By Rich Soll, Senior Advisor, Strategic Initiatives, WuXi AppTec (@richsollwx) and WuXi AppTec Content Team
Tucked away in the life science corridor of San Diego’s famed Torrey Pines Road is an unconventional incubator with an unconventional name, COI Pharmaceuticals. This facility is not really a pharmaceutical company but rather a Community of Innovation, according to its CEO, Jay Lichter.
Established in 2013, COI is a fully integrated incubator that streamlines its operations through shared key resources including finance, planning, facility and more. Unlike most incubators, this is not a real estate play but rather is part of the Avalon Ventures’ investment portfolio, where Lichter is a Managing Director responsible for life science related investments. Lichter perceived it as a pragmatic way of operating various small businesses.
Lichter brings an unusual combination of business acumen and deep scientific/technical knowledge together, resulting in licensing or merger/acquisition deals valued in excess of $3B. He started 25 companies; for example, he was a co-founder of Sequana Therapeutics and Synthorx (a synthetic biology company whose genetic alphabet expanded to six base pairs makes novel protein therapeutics with improved pharmacological properties). He also led investments in Sitari, Calporta, Otonomy, Aratana and Fortis amongst many others.
A hands-on executive leader with more than 25 years of experience, he holds more than 300 patents (issued or application). His investment and management style and that of his senior staff is “operational capital,” meaning that he invests in companies, his team runs the companies, and he keeps track of them daily.
In a recent discussion with Rich Soll and the WuXi AppTec Content Team, Lichter identified his main motivation: pushing the frontiers of technology to satisfy unmet medical needs. Most of Lichter’s startups are first in mechanism, “no me too’s.” This philosophy is partly inspired by his own experience with a balance disorder and hearing loss, which connected directly to the funding of Otonomy, a company that pioneered new treatment options to patients with otic (ear) disorders whose therapy is now in Phase 3.
“There’s certain risk with first in mechanism,” Lichter admitted. “How is the FDA going to go, how to set up clinical trials necessarily, whether or not your approach is going to have efficacy with a successful safety profile when you finally get to the clinic… (But) when you do win, you’re going to get it at a premium for that particular molecule because nobody else is doing it. Anybody else is years behind you.”
However, Lichter stressed that investing considerations are not solely based on good science. Given the extensive experiences of Avalon and its expertise, the portfolio companies are required to have a specific financial picture of the amount of money they need to put in over the life of the startup, which highlights the importance of running a business.
“There are plenty of things where it is great science but terrible business. I’m not doing it. So that business piece is super important,” Lichter said. “I’m making investment decisions and coaching people on business strategy.”
All Avalon portfolio life science companies stay in COI for further discoveries and development; there are 12 companies currently. When the company grows up and has a full-time management team, it leaves the incubator. This usually happens when a Series B get raised and when its own dedicated team is needed. Otonomy did, Synthorx did, and a few others are going on that path.
COI’s pipeline is as abundant as its portfolio.
“We have Avelas in Phase 3 for breast cancer treatment during surgery, a bunch of companies in the clinic testing new molecules, and companies that are manufacturing right now, promising a near future to be in the clinic,” Lichter continued. “In addition, one healthcare IT company with monthly revenue growth by 20% and two companies going to be acquired. We’re excited by that.”
When looking into the Intellectual Property within all the funded companies, a third of it is homemade and two-thirds come from universities.
GlaxoSmithKline (GSK) installed a unique early-stage partnership model with Avalon Ventures in 2013, with a goal of 10 investments. They have formed eight companies incubated by COI as part of that partnership. These included Iron Horse Therapeutics, whose focus is on amyotrophic lateral sclerosis, PDI Therapeutics, an immune-oncology company, and Sitari.
On September 11, 2019, GSK announced it would acquire Sitari Pharmaceuticals for its transglutaminase 2 (TG2) small molecule program for the treatment of celiac disease, where TG2 is thought to play multi-factorial role in autoimmune response to the disease as well as catalyzing a reaction with dietary gluten peptides that drive pathogenesis of the disease. The acquisition occurred six years after Sitari’s founding and $10M in Series A financing.
“Our batting average for delivering clinical candidates is about 60-70%, which is not only quite remarkable for a first-in-class molecule, it is higher than industry average,” stated Lichter. “Part of it is that we make sure we have all the assets and reagents needed, hope for a little luck, and good contractors like WuXi AppTec to make sure that experiments get done right.”
Lichter was a big fan of virtual companies before it became popular.
“We were outsourcing a lot of stuff; if there was a key complex biological asset, we kept that in house, Lichter stated. “With Fortis we raised $28 million yet had no full-time employees; everything was outsourced. We could not do that fifteen years ago.”
WuXi AppTec has had a long-time partnership with Avalon’s portfolio companies. In the development of these startups, WuXi AppTec enabled COI through manufacturing, general chemistry, process, PK and other kinds of capabilities. Lichter viewed it as a privilege of keeping small teams and working on multiple projects. According to him, it helps companies put emphasis on innovation and plan, rather than the size of chemical libraries.
Lichter’s senior team has seen more than 1500 proposals over the last 5 years. To be considered for entrance into COI, an entrepreneur’s proposal must have innovative science that addresses an unmet medical need, possess a clear regulatory and clinical strategy to the market, and the product must be disruptive rather than incremental in terms of benefit to the patients.
Lichter also commented on innovation impediments or barriers to delivering medicines faster and cheaper to patients.
“You can get some grant money and small capital from friends and family. Identify a target. Make your laboratory-based antibody and you can even engineer it a little bit. Get to your final form without a lot of money. Then it’s minimally nine months and five million dollars, often more, to have it made and manufactured. In today’s funding world that’s really difficult,” said Lichter. “This is an industry-wide hurdle.”
As a seasoned former researcher, he also wished to see improved manufacturing technologies.
“If there was a machine that I could take a cell or a group of cells from a clonal population with novel antibody in it, and in two weeks out pops enough GMP materials, I could run my first Phase 1. That would change a lot of things. You’d see a lot more of these things in the clinic quickly,” he said.
Lichter concluded with the following: “There are already many cancers that can be treated and cured, and that number will increase dramatically,” said Lichter.
“It will be like infections. Until you first started to understand what antibiotics were, people would die quickly from infections. Now there’s therapy and the vast majority of people who get infections don’t die. And I think in cancer you’re going to see the same thing in the next ten to twenty years.”