12 SEPTEMBER 2024
By Kara Lilly, CFA
The box was lighter than it looked. âThanksâ Gavin mumbled as the courier nodded and walked away. In Gavinâs hands was a cardboard box inscribed with the words PACKED WITH DRY ICE and Japanese characters on the side. Alright. This commercial handoff between two men at the back door of a large empty building was feeling increasingly like a drug deal.
âWhat IS this?â Gavin wondered.
At the time, Gavin was alone, figuratively and literally, inside a two-story building that housed a lab, massive spectrometer machines and very-cold refrigerators, in Saskatoon, Saskatchewan Canada. Some time ago dozens of talented scientists, engineers and lab technicians worked here on novel biotech research. That company, Phenomenome, had raised millions over 15 years and built a portfolio of patents and discoveries. Now it was bankrupt, with all the assets transferring to a new company, Med-Life Discoveries (âMLD”). The building, now leased to MLD, was eerily empty on a cold November morning.
Gavin, a Director of MLD, had been asked by the Board to see what, if anything, could be made of the companyâs impressive patent portfolio and technology.
After signing for the delivery, he walked inside the lab and placed the box in one of the super cold fridges.
Step one: figure out what to do with strange parcel.
Step two: resuscitate a company.
In the world of early-stage startups, validation â the process by which a company tests whether there is demand for their new product â is king. The concept is simple, really: before investing giant and irreversible amounts of capital into developing a product, maybe check if someone wants it?
Validation is supposed to spare founders and investors the heartache of pouring huge time and capital into a product launch, only to discover itâs unwanted. By validating your idea early and regularly enough with potential customers, and discovering its flaws, a team hopefully gives itself the time and capital to land on a product market fit before the cash runs out. Ideally, validation can be performed relatively inexpensively while yielding insightful feedback.
Yet many founder teams avoid or flounder with validation, for whatever reason. This is a problem because a business only survives if someone eventually pays for the product, and well validated ideas are the backbone of successfully raising capital. For example, had Phenomenome regularly validated its diagnostic and therapeutic discoveries with potential acquirors and licensees, they might have avoided bankruptcy.
And it was validation that ultimately allowed MLD to begin anew.
Here is the inside story of how.
In November of 2016, Gavin had been left holding a strange parcel â which turned out to be blood â and a portfolio of biotech assets potentially worth hundreds of millions of dollars, or nothing. His central problem wasnât the science on which the previous business had been founded. That, he thought, was good. What he didnât know was what to do with all this science. Who would buy or invest in what they had?
First, he had to find out what to do with the blood samples. He began making calls. A lot of them. Gavin had to convince the people who used to work for the old company â who had just lost their jobsâ to trust a perfect stranger and come back.
With some luck, he convinced two lab technicians to come in and help him process the strange vials of blood from Japan. Once this was done, he began to cobble together the team could bring the biotech company back from the dead.
The team that eventually re-joined consisted of about eight professionals, including Shawn Ritche, the new Chief Executive Officer, Tara Smith, a senior researcher, and Seth Yakatan, a former Board member from LA. Those early months were revealing.
Phenomenomeâs products, now in MLD, had been in development for years and raised millions of dollars from investors with the promise to deliver novel pharmaceutical therapies and disease diagnostics. But when Shawn, Gavin and team looked under the hood, they discovered that nothing in the portfolio was anywhere close to commercialisation. Despite a decade of promises and big talks of INDs and diagnostic clinics, no part of the portfolio was anywhere close to clinical trials.
The team faced an urgent need for a way forward. Complicating matters, MLDâs Board and shareholders had been long-time investors in MLDâs predecessor and were still reeling from the previous company’s fiasco. Funding would only be released for the new venture in two-month intervals, and only on tangible evidence of progress. No progress, no funding. No funding meant the company folding once again.
It was a short leash.
Operating with the sword of Damocles above them, they moved fast. Shawn got to work rebuilding the science unit and recrafting a message and deck that could appeal to investors, while Gavin took on leaning out the operations, renegotiating the leases, selling furniture ⊠anything that might shore up the cash position of the company and grant them more time.
The pressure was severe enough that, one day, Gavin felt a shooting sensation rippling through his leg and up into his back. This pain continued for about a week until Gavin went to the doctor, who told him: stress-induced shingles.
Meanwhile, everyone started pouring through studies, data and the extensive portfolio of assets and patents to see what strategic direction might be best. Under the previous leadership, multiple options had been considered. There were talks of creating a novel disease diagnostic company. There was an attempted filing for an IND, an orphan drug designation, and multiple different research partnerships. Like so many startups, MLD was sitting on a bunch of âgoodâ options. What they needed wasnât another idea. What they needed was focus.
One week, Seth flew from sunny LA to Saskatoon to dive into the data directly. Thatâs when the team found something.
In one seemingly innocuous study, Seth noticed that one of the company’s molecules had been administered to a monkey with L-Dopa induced dyskinesia. Levodopa, or “L-Dopa,” is a primary treatment for Parkinsonâs, but prolonged use leads to involuntary muscle movements (known as dyskinesia).
Surprisingly, after the monkey received the company’s plasmalogen pre-cursor drug, the muscle movements had ceased. Even after the treatment period concluded, the shaking did not return to previous levels and remained low.
“This,” Seth exclaimed, “THIS was worth the trip up here.”
From that lightbulb moment, the team began building anew. The monkey’s positive response was part of the company’s plasmalogen research. Plasmalogens, a type of phospholipid, play a crucial role in the structure and function of cell membranes in the human body. Could the team establish a plasmalogen-related company focused on treating neurodegenerative conditions?
Like Alzheimerâs disease, multiple sclerosis, and Parkinsonâs disease?
Or, might the plasmalogen therapy be used to treat a disorder like rhizomelic chondrodysplasia punctata â RCDP — a rare, terrible peroxisomal disorder that appears shortly after birth, is severe and has no known treatment? Â Approval of a new drug for RCDP could earn MLD a priority review voucher from the FDA â worth on its own $100 million or more.
While Phenomenome was not as advanced clinically and commercially as investors needed, this was promising. Could current and prospective investors be convinced?
The team wasnât sure. They needed more conclusive evidence.
Unable to find it from small-town Saskatoon, a contingent from Med-Life Discoveries flew down to San Jose with one mission in mind: test their two best strategic options.
On the one hand, there was the old diagnostic vision for the company. Â Under previous management, Phenomenome had been embarking on an audacious âretail health clinicâ vision. âPhreedom Pharmaâ was going to become a series of health clinics where a person could walk in and have their blood tested to determine if they were at risk for a number of various diseases. The project was ambitious and would require the company to spend tens of millions of dollars to develop, commercialize and compete against emerging competitors. Critically, old management had already invested millions going down this path, and had done so without testing whether there was any demand for it.
On the other hand, there was the plasmalogen vision for the company. This would also require tens of millions of dollars and years in development.
Which one held the greater promise with real people? What had any value to investors?
To find out, Seth and team booked forty meetings in three days in San Jose with potential investors and strategic partners. Two decks were created, one for the diagnostic vision, one for the plasmalogen vision. The MLD team rotated through the meetings at an exhausting pace.
Three days later, two things became clear:
First, no one was interested the diagnostics vision or its extensive portfolio of patents. It was either too early, the clinical value was not compelling enough, they had met the wrong people, or the timing just wasnât right. The reaction to that pitch was lukewarm at best. These findings were later corroborated on a subsequent trip to Hangzhou China.
Second, there was mild interest in the companyâs synthetic plasmalogen portfolio. An offer was even made to license the asset.
Although this was by no means a home run, it was at least clear signal of real market value in the plasmalogen assets– especially compared to the diagnostics business. In start-up land, this is what matters. Not hypotheses, not carefully manicured MPVs, not theory or strategies⊠someone ready to actually buy.
The team knew where they had to go.
Emboldened with this data, they returned to Saskatoon and got to work. The trip was a step towards rebuilding confidence. Instead of taking the license offer for the therapeutics, existing investors continued to support the company and the team under Shawn refocused on therapeutic development.
Nearly eight years after receivership, MLD is now back on its feet and advancing rapidly. The company is more prudent with its capital, employs a small staff, and has focused its development work. Shawn Ritchie is both CEO and Chief Scientific Officer, Tara Smith is Vice President, Therapeutics, and Jing Shen â one of the technicians that trusted Gavin as the first employee back to MLD â is Laboratory Manager.
Investors, once disenchanted and distrusting, are also back to the table — and Gavin is long gone. After a year and a half, job done, he was no longer needed. Shawn has added to the team where needed and has since steered the company with a deft hand.
Most importantly, the company has finally made some real progress towards commercialization. In February of this year, MLD announced on their website that they had successfully completed phase I of a clinical trial for the use of a plasmalogen-targeting compound against RCDP.
Of that result, Shawn stated:
âThe completion of this Phase I with PPI-1011 represents a monumental achievement, as it is the first formal human clinical safety study ever performed with a plasmalogen-targeted compound.â
We are now excited to move quickly into efficacy studies in RCDP and other neurological indications.â
To be sure, the company still has a long road ahead to clear full regulatory approval and bring its compounds to market. However, they are now progressing in clinical trials with an orphan drug for RCDP, moving closer to a license and securing the priority voucher. Further, they can leverage the work for RCDP for other indications, including Alzheimerâs disease.
All this because some smart minds were willing to trust a stranger, come back to work and build up their company once more. Moreover, their progress is due to a willingness to test their ideas not just in the lab, but in the market too.
While validation is, by no means, sufficient to create a viable startup, it is almost always necessary.
Back from the dead, indeed.
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