Life science companies can learn from failure if they stay flexible, experts say

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Sometimes the toughest call a life-sciences startup can make is when to drop a long-favored project that just isn't cutting it and come up with Plan B.

In the case of Endocyte Inc., a West Lafayette company that had been trying for more than two decades to develop smart cancer drugs, the moment came about two years ago, when the firm announced it was halting tests of a leading compound and laying off 40 percent of its staff.

The company had burned through more than $100 million in cash since its founding in 1996, using discoveries from Purdue University chemistry researchers, trying to find a way to deliver drugs selectively to cancer cells. But clinical results were disappointing. Should the company keep trying, or pivot to something else?

“It’s a really difficult question,” former CEO Mike Sherman told an IBJ Life Sciences Power Breakfast audience on Friday. “You hear about the entrepreneurial experience and how it’s all about persistence, how they never gave up, just kept pushing and pushing and pushing and unlock that final door and find success. But sometimes you can confuse persistence and futility.”

So after much anguish, Sherman decided to pull the company’s in-house drug program in 2017 and pivot to outside opportunities. Endocyte acquired a promising experimental drug for prostate cancer from a German chemical company, and set about trying to develop it.

About a year later, Swiss pharmaceutical giant Novartis AG, on the hunt for a promising cancer drug to add to its pipeline, bought Endocyte for $2.1 billion, or $24 a share, a premium of 54 percent, creating an enormous payoff for many investors.

It wasn’t an easy decision, said Sherman, who last month started a new job as CEO of Chimerix, a biopharmaceutical startup in Durham, North Carolina. But it was the best way forward, considering that Endocyte’s leading in-house compound was just not hitting its goals, and didn’t seem to be living up to its potential to help cancer patients.

“When you start with that and set those hurdles high, you’ve got to resist the temptation to change the hurdles when the data comes in,” Sherman said. “In our case, we did not change those hurdles. Our internal programs failed to meet those. And because we had been developing options—we like to say don’t worry if Plan A fails, there are 25 other letters. And we used most of them.”

It's a common issue in biotech, where things often take longer than expected and there are always setbacks. “So you’ve got to anticipate those setbacks and find ways to continue to accelerate the path,” he said.

Several other panelists Friday said that overcoming setbacks is a fact of life in biotech, and scientists and executives need to know when to make big adjustments.

“The challenge is there’s not a playbook,” said Ben Pidgeon, executive director of VisionTech Partners and VisionTech Angels, an Indianapolis-based network of early investors in life-science startups. “You don’t have chapters you can follow. You’re kind of creating it is as you go. … The reason they are entrepreneurs is they don’t like the standard format.”

But if a company can identify a new opportunity, new markets or new products, then the effort hasn’t been a failure, he said.

“You get a story like Endocyte, you can repurpose something that a lot of clinical evidence has been gathered, money has been spent, you can repurpose it for a new indication,” Pidgeon said. “That’s lower risk and something that’s worth pursuing.”

Ketan Paranjape, vice president for diagnostics information systems at Roche Diagnostics, said companies that want to disrupt a market with a new product have to be flexible and look at all the opportunities. A good example, he said, is Uber, the ride-hailing company that has carved out a big business from transportation sector.

“Uber didn’t look at the taxi business and say I’ll get 10 percent of that market in New York,” Paranjape said. “They said, 'What problem are we trying to solve?' That became the mindset. So if you start getting stuck with these problems that I’ve got to go crack that 5 percent market, that won’t usually work.”

Dr. Marietta Harrison, special advisor for strategic initiatives for Purdue University’s research and partnerships, said companies and universities can help each other to develop technology if they remain flexible about how to structure deals and figure out who owns the intellectual property. Purdue has reevaluated those issues, and has developed ways to share and build partnerships that will work.

“At all universities, the default is we own it all, end of story,” Harrison said. “And that’s not going to work if you really have a strategy of wanting to interact with corporate partners. So you have to be flexible. We did that, not without pain.”

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