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Isis’ Path to Success is Creative Interaction and Innovation

The key growth strategy for San Diego drug developer Isis Pharmaceuticals Inc. is to … not grow. At least, not grow too much.

“Creating a new technology requires a tremendous amount of innovation,” said B. Lynne Parshall, chief operating officer for Isis. “When companies get too big, you lose that. You lose the degrees of connection that really foster creative interaction and innovation.”

Isis was founded in 1989, developing their proprietary “antisense” technology, which engineers RNA molecules to deactivate faulty genes. The company went public in 1991. It has since steadily grown its revenue from partnerships with companies like AstraZeneca PLC, Biogen IDEC Inc. and, most recently, Swiss drugmaker Roche Holdings AG. Its market capitalization is $1.86 billion, with shares trading around $18.30.

Simple strategies like consolidating the company into one building in La Jolla — as opposed to three adjacent buildings, as they were in last year — have had a tremendous impact on fostering innovation in the tightly knit company. It employs about 345, and plans to stay that way.

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“We’ve structured the building to force interactions,” she said. “People are pretty close together, in each other’s line of sight, and it works. We think in order to be the types of pioneers in innovation, this is the model that works best.”

Reliance on Partnerships

But the company has a few other tricks up its sleeve that differentiate it from other biotechnology companies. Parshall said the company plans to grow its revenues and stock price, but by staying small it can stay agile. The company relies on its partnerships with larger pharmaceutical companies to keep its revenue flowing, as it continues clinical research on its 28 drugs in development. At the close of 2012, Isis had about $374 million in cash from these collaboration deals. And that number keeps growing.

“Our business strategy helps bring in cash — and a significant element of this is partnering,” she said. “We’re fairly unique among biotech companies in that we don’t plan to become a marketing and selling organization.”

In the past year, Isis has forged a number of agreements with large pharmaceutical companies. Most recently, the company entered a $392 million deal with Roche to develop treatments for Huntington’s disease, a rare but devastating degenerative genetic brain disorder. Isis was paid $30 million upfront, with the rest contingent on achieving certain developmental and commercialization milestones.

It also recently penned three separate agreements with Weston, Mass.-based Biogen Idec that totaled over $1 billion, and with AstraZeneca PLC for a $32 million cancer treatment deal.

“With larger companies facing near-term patent expirations and needing more near-term revenues, later stage assets that are in more advanced clinical developments do tend to attract the bigger up-front dollars,” said Pratik Shah, a partner at La Jolla venture capital firm Thomas, McNerney and Partners. “Having said that, the number of companies that have a broad technology base that can lead to multiple partnerships is relatively small.”

Significant Royalties

Shah and his colleagues helped fund a company that branched out from Isis in 2007 called Altair Inc., but it folded in 2011 because its asthma medication performed poorly in clinical trials. Shah is no longer involved with Isis, but said he is following its trajectory closely.

Notably, Isis recently received regulatory approval for its drug Kynamro, which treats a rare form of high cholesterol. Parshall said the drug, which is available on the market at specialty pharmacies, costs $176,000 for a year’s prescription. Though it targets a niche patient market, Isis will likely see significant royalties from these drugs.

Acquisitions are not, however, part of Isis’ growth strategy. Instead, it helps start companies. The company incubates startups, providing laboratory space and administrative support, and in return acquires a portion of the companies’ equity and drug royalties. For instance, it helped launch Regulus Therapeutics Inc. in 2007, and the company is now publicly traded and has a market capitalization of $243 million. It has aided in the launch of several other companies — some successful, some not, but that’s part of the drug development game, she said.

“Our goal, in terms of physical growth, is to not grow very significantly,” Parshall said. “But as I said, we continue to leverage our technology through partnerships with large companies and help foster new companies — and it’s proving to be rather successful.”

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