies regularly overshoot the mark of minimum blood sugar. Likening insulin to the gas pedal on a car and Glucagon to the brake, DiMarchi envisions a new kind of disease management in which much smaller doses could flatten the blood sugar cycle.

"We're not just developing a new product," he said. "We're developing a new therapy."

To commercialize DiMarchi's innovations, Marcadia turned to French, 47, a Harvard MBA, who led two biotech startups after leaving Guidant.

Marcadia has begun testing its Glucagon therapy in animals and is ramping up for further clinical trials and U.S. Food and Drug Administration review.

"We saw this as low-hanging fruit," French said. "It's something we can do quickly and do well to establish our capability as a company. This will be a foundation for us as we move on to our second, third and fourth compounds."

IEDC is eager for that to happen.

In the near term, Kidd foresees Marcadia creating dozens of high-paying jobs. And the future job potential, he said, is in the hundreds.

To get there, Marcadia will need to raise a great deal more money. Given the company's success so far, it will likely have less trouble than most startups.

Investor 5AM Ventures has offices in Menlo Park, Calif., and in Boston. With $205 million under management, 5AM had never speculated before in an Indiana-based company. But 5AM principal Carin Rollins said the reputations of Marcadia's founders made the trip worthwhile.

And 5AM expects to now find other investment opportunities on its regular visits here in the future.

"The hope is to continue to tap Indiana talent, because it is quite deep," Rollins said.

Kidd said Marcadia has already approached IEDC for grant money to support development of its second product. He's not surprised to see the tiny new firm move fast.

"What we're really investing in with the [21st Century] Fund is innovators, as much as innovations," he said. "If you invest in the right people, which these guys are, they'll have multiple products down the road that will benefit our economy."

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