Pfizer Downsizing Opens New Doors — Up to 50 CROs Spawned

Dec. 4, 2008
The company’s loss may, in the end, be industry’s gain as entrepreneurs start their own ventures.

(The following is reprinted from BioMatters Magazine, a publication of MichBio, the association for Michigan’s biosciences industry)

David Zimmerman was in Israel last May on an ambassadorial/business mission to learn more about Israel’s booming biosciences industry and to introduce Israel to Michigan’s companies. One Israeli company with formulation and solubility issues turned to Zimmerman, CEO of Kalamazoo-based Kalexsyn Inc., for help. 

Zimmermann, in turn, suggested contacting a more fitting company, Velesco Pharmaceutical Services in Ann Arbor. The companies couldn’t strike a deal, but Velesco President Gerry Cox wasn’t complaining. “David was great, he was awesome,” he says.

Ultimately nine-month-old Velesco, a contract research organization (CRO) just as Kalexsyn is, got something better — the red carpet treatment from CROs operating on the west side of the state. The companies, led by Proteos Inc. invited Cox to Kalamazoo, provided him with support, lessons, ideas and clients contacts to help ensure Velesco got off on the right foot. 

“They’ve gone through a lot and learned a lot of lessons,” Cox says. “Part of our success has resulted from western Michigan’s willingness to help out.”

Velesco provides drug formulation and analytical chemistry services, specializing in the support of early-stage product development work for small- and medium-sized drug companies. Kalexsyn works with smaller drug and biotech companies, providing chemistry services at the start of drug discovery

If Michigan’s diverse biosciences industry is going to make it with its many fledgling companies, it will be because of a “one-for-all, all-for-one” spirit.

“Those are the kinds of things that all of us must look for … to build opportunities for our companies, to build a stronger biosciences community in Michigan,” Zimmerman says.

Medical research outsourcing has increased in recent years as big pharma’s profits and pipelines have slowed. According to industry analysts cited recently in Investor’s Business Daily, between 25 and 30 percent of R&D is now outsourced and it could go higher.

Pfizer Unleashes Entrepreneurial Spirit

To some degree, Pfizer’s closing has been a plus for the state’s biosciences industry. It freed many of its scientists to discover their entrepreneurial spirit by creating CROs. Each scientist brought years of experience to his new company and each was acutely attuned to what the market needs. In 2003, 16 CROs were spun out from Pfizer, boosting the total to more than 50.

“There are a lot of niches,” Cox says.
The drug discovery timeline is long and requires numerous and tedious steps along the way to completing Phase III clinical trials. For every step along the way there is a CRO able to lend the biotech company, drug company or scientist a professional hand. A drug or biotech company anywhere in the world, choosing to outsource its work can find every thing it needs from a Michigan CRO.

Kalexsyn, Velesco, Proteos, ADMETRx in Kalamazoo and Chelsea-based International Discovery Sourcing Consultants Co. (IDSC) are just five companies that rushed to fill a niche and are generating profits as a result.

Mark Creswell left Pfizer in March 2007 to start International Discovery Sourcing Consultant (IDSC). As a medicinal chemist, he took with him eight scientists from Pfizer with an average of 24 years experience working for pharma companies. He is president and CEO.

IDSC is a virtual, fully integrated drug discovery partner, providing drug discovery, development and outsourcing expertise from discovery to pre-clinical development to help clients deliver their medicines to the clinic faster. The company specializes in small molecules. At Pfizer Creswell gained his experience for IDSC by building Pfizer’s discovery chemistry outsourcing program.

Outsourcing Boosts Business

IDSC outsources its laboratory work to other CROs, many of which are in Michigan. It has 27 clients, four in Michigan and 23 out of state. Major clients run the gamut from academia to biotech companies; large, small, as well as virtual. They include Lycera, Novel Chemical Solutions, Affinium Pharmaceuticals and Velcura Therapeutics. The company will be profitable this year and will generate estimated revenues of $1.2 million in 2009.

Creswell is also a matchmaker, connecting Michigan companies to IDSC’s out-of-state companies for business.

IDSC has developed relationships with at least six companies in Michigan, including Velesco, MIR Preclinical Services in Ann Arbor, Trans Pharm Preclinical Solutions and PharmOptima in Kalamazoo.

Though Michigan biosciences companies are beginning to make inroads with companies in other states, “We have a ways to go,” Creswell says. “A variety of things need to come together, and despite a nice pool of venture capital here we need to lure more venture capital into the state.”

Proteos in the Middle of Things Early

When scientists enter the very first steps of discovery, Proteos Inc. is right there with them serving as an extension of its clients’ laboratories, says Clark Smith, president and CEO of the five-year-old Kalamazoo company.

Proteos is the Greek word meaning “of the highest importance” and is the root word for protein, so it’s not surprising that the company’s emphasis is on proteins as drugs and drug targets.

It provides custom services in protein expression (tricking cells into producing the protein we want) and production, protein products and translational research for commercialization. Protein products include recombinant human renin, which is a blood enzyme, and prorenin that could be involved in obesity. “People are just figuring out how important it is,” Smith says. 

The company produced a protein for acute coronary systems for Ann Arbor-based AlphaCore Pharma, a biotech company that needed the protein for research purposes.

A synthetic organic chemist and director of protein sciences for 20 years at Upjohn, Smith started Proteos in 2003 with seven founding members, all pharma alums. Today the company employs 18 people. “I hired my current staff when I was at Upjohn and then hired them again for Proteos,” he says. The company recorded more than $3 million in sales last year and was growing at 20 percent annually until this year when the general economy suffocated growth.

Proteos boasts 120 clients, including drug companies and universities. Despite the fact that the overwhelming majority of its clients are located out of state, Smith is extremely bullish about the state’s biosciences industry thriving in the future despite a shortage of venture capital. 

State CROs Can Do Everything

“Any number of companies are here that represent the entire line of drug discovery work,” he says. Out-of-state companies “can create their own virtual company by coming to Michigan and contracting out all their work, from discovery to at least through Phase II clinical trials.”

Smith hinted that his company has developed an intellectual property product that, “If it works will bring a lot of money into Michigan. It could change the course of this company.”

Kalexsyn’s Zimmerman is a medicinal chemist who worked for the state’s largest drug makers for 23 years, including supervising the outsourcing of medicinal chemistry for the company.

The job led him to understand the client’s needs in the client-company relationship; valuable information he took to heart when he and Robert Gadwood, also a medicinal chemist started Kalexyn in 2003. Experience, service and communications became Kalexsyn’s philosophical business foundation.

Company research capabilities include medicinal chemistry, molecular modeling; scale up and process improvement. That expertise draws companies to us that “need a certain compound made,” Zimmerman says, noting that “true medicinal chemistry experience is more than a synthetic chemist who has made a biologically active molecule.”

Kalexsyn Grows and Grows

It took only four years for Kalexsyn to outgrow its space at the Southwest Michigan Innovation Center. Last year the company opened a $5 million, 20,000-sq.-foot facility in Western Michigan University’s Business Technology Research Park. The building currently has capacity for 32 scientists with enough lab space to accommodate 24 more. Kalexsyn employs 30 people, including 22 bench scientists. Revenues will hit $5 million this year, and the company has been profitable the last three years, Zimmerman says.

“If at first you don’t succeed try, try again” has not always been the mantra of drug companies along the drug discovery continuum. It’s often the opposite. A compound that flies right through Phase I clinical trials but fails in succeeding trials often winds up in the garbage bin, despite the promise that it could have been a future blockbuster.

“The failure rate of compounds and drugs at biotech and pharma companies are huge,” he adds. The service side of biosciences, the CROs, “have recorded strong, sustainable double-digit growth” in recent years with the forecast equally as sunny in the foreseeable future. “Let the pharma companies take the risk and roll the dice. We get to play with everyone,” he adds.

Velesco assists its clients in its pre-clinical work as its clients head into first human trials. The company was formed in early 2008 by Cox, COO, and former senior finance director for Pfizer’s Michigan operations, and David Barnes, CEO, and a former Pfizer scientist. At Pfizer, Barnes moved compounds through the drug development process.

“We didn’t get our labs up and running until spring,” Cox says, noting his company also won a $450,000 Michigan Economic Development Corp. grant. Velesco has built up a strong base of five or six in-state clients and hired six people. Cox and Barnes are busy courting new business on the East and West coasts. “We have to build our business outside of Michigan,” Cox says.

About the Author

Steve Raphael | Steve Raphael