Open Monoclonal Technology Looks to Sell Subsidiaries

Jan 02 2013

PALO ALTO, California—Open Monoclonal Technology Inc. has created three subsidiaries that it’s looking to sell as part of its unusual strategy to succeed at a tough time for biotechnology startups, VentureWire has learned.
Open Monoclonal plans to begin selling the subsidiaries this year to corporations seeking unlimited access to its technology for producing antibody drugs. The sales will create revenue for the company and returns for its venture investor, Essex Woodlands Health Ventures. It’s also licensing its capabilities out and has recently struck deals with companies like Pfizer Inc.

By finding multiple ways to generate value from its technology, Open Monoclonal has become self-sustaining despite raising only $15 million from Essex Woodlands. And as it gains revenue and experience through corporate deals, Open Monoclonal could evolve into a well-funded drug-developer itself, according to its chief business officer, Brian Lundstrom.

Open Monoclonal’s strategy is one of several that biotechs are testing as they try to deliver timely returns to investors while relying less on venture capital.

Venture firms have been funding fewer biotechs lately because of the rising cost and difficulty of drug development. Through the first three quarters of 2012, U.S. biotechs raised $1.9 billion through 178 financings, down 30% from the $2.7 billion secured through 223 rounds in the first nine months of 2011, according to VentureSource, which is owned by Dow Jones & Co., publisher of VentureWire.

Startups are coping in various ways, such as forming corporate alliances early on to secure non-equity capital. Others, such as Adimab LLC and Resolve Therapeutics LLC, are organizing as limited liability companies so they can distribute proceeds from licensing deals in a tax-efficient manner. This enables them to deliver returns to investors without selling themselves or going public.

Open Monoclonal has developed a four-part strategy that includes selling subsidiaries, striking direct and indirect licensing deals, and potentially moving into drug development. Through its transactions with pharmaceutical companies, Open Monoclonal can generate good returns even if it never emerges as a drug-maker itself, according to Essex Woodlands Managing Director Ron Eastman.

“It’s getting increasingly difficult to justify investments in early-stage companies when the regulatory, reimbursement and financing issues are so challenging,” Mr. Eastman said. “Innovative models [for] addressing those challenges, as this one does on a few levels, certainly will increase the chance of success.”

Antibody drugs, which are usually produced in mice, have emerged as important weapons against cancer and inflammatory diseases because of their ability to home in on their antigen targets. The global market for them was worth $44.6 billion in 2011, according to BCC Research.

Open Monoclonal says it’s the first to genetically engineer a rat to produce fully human antibodies. This year, it plans to introduce a transgenic mouse as well. As the only biotech with rat and mouse technology, the Palo Alto, Calif., company says it can efficiently discover antibodies against challenging drug targets, said Mr. Lundstrom.

In addition to its transgenic rat, Open Monoclonal has developed new ways to immunize animals so they’ll make antibodies against a target of interest. The company also is adept at screening the antibodies to identify the best ones to take forward into research studies, according to Mr. Lundstrom.

The company, formed in 2007, calls the combination of its animal, immunization and screening capabilities its “OmniAb” platform.

Seeing that there was more demand for antibodies than there was a supply of transgenic-animal technologies, Essex Woodlands made its first investment in Open Monoclonal in 2008. The firm felt that a number of drug companies would want to own rather than rent Open Monoclonal’s platform, creating opportunity for near-term returns, Mr. Eastman said.

Essex Woodlands, Open Monoclonal’s majority owner, could still sell the company whole. But in the past few years it’s found that having exclusive access to a platform technology isn’t as important to corporations as originally thought. Many would prefer to use many capabilities, Mr. Eastman said. In addition, the competitive landscape has been changing as other companies have developed antibody platforms, he said.

Open Monoclonal’s venture-backed competitors include Kymab Ltd., whose human antibody-discovery platform is called Kymouse; Ablexis LLC, which is advancing a technology called the AlivaMab mouse platform; and Adimab, which has a yeast-based platform.

In this increasingly competitive market, Essex Woodlands and Open Monoclonal decided that their best bet would be to sell access to the technology multiple times. About four years ago the company created the subsidiaries. Buying one of them is the most cost-effective option for a corporation that wants to use the capabilities to pursue more than three or four targets, according to Mr. Lundstrom.

Those seeking more limited access can enter a direct-licensing agreement. A company that wants to use the platform to produce antibodies that it can then deliver to other drug companies can form an indirect-licensing agreement, he said.

In September, WuXi PharmaTech Inc. secured a license to use Open Monoclonal’s transgenic rat to develop antibodies that will be commercialized by WuXi’s global customers, for example.

Brian Gormley
VentureWire Dow Jones newsletter dated Wednesday, January 2nd, 2013