A Southeastern Success Story

Posted by on Mar 12, 2012

Occasional observers of the life sciences industry might be excused for focusing most of their attention on California and Massachusetts.  After all, it was in these states that companies like Genentech and Biogen gave birth to the biotechnology industry.  And today, both regions remain hubs for innovation and venture capital funding for the sector.  In fact, close to 60% of all venture funding in the life sciences industry over the past five years has been invested in just those two states alone.  But it was in Georgia that one of the industry’s most successful investment stories in recent memory quietly got its start.   Pharmasset, founded in Tucker, Georgia by scientists at Emory University in Atlanta, was acquired in January 2012 for $11 billion by Gilead Sciences, a global leader in anti-viral drug development.

This was a landmark transaction in several respects.  The acquisition ranked as the highest-valued M&A deal ever for a clinical-stage biotech company (Pharmasset’s most advanced drug was in Phase II clinical trials.)  And even before Gilead offered an 89% premium to Pharmasset’s closing stock price, the company ranked as the top performing IPO in the life sciences sector since the late 1990’s and one of the top performing IPOs, even including the IT sector, over the past decade.

Pharmasset was founded in 1998 by Dr. Raymond Schinazi and Dr. Dennis Liotta, scientists at Emory University.  The company focused on developing novel treatments for viral infection, including HIV and hepatitis C.  Dr. Schinazi served as chairman of the company for many years, while focusing his on-going academic research on the discovery of novel anti-viral agents and the development of combined modalities to combat drug resistance.  His laboratory was first to report on the M184V mutation in HIV, and to propose drug combinations for HIV and hepatitis infections leading to successful HAART and the decline in mortality in HIV infected individuals.

Hepatitis C is a viral infection which affects over 4 million in the U.S. and over 170 million worldwide. The blood-borne disease can linger in the bloodstream for years and can ultimately lead to liver cancer or liver failure and death.  Just a few years ago the market for therapies treating hepatitis C was less than $1 billion and was comprised solely of injectable drugs with serious side effects, and that seldom entirely cleared the virus from patients.  As awareness of the disease and new treatments has grown, analysts today estimate this market could exceed $20 billion in a few years.

Pharmasset’s research and development efforts focused on nucleoside/tide analogs, a class of compounds which act as alternative substrates for the viral polymerase, thus inhibiting viral replication. The company’s lead drug, PSI-7977, emerged as a potential blockbuster after Phase II clinical data was released.  And the company was farther ahead of rivals developing a class of drugs known as nucleoside inhibitors that are now regarded as essential. Pharmasset’s drug candidates have shown the promise of virtually eradicating the virus as part of an all-oral therapy, which typically is far easier for patients and comes without the side effects of currently available injectable medications.

Prior to its initial public offering in 2007, Pharmasset was funded by venture investors MPM Capital, TVM Capital, Burrill & Company and Lumira Capital.

The success of Pharmasset is expected to draw more investor attention to the Southeast, a region historically under-represented in the yearly VC investment tallies despite being home to numerous leading research institutes, established life science companies and large allocations of NIH funding.   It’s worth noting that in comparison to the 60% of VC dollars going to California and Massachusetts, states in the Southeast are vastly underserved.  For example, North Carolina, Georgia and Florida only garnered 3%, 1% and 1% of life science venture dollars respectively over the past five years.  Viewing this disparity another way, the states of the Southeast get 15% of all NIH funding in the U.S., but collectively attract only 6% of venture dollars invested nationally in the sector.

Smart investors rightly see an opportunity in these numbers.

Gerry Brunk is a Managing Director at Lumira Capital.   www.lumiracapital.com



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