In June 1997, GelTex formed a 50/50 joint venture with Genzyme Corp. for the final development and ultimate marketing of Renagel Capsules worldwide (save those territories already claimed in the Chugai deal). The product was approved by the FDA in late October 1998 and launched early this year. The joint venture recorded sales of $7.6 million for the first six months of 1999. Although GelTex and Genzyme share the profits, they aren't enough yet to bring GelTex into profitability: for the quarter ended June 30, 1999, the Waltham, MA company reported a net loss of $0.56 per share. Still, it's got close to $78.5 million in cash, cash equivalents and marketable securities. Geltex's stock has bounced around over the years -- like so many other biotech firms' -- but at least it's trading above the IPO price -- unlike many others, including members of the class of '95 (see the company synopses in this article).

"We asked whether we could get a return for the shareholders by partnering products for commercial introduction rather than selling the product ourselves," Skaletsky said. "The answer was yes, at least for one product." However, he continued, GelTex reconsiders this last point -- whether or not to create its own sales force -- every time it begins a new product development program. There may come a time when the company has enough marketable products that it would warrant the additional -- and considerable -- expense of adding a sales and marketing unit.

GelTex's product development pipeline is by no means empty -- aside from Cholestagel, there are programs underway in infectious diseases and obesity. -- and it's just taken a major step to ensure that will be the case for years to come. In mid-August, GelTex announced its intention to acquire tiny SunPharm Corp. (also, by the way, a member of the class of '95; see the synopsis) in an all-stock transaction valued at $16.5 million. SunPharm's got two drug candidates in the clinic and various small molecule targets directed at the gastrointestinal tract -- like GelTex's. SunPharm's main attractions, however, are its polyamine and iron chelator technologies -- developed by Raymond Bergeron of the University of Florida. (SunPharm, based in Ponte Vedra Beach, FL, has exclusive licenses to the technologies.) SunPharm is planning to file two INDs for polyamine-based drugs yet this year and two more in its iron chelation program in the next 12 months. "It's a nice fit with our technology and it's a way to increase the size of our pipeline without taxing ourselves," Skaletsky explained. Plus, there's the considerable benefit of being able to work with Bergeron, who's "a leader in this area."

Once the FDA had determined that it would regulate these products as drugs, and the injunction had been lifted, it resumed its review of Sonus' NDA on EchoGen. Since then (August 1997), there have been a number of other hitches in the approval process: "In late 1997 the FDA told us that we did not need to have an advisory panel meeting on our product…and we publicized that," explained Gregory Sessler, Sonus' CFO. But in February 1998, "Sonus received a dramatic surprise -- a not approvable letter [from the FDA]. The issues centered primarily in the area of methodology in which the clinical data were analyzed and other issues, including manufacturing," he explained. Sonus addressed these points, submitted an amendment to its NDA in August 1998 and additional requested information in October. This time the agency accepted it for review. By April 1999, Sonus had received an approvable letter, but this, too, had conditions. "We expect to submit the final response by the end of this quarter [3Q:99]," Sessler said.

Today, Sonus is applying its technology to the development of drug delivery systems (where R&D started in 1997) as well as ultrasound contrast agents. "Our core competency is our ability to formulate, scale up and manufacture emulsions," Sessler explained. "We've taken that art of making emulsions to see if we can reformulate therapeutic compounds that have known stability challenges," he continued. One obvious choice is paclitaxel (the active ingredient in Bristol-Myers Squibb's Taxol). "Bristol-Myers' formulation [which is an infusion] has toxicity in its own right," Sessler said. "We've used our emulsion technology to develop a friendlier formulation." Sonus has already done extensive pre-clinical work on its version of paclitaxel and is putting together "an IND package," he added. The company is also working with other compounds that are hard to solubilize, but Sessler declined to name them. In general, however, "We're looking at existing marketed drugs that are approaching or already off patent." The other direction is to explore compounds that big pharma might have in the early stages of R&D "but are presenting formulation problems."

This is a transition period for Sonus -- and even before that transition's complete, it's clearly not the same company that came public in October 1995. "We've broadened our horizons since the time of the IPO, when we were squarely in ultrasound contrast," Sessler said. The incorporation of drug delivery applications into its technology platform will require a different business plan, too. "We were involved in all phases of EchoGen development," Sessler said. "It was a fairly broad role. In drug delivery systems, however, the role is narrower." Sonus intends to seek multiple partners so that it can apply the technology broadly, he added. Sonus would then be involved in the earlier phases of a project but will probably play a limited role in clinical development and not get involved in manufacturing or marketing. And although "drug delivery is a different end-market game," commented CEO Martino, "It's not a step-out for us, it's an extension of our technology base." Martino said that "we continue to believe that the ultrasound contrast market potential for EchoGen is significant," but beyond that lies the realm of drug delivery. The key here, Martino added, "is to create sustainable value for Sonus' investors through significant partnerships." And, he said, "Over the next 6-12 months, investors will be looking at a significantly different company."


Pharmacopeia, too, is different than it was when it completed its IPO in December 1995. At that time, combinatorial chemistry was a red-hot area. The major drug companies, in particular, were keenly interested in it, for the technology promised to boost the pace of new drug discovery to unheard-of speeds and reduce the cost dramatically. These awesome changes became a "paradigm shift" in the drug discovery process -- and that abused phrase will never be the same again.

Pharmacopeia, of Princeton, NJ, was one of the first combinatorial chemistry companies to grab the spotlight, and it's had to work hard to retain that position. Like many platform technologies in this fast-moving world, combinatorial chemistry has moved into the "commodity" category. Faced with growing competition from big pharma companies -- many of which have established their own in-house expertise by now -- and a multitude of biotech firms, Pharmacopeia has still managed to maintain its pre-eminence in this field. How has it done so?

Company	IPO Date;  Share (Unit) Price; Post-IPO Market Cap	Current Status	Details	Current Share  Price; Market  Cap (9/1/99)	Products; Programs
DepoTech Corp. (NASDAQ:DEPO)	9/28/95; $12.00; $135M	Acquired	Acquired by SkyePharma plc for $50M in stock (10/98-3/99)	N/A	DepoCyt (FDA-approved 4/99)
Myriad Genetics Inc. (NASDAQ:MYGN)	10/5/95; $18.00; $163M	Unchanged	N/A	$12.13; $114.1M	BRCA1 and 2 genetic test (launched 10/96); CardiaRISK AGT genetic test (launched 1/98)
Sonus Pharmaceuticals Inc. (NASDAQ:SNUS)	10/12/95; $7.00; $60M	Unchanged	N/A	$4.06; $36.5M	EchoGen (approved in European Union 7/98); FDA approval pending (approvable letter received 4/99)
Gliatech Inc. (NASDAQ:GLIA)	10/18/95; $9.50; $67M	Unchanged	N/A	$20.06; $194.1M	Adcol-L (FDA-approved 5/98)

"Our original business focus was three-fold," explained Kevin Heyeck, Pharmacopeia's director of business development. First, the company intended to lease its combinatorial libraries of diverse small molecule compounds to partners for their screening. Second, Pharmacopeia was going to license the active compounds discovered by its partners. And third, "we also got involved in full drug discovery collaborations almost from the outset. Partners gave us their targets and we gave them back development candidates," he said.

Then, shortly after the company went public, it started a fourth effort -- and that was to invest in its own drug discovery programs. If it proved out, this approach would add greater value to the company's bottom line. Taken together, the business plan represented "a fairly spread risk approach," Heyeck explained. "Out-licensing was short-term, low risk. Collaborations were medium-term, higher risk and internal drug discovery programs were high-risk ventures that would bring a higher return."

Despite the sophisticated business plan, however, the emphasis at Pharmacopeia "in the early days was on library out-licensing," Heyeck said. "We used our technology to create libraries of custom-designed compounds for our partners, which we then leased to those partners. The partners would identify a lead compound and then we would license that compound to them. The libraries came back to use for our own use." Plus, Pharmacopeia started to earn some revenue through milestone payments and licensing fees.

Lead discovery is one of Pharmacopeia's selling points, too, and it intends to sign a lot more partnerships in this area. "The use of combinatorial chemistry for lead discovery hasn't happened in the industry," Heyeck claimed. Even in big pharma companies with internal programs, "By and large, combinatorial chemistry is employed to assist in lead optimization, not discovery," he added.

Company	IPO Date;  Share (Unit) Price; Post-IPO Market Cap	Current Status	Details	Current Share  Price; Market  Cap (9/1/99)	Products; Programs
Pharmacyclics Inc. (NASDAQ:PCYC)	10/24/95; $12.00; $101M	Unchanged	N/A	$28.13; $348.6M	Drug candidates Xcytrin and Lutrin in Phase II clinical trials; drug candidate Antrin in Phase I trial
Cytoclonal Pharmaceutics Inc. (NASDAQ:CYPH)	11/2/95; $5.00 (unit); $38M	Unchanged	N/A	$7.00; $72.1M	Production of paclitaxel by fermentation
GelTex Pharmaceuticals Inc. (NASDAQ:GELX)	11/8/95; $10.00; $100M	Acquired SunPharm Inc.	See SunPharm (above)	$13.94; $234.8M	Renagel (FDA-approved 10/98); Cholestagel (NDA submitted 7/99)
Parexel International Corp. (NASDAQ:PRXL)	11/22/95; $15.00; $104M	Unchanged	N/A	$10.00; $251M	Terminated merger agreement with Covance Inc. (6/99)

But it wasn't until June 1998, when Pharmacopeia completed its acquisition of Molecular Simulations Inc. (MSI), that the company experienced its own paradigm shift. "The acquisition of Molecular Simulations expanded the fundamentals of the business, both top-line and bottom-line growth," Heyeck explained. "In the long run we needed much better tools that would become an integral part of the drug discovery process," he added -- and MSI had a box-full of molecular modeling, simulation and informatics software tools that were highly complementary to Pharmacopeia's combinatorial chemistry and high-throughput screening skills. "We're clearly benefiting from the acquisition," Heyeck explained. For instance, the company is developing new tools in predictive pharmacology. As well, the MSI sales force is "very helpful in bringing Pharmacopeia to the outside world. They've gotten us in the doors of our customer base in a much more effective way."

The acquisition has already contributed substantially to Pharmacopeia's revenue growth, too; it's so good, said Heyeck, that it "should allow us to be profitable this year." Indeed, the company's total revenues for the second quarter of 1999 were $23.3 million, 15 percent higher than they had been in the year-ago period. This included a 23 percent increase in software segment revenue in the U.S. and Europe (i.e., Molecular Simulations' contribution). Pharmacopeia's partnering revenues have been solid, too. (For a comparison of how Pharmacopeia stacks up against the other chemistry companies, see Recombinant Capital's analysis of earned alliance revenues for the first quarter of 1999.)

One day, Pharmacopeia might be able to report royalties from product sales by its big pharma partners. That goal is becoming more tangible these days: "We’ve handed over six products to our pharmaceutical partners in the last five years," Heyeck said. "The first could go into the clinic next year."


Myriad Genetics, founded in 1991 and one of the first genomics companies, set out to discover disease genes and their biological pathways. It's found some important genes, all right -- for breast cancer, ovarian cancer, melanoma, brain cancer and heart disease -- but the biological pathways are just now beginning to yield their secrets.

Today, the company's got a series of potentially lucrative gene discovery and drug development alliances with pharmaceutical partners and ProNet, a proteomics technology for identifying drug targets, that's providing nearer-term revenues. Plus, Myriad already has two income-generating products -- in the form of genetic testing services -- a claim that few biotechs can match, even today.

Yet, even in its earliest days, well before its October 1995 IPO, the Salt Lake City firm's strategy was to look beyond the discovery of genes toward a viable business model. "We asked, 'How can we generate revenues from the information coming out of the human genome project?'" explained Peter Meldrum, a company founder and its president and CEO. Myriad's board of directors had some guidance on this issue and helped set the company's direction to develop both therapeutic and diagnostic applications from genetic information. "Our chairman, John Horan, advised us about the risk and expense of developing therapeutic products," Meldrum explained. Horan, the former chairman and CEO of Merck & Co. Inc., offered this sage advice: "If you want to be a FIPCO (fully integrated pharmaceutical company) and you want to beat the odds, you have to have 10 drugs in clinical trials and hope one works." Because the cost of doing this is overwhelming, Meldrum continued, "by the time we went public in 1995, our strategy in the therapeutic arena was to form alliances with pharmaceutical companies and use our research to identify targets. Big pharma would fund the risk and do the clinical trials. This turned out to be a very good strategy," he said. "We've had eight alliances with six different companies. Together, they add up to about $350 million in upfront payments, research funding and milestone payments."

Company	IPO Date;  Share (Unit) Price; Post-IPO Market Cap	Current Status	Details	Current Share Price; Market  Cap (9/1/99)	Products; Programs
PathoGenesis Corp. (NASDAQ:PGNS)	11/22/95; $10.00; $107M	Unchanged	N/A	$17.56; $287.9M	TOBI (FDA-approved 12/97; approved in Canada and Argentina 2/99)
Pharmacopeia Inc. (NASDAQ:PCOP)	12/5/95; $16.00; $158M	Acquired Molecular Simulations Inc.	Pharmacopeia issued $130M in new stock to acquire Molecular Simulations (2/98-6/98)	$12.25; $240.3M	Commercial revenues from software (Molecular Simulations)
Molecular Devices Corp. (NASDAQ:MDCC)	12/12/95; $11.00; $88M	Unchanged.	N/A	$27.00; $258.1M	Commercial revenues from bioanalytical measurement systems
Synaptic Pharmaceutical Corp. (NASDAQ:SNAP)	12/13/95; $12.50; $107M	Unchanged	N/A	$7.63; $81.9M	Partnering revenues only

Back in 1995, "We also saw a unique opportunity emerging in diagnostics," Meldrum continued. Aided by insights from another of its board members, former FDA commissioner Arthur Hayes, Jr., Myriad grabbed the chance to capitalize on the basic shift that was occurring in the practice of medicine -- from reactionary to preventative. "At all levels, from physician to HMO (and now drug companies), the approach was becoming proactive. But to prevent a particular disease, we need to be able to identify the subset of the population that's at risk," Meldrum said. Thus was born Myriad's diagnostics strategy -- one that has already resulted in two commercial products, genetic testing services for assessing the risk of breast and ovarian cancer and for evaluating genetic predisposition to cardiovascular disease.

"When we launched our first genetic testing service, BRACAnalysis, in the fall of 1996, no insurance companies would reimburse the $2,400 cost. And there was a tremendous amount of education that needed to be done for physicians. Now, the test is covered by almost every major insurance company and HMO, and the test has been embraced by physicians," he explained. And this broad acceptance of genetic testing has had a major impact on Myriad's earnings: for the year ended June 30, 1999, the company reported genetic testing revenue of $5.2 million, 136 percent higher than it had been the previous year. (The second test, CardiaRISK AGT, was launched in January 1998.) "Sales are growing by 25 percent per quarter," Meldrum added.

"As the diagnostic component of Myriad Genetics grows and moves toward profitability, it's appropriate for us to reassess our strategy and look for new opportunities to create shareholder value," he continued. "Now we're shifting back to therapeutics." Indeed, just this spring, Myriad created a new subsidiary, Myriad Pharmaceuticals Inc., to develop lead compounds for selected common diseases. The unit will use drug targets discovered with Myriad's proteomics technology ProNet and develop them into fully validated lead candidates, ready for clinical trials -- and for partnering with companies that can take them the rest of the way. So far, Myriad Pharmaceuticals has identified six targets in cancer, central nervous system and inflammation, he added. "We're in the process of high-throughput screening to identify a series of lead compounds." This strategy should create significant added value without the risk associated with clinical trials and drug approvals, Meldrum said.