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Startup Conducts Unusual Funding ‘Experiment’

A local biotech startup and its 22-year-old CEO — with support of local industry veterans — are trying a no-strings-attached funding model to finance their research on a potential cancer vaccine.

Last month, Batu Biologics launched a crowd funding campaign on IndieGoGo to raise $100,000 to help further research for its lung cancer vaccine, Vallovax. President and CEO Samuel Wagner plans to use the money for filing an investigational new drug application with the U.S. Food and Drug Administration to start phase one clinical trials. As of July 14, Batu has raised nearly $54,000 from 86 funders.

The crowdfunding approach is a departure from typical biotech startups that raise a few million to several million dollars from angel investor groups, venture capital or even initial public offerings to fund expensive research. Batu, by contrast, has self-funded its preclinical research so far, seeking to avoid diluting its value as it raises money.

“If we raise money at this point in the preclinical stages, the venture capitalists or investors are going to take a large portion of our shares,” Wagner said. “If we want to have the biggest payout for the founders, it’s really in our benefit to raise the least amount of capital in the early stages of the company.”

Batu’s laboratory is housed at Janssen Labs, a life-science business incubator in La Jolla. The research facility charges Batu a modest rental fee for access to all shared equipment, tissue culture labs and other resources without taking equity in the startup.

“It’s really ideal for us,” Wagner said. “It gives the opportunity for startup companies to develop their ideas and later hopefully graduate out and move to bigger facilities.”

Batu’s new cancer vaccine is designed to target and kill blood vessels that feed tumor growth. In doing so, Batu expects white blood cells to invade the tumor site and encourage immune-based remission. Without being able to form new blood vessels, a tumor cannot grow bigger than about 1 millimeter, Wagner said, adding that tumors need those blood vessels to become malignant.

“Everybody has been attacking the tumor directly,” Wagner said. “We’re choosing a different approach. … We’re trying to choke it of this blood supply.”

Growing ‘Zuckerberg of Biotechnology’

Wagner left the University of California, San Diego — where he studied mechanical engineering — during his senior year to join a peer’s biotech startup called Vaxenta Biotechnologies. Contributing money earned by trading stocks in college, Wagner joined as director of investor relations and eventually became vice president. At Vaxenta, Wagner met his current mentor and founder of Batu Biologics, Thomas Ichim, who was helping the startup as an adviser.

Ichim is board chairman at Batu and chief scientific officer of Regen Biopharma, a stem cell company and subsidiary of Bio-Matrix Scientific Group Inc. (OTC: BMSN). Ichim moved to the U.S. from Canada in 2004 when he co-founded Biorasi, a contract research organization now located in Miami. In 2007, he joined the San Diego-based stem cell company Medistem Inc. — acquired this year by Intrexon Corp. (NYSE: XON) for a reported $26 million — as chief scientific officer and eventually CEO. In 2012, Ichim asked Alan Lewis to join as CEO while Ichim remained as president.

Last year, Ichim founded Batu Biologics and appointed Wagner as president and CEO despite his youth and limited experience.

“When I was Sam’s age, nobody believed in me,” Ichim said. “So I figured if I had somebody who had a lot of the characteristics that I had at that age, and I provide the right resources and the right environment, then maybe I can develop the Mark Zuckerberg of biotechnology.”

Wagner has surrounded himself with industry veterans such as Lewis, who has 37 years of experience as an executive in life sciences. Lewis spent 15 years at pharmaceutical company Wyeth-Ayerst — bought in 2009 by Pfizer Inc. (NYSE: PFE) — as vice president of research. He later became the CEO of Signal Pharmaceuticals, which was acquired by Celgene Corp. (Nasdaq: CELG) in 2010. Since leaving Celgene, Lewis has raised $27 million as CEO of Novocell, now called ViaCyte Inc., and over $45 million as CEO of Ambit Biosciences Corp. (Nasdaq: AMBI).

Through Ichim, Lewis developed a relationship with Wagner late last year, and was appointed to Batu’s scientific advisory board earlier this month.

“Frankly, [Wagner is] young to be a CEO, and he has a lot to learn,” Lewis said. “But you’ve got to start somewhere. He’s got ambitions, and he’s at that part of his career where he’s like a sponge, picking up information on a daily basis. He’s very enthusiastic, and that’s a great thing I see in him. It’s kind of like I’m doing a bit of mentoring at the same time.”

Delaying VCs to ‘Focus on the Science’

Batu has five full-time employees, only two of whom earn salaries: Chief Scientific Officer Hong Ma and Dimitri Theofilopoulos, who is chief operating officer and in-house counsel.

“This goes back to efficiency and really working with the capital that we have to make things work on a really low budget,” Wagner said.

After the startup moves past clinical testing, Batu may consider venture capital and investor funding to grow.

“Venture capital is the very important lifeblood of our industry,” Ichim said. “But it’s very difficult to raise money from venture capital people on terms that are a win-win for everybody right now. Once we have FDA approval for our vaccine, then obviously all sorts of different financing opportunities exist. But right now, I think it’s very important to focus on the science.”

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