It Takes 2 - The Type-2 Diabetes Business

A global problem means global business – an axiom that venture capitalists know all too well. With the problem of Type-2 diabetes, the search is on for promising solutions in a haystack of 6.7 billion.

IT’S R&D – the response to diabetes is a global business. According to WHO, the epidemic scale of diabetes affected 171 million people in 2001, with this number expected to reach 336 million by 2030. Type-2 diabetes (T2D) is spreading at an alarming rate. Upper-middle income countries are particularly at risk, as obesity can cause resistance to insulin (with India, China and the Gulf States being more recent members of the T2D club). Chubby nations spend 4.7% of global healthcare on treating the disease. None of the above facts, however, are curbing overindulgence - truffles are good, crêpes are good, spaghetti is good.

Currently, only a small number of branded or generic drugs lead a market of unsatisfactory solutions in treating T2D, meaning that whoever makes the pharmaceutical breakthrough will hit the jackpot.

HUNGARY WAS TERRA INCOGNITA for medical entrepreneurship before the end of the Soviet era. Innovation was state-owned. Researchers were not led by market interests but enjoyed intellectual freedom in a treasure island of creative minds. Péter Literáti-Nagy participated as a junior researcher studying diabetes at Chinoin Pharmaceutical & Chemical Works. He was in charge of designing molecules, which would respond selectively in diabetics but not in a healthy body. Although the publication of the unit brought down the scientifi c house, Literáti knew that living up to global industry expectations would take a fusion of scientifi c and business minds.

On the winds of political change the first entrepreneurs sailed into the harbor of mind-blowing ideas. According to Gábor Kálmán, a Hungarian businessman who joined Literáti, “If you cast a stone with eyes shut, you would hit an investment opportunity - but no regulations at all.” When their partnership approached local financial institutes, all decisions were based on personal impressions, without any market analysis. With only USD 500,000 and assets from their molecule Bimoclomol, they started Biorex Ltd. in 1987.

Soon George Soros and Andrew Sarlós launched First Hungary Fund, their American uncle-type operation. For them, Hungarian pharmaceuticals were genuine pearls covered in mud, and so they picked Biorex for development. After Sarlós passed away, Péter Róna, a ruthlessly pragmatic tycoon from the New York penthouse offi ce of IBJ Schroeder, took charge of the project and ignited the capital-raising jet engines: he managed to fi nd USD 17 million.

Róna offered Kálmán a full-time position, but Kálmán turned him down, so they went their separate ways. Meanwhile, Literáti was sidelined from Biorex and joined an international scientific community after the invitation of a longtime colleague, professor László Vigh, who called his attention to heat-shock proteins (HSP). “Thirty of us agreed to meet from time to time in a villa in Tuscany or in a Sorbonne auditorium, to discuss chaperones during meals.”

HSPs entered the lives of the scientists like a western hero the saloon - sudden silence… everyone knows nothing would be the same again.  The way HSPs are able to respond selectively bore great similarities with the Bimoclomol molecule. “I have mentioned all this to Soros on the tennis court” – remembers Literáti his revelation.

In 1995, HSPs became an investment hot topic thanks to publicity in the Journal of NIH Research. “Soros is a smart guy. He remembered all that I said. ”So Soros convinced Róna to take Literáti back on board and renegotiate company share allocations.

PA Consulting Group valued Biorex at USD 300 million, and ranked it on a par with Egis. Abbot purchased the license for Bimoclomol in 1997, and the deal appeared in the Financial Times. However, a conflict concerning Biorex shares would emerge between Róna and Literáti. Finally, it was business.

LUCKY ENOUGH, LITERÁTI AND KÁLMÁN were unfortunate with Biorex. They decided to start a new life based on their old idea. Kálmán suggested he and Literáti reposition themselves. They took the original molecule developed at Chinoin, which had lost its patent, and renamed the compound BGP-15. They then began researching whether BGP-15 could neutralize the side effects of cytostatics. The partnership relished the opportunity to return to the drawing board.

“It was the time for FFF: we approached family, friends and fools to raise USD 1.2 million,” says Kálmán, “give us the gambling money that you don’t mind losing.” One out of ten of the 400 angel capitalist nominees found the off er tempting. By January 1998, Kálmán managed to raise USD 2.2 million for their new company, N-Gene Research Laboratories Inc. Doubtless, all the Fs had been necessary during a decade of Hungarian R&D in the doldrums. Less than 0.7% of the GDP was spent on innovation.

In 2001, Perseus Soros Fund acted as an intermediary between N-Gene and Allos Therapeutics. Allos had licensed the US rights of BGP-15 for oncology indication in exchange for a double digit royalty. N-Gene was supposed to sail on Allos’ clinical trial results and use its data set in other key markets in order to progress with their own phase II clinical tests. Unfortunately, Allos failed in its own late-staged product development and the license returned to N-Gene. Meanwhile, N-Gene made a breakthrough discovery about BGP-15 being a chemoprotectant because it is an insulin sensitizer. Treating insulin resistance and Type-2 diabetes proved to be a lucrative field. After the results it was not a big challenge to broaden the foundation with GeoSor, Perseus-Soros Biopharmaceutical, Origin Investment Partners and the venture capital managing Hungarian Innovative Technologies Fund (HITF).

N-Gene moved to antipsychotics - drugs treating schizophrenia, bipolar disorder, acute mania that often result in weight gain and insulin resistance. In 2007 anti-psychotics were the sixth best-selling class of drugs. The biggest providers generated USD 20.7 billion in global sales. Eli Lilly’s Zyprexa alone had product sales of USD 4.76 billion in 2007. Major pharmaceuticals and their antipsychotic drugs, like Johnson&Johnson’s Risperdal, Pfizer’s Geodon or Mayer-Squibb’s Abilify all reach multibillion dollar sales. But if anyone googles “Zyprexa”, the first ten matches appearing on the screen will suggest that N-Gene moved in the right direction. Eight out of the ten Google matches would include the term “court”.

Massive lawsuits cut Zyprexa’s income. Eli Lilly recently paid USD 15 million to Alaska to compensate for the insulin resistance of patients. Canadian plaintiff s demanded USD 888 million claiming that Lilly had been conscious about harmful metabolic eff ects but had not warned the patients. Another USD 1.2 billion settlement for 31,000 US claims lowered the revenues in the US. Zyprexa is subscribed to 24 million patients in 84 countries, and neither the tort litigations nor the “Dear Doctor” letters informing MDs about possible side eff ects could help to repair fi nancial and reputation damages. A medical solution could, especially because its price is only a fragment of the casualties in the legal skirmish.

Experiments showed that rats and other animal species on various schizophrenia drugs significantly gained weight in a few weeks, but if given BGP-15 simultaneously, would be saved from weight gain and insulin resistance. N-Gene took this one step futher and ran a human clinical trial on 42 patients at a Hungarian diabetes clinic in Balatonfüred. Healthy volunteers were simultaneously given a high dose of Zyprexa and BGP-15. The results showed conclusively that BGP-15 significantly improved the metabolic harm triggered by the 16-day of Zyprexa treatment It was the Calais battlefield the 100-Year War against insulin resistance, and BGP-15 was akin to the English longbow division arriving to win the battle. Henry V would have said seeing the persuading numbers: “it is beautiful”. “It is too beautiful to be true,” said Kálmán. But true it was.

MEANWHILE, THE HUNGARIAN R&D environment has seen tremendous changes. In 2006, the government opened the Corvinus Venture Capital Fund, a branch of the Hungarian Development Bank. In 2004, the Innovation Act was accepted by national consensus, and soon the Innovation Fund also started operations. N-Gene received USD 3 million from Corvinus and progressed with research in the fi elds of T2D and antipsychotics. BGP-15 is now considered being developed as a fixed-dose combination with Eli Lilly’s Zyprexa, and is set to take a sizeable slice of the schizophrenia market. In N-Gene’s 11-year journey so far, although there have been many detours, increasing expenses unnecessarily, the final balance for the project is only USD 20.3 million and an application is being submitted to the FDA. In a small country, small projects can spend small on global solutions.

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