Chris is the Managing Director of Metabolic Pharmaceuticals. Metabolic Pharmaceuticals is an Australian biotech company and its lead compound for the treatment of obesity is in Phase II clinical trials. This interview was conducted on 23 October, 2002.

When did Metabolic get started?
Metabolic was set up in 1998 to commercialise the anti-obesity treatment AOD9604. The compound was the best of a range of analogues of the C-terminus of human growth hormone, coming out of research by Prof Frank Ng and his team at Monash University over several years, funded in the later stages by Circadian Technologies. From Circadian we then set up Metabolic as a spin-off to raise public capital for the next stage, preclinical toxicity studies and proof of concept in humans. We are now in the position where we are in our fourth clinical trial and we’re on the threshold of proving the concept, sometime next year.

What do you mean by proving the concept?
Clinically relevant weight reduction in humans. We have moved from the point of promising results in animal models to obtaining early indications of activity in humans after single doses, to proving the concept in humans some time next year. What happens next year will be the real value driver of the company.

Do you think four years is the right amount of time you should have taken to do that?
Unfortunately R&D is never straightforward and “expect the unexpected” is the rule rather than the exception. Had we encountered no technical difficulties, perhaps it would have taken us a year less. As often happens, we encountered a few difficulties we had to overcome. On balance, we have done a reasonably good job and recent progress has been without further delay.

What makes a good therapeutic product market?
The full consideration is always to assess opportunity, which includes the market and the improvement supposedly provided by the candidate drug. Good opportunities should be ones which enjoy a better return for the research spend – the problem is how you assess that. Almost no opportunity gets a “tick in every box” for any set of broad parameters you might set down, and you have to assess the overall risk and return. The way we assess projects is to look at each element of risk and reward and try to find an overall assessment. It’s very qualitative but what is important is to think deeply about each issue and check your facts.

First of all, large or potentially large markets increase the overall reward. However that can be reduced even in a big market if you envisage only getting a small slice of that market, due to competitor products. Second, the overall market should be highly unsatisfied, where the patients and doctors are not satisfied with the treatment they are getting, and will be open to new therapies. That provides a bigger chance that your drug will be able to provide an objective improvement which the doctor can’t ignore.

It is better if there are few drugs in development for that indication, so there are fewer competitiors, Although if there are few drugs in development it often means there is not a big market, sometimes there are exceptions, perhaps because there are not many good new ideas in the area and your drug might provide a real advance.

You have to carefully assess the improvement your drug is supposed to provide over both the drugs in the market and the ones in development, and the risk is much lower if your data is strong in relation to that improvement. It is easy to put forward potential advantages for a compound, but how strong is the evidence - firstly how strong is the evidence that there will be a demand for the advantage; secondly how strong is the evidence that the drug will have that advantage?

In my view, a bad opportunity for a biotech company is one where the indication is already well served no matter how large the market, for instance cholesterol or stomach acid reduction, where the existing drugs work well . All the improvements in such a market are minor improvements. This is alright for a big drug company which can just do it anyway in the knowledge that they can develop the drug themselves and convince doctors they should select the new marginally better drug using their marketing clout. They control that space and they can still get a positive return if it turns out that the advantage is very marginal indeed. But a biotech company has to convince a big pharma to want to market its drug, in competition with all the other opportunities big pharma has to license in. Unless of course the biotech aspires to go to market themselves, but then the problem will be – how can the biotech afford the required marketing push to convince the doctor that they need what they don’t really need? The best areas for biotech companies to be in are diseases that have a long way to go to be treated effectively.

Why do you think you have pitched yourself into good markets and opportunities?
Obesity is the world’s most underserved pharmaceutical market, but is the world’s biggest disease. The number of compounds in clinical development is very small indeed and the efficacy of the existing drugs is very poor. In addition, the science is complex and poorly understood so there are many opportunities for improvements to be made by new understanding. AOD9604 has clear potential advantages. And the indication is one the investing public can easily understand and are familiar with.

Type II diabetes is similar. It is a growing market. Good control over blood glucose is not achieved routinely with existing drugs, so there is certainly a big need for improvement and new ideas are welcome in that area. No one drug is likely to serve this market, because the underlying condition is highly variable between patients. Our candidate drugs appear to work by new mechanisms and we will take them forward into formal preclinical development if we are confident after further testing that they will find a place.

Osteoporosis – none of the existing drugs provide the (necessary) level of improvement in both bone strength and density that is required to really reverse the disease. We licensed in two peptide fragments from Auckland University this year for further assessment, because on the data so far they are well positioned in this market, providing large increases in bone density without apparent side effect.

And in the final market area Metabolic has chosen, iron overload, the existing drug dominates 100% of the market and can’t be taken orally. With an oral drug, the market will grow.

What can you do when selecting a prospective technology for commercialisation to increase the likelihood of success?
One danger signal is when you are assessing something that “falls in your lap” - either you or associates have thought of it. A lot of biotech companies are set up by the scientists, so you have to be wary of that. That is not necessarily bad but it means that it’s harder to be objective and to put it through a rigorous process of selection. So the person selecting it is biased in some way.

Is objectivity hard to achieve?
Always, and you have to work hard to aim for it. You have to try especially hard to be very critical of your own inventions and assumptions.

On the other side of the coin, when looking at the projects of others one of the strongest failings is the “not invented here” syndrome - the chief reason for good ideas not getting supported by others. It’s quite pleasing to criticise the other guy and we all spend a lot of time doing it. If you’re too critical, you’ll never take on anything because every project has a risk and a potential weak point.

Most of the valuable and original ideas out there are ones which in some way will challenge the established orthodoxy, so you have to be circumspect about the opinions of outside experts in the area, each of which have their own barrow to push. It’s important to ask their view, but rather than be controlled by their opinion, define an early experiment which will decide a contentious issue objectively if you need to. Concentrate on actual experimental results which are relevant to whether the drug is going to be a good therapy rather than opinions of what might happen based on assumptions of biological mechanism. If you rely too much on the other scientists in the field, you’re in danger of taking on projects which have too little technical risk and too much commercial risk – those are the ones which are not contentious but are not very innovative, for which there are lots of other not very innovative competitors.

The most important part of the development process is the decision to do it in the first place, because this is where you first have a choice on whether to take on the risks. I think the key in this process is to really know the risks, and to do this you need to gain a thorough understanding of the field and work hard at it.

A fundamental key consideration is to ask the question, Is the improvement that is offered a real one? Often when you do the analysis you have to go in quite deep, you talk to the customers, that is the doctors, maybe you find the alleged problem which the invention solves isn’t such a big deal and the improvement is really not that valuable. The improvement should be important enough so that people will actually want to buy it. There are lots of “better” alternatives which are not better enough to be worth developing.

You also have to be satisfied that the mode of delivery is acceptable, that there are not major technical hurdles to overcome in that area. A drug for obesity which needs daily injections would be an example of an unacceptable delivery method.

Another big risk reducer is to determine whether the drug has been tested in a reliable animal model. If the animal model is a reliable one then it will tell you pretty much if the drug is likely to work in humans. It may not tell you if it will be better than drug x, y or z but it will tell you if it will be active in humans, with a reasonable degree of likelihood. So that’s a big risk reducer to at least have a reasonable degree of confidence that the efficacy end-point can be reached.

A lot of people are sceptical about animal models.
That’s true. They aren’t always predictive but failure to show efficacy in an animal model is almost a guarantee of failure in the human. My point is that you have reduced the risk a lot by showing that it does work in animals. And there are drugs out there in development that have never been shown to work in animals. You’re completely in the dark. It’s just a leap of a faith from an in vitro experiment to a human experiment. So in my view you should do thorough large animal efficacy studies before you commit to pre-clinical and clinical development. That’s what we are doing with our osteoporisis drug which we have licensed in. Although the University of Auckland has some pretty impressive animal data, we knew that their particular animal model wasn’t the model that the FDA would accept. The model that Auckland used was an easier-to-execute model but we knew what the model the FDA wanted was, so we now set about testing the compounds in that model and we will have the results soon. It will have cost us about $150,000 to do that but that is the only money we have spent so far on the project. If that comes off, great! But if it doesn’t we have only wasted $150,000, we haven’t wasted a million or two.

Metabolic has developed a portfolio of drugs with an emphasis on metabolic diseases. Is there any commercial significance to this?
Not really. It just happened that when we set up the company we had obesity and diabetes opportunities. The two things they had in common were that they were metabolic diseases. When we went out to look for extra projects it just happened that the ones we found that we liked best were metabolic conditions, so there isn’t any lesson to be learnt there. We’ll change our name if we get a bit broader, if we take on an analgesic or something. In fact analgesics is a very high opportunity area to be in if you can find something good.

What is the benefit of 100% ownership by a company of its technology?
We own our obesity and diabetes projects 100%. The others are licensed in. The advantage of owning it 100% is that you are not accountable to anyone for performance so you haven’t got any concerns that if you come upon obstacles you would have to hand the project back. But also that you are not having to pay royalties to another party. The deal you do when you license the project on isn’t diluted at all. So we preferred to set up a company that Monash owned shares in – Metabolic – rather than have a royalty entitlement, for that reason. There is nothing wrong with exclusive licensing and that of course is what we have done with our subsequent ones, because it would have been an expensive thing for us to grant equity in Metabolic to own them 100%. At that stage it is better to license them in.

What have been some of the avoidable failures of biotech in Australia?
The term “avoidable failure” is a good one because even the best projects have a legitimate risk of failure. The two most talked about companies with failures who are unpopular with the investors are Biota and Amrad. It’s important to ask what can be learnt from this, or is it just acceptable risk?

Biota couldn’t have prevented the market failure of Relenza – it just didn’t work well enough for the indication it was approved. I think an avoidable part of the story was that the company failed to diversify its interests over the many years it held its patent over Relenza, and when they did finally decide to diversify, they set up a very expensive R&D program to discover new drugs and didn’t deliver any. Companies generally aren’t good at discovering and doing early research, they’re better at applying a discovery. In my view they should have been licensing in compounds, or used their high market capitalisation to take over other companies with compounds.

What are the signs that a company is doing basic research?
It’s interesting to look at the current situation in the US. There were many basic research companies – genomics, various “discovery” platforms and the like, who were relying on discovery deals with pharma, had a large number of laboratory staff, high cash burn rates and didn’t themselves have drug pipelines. Now with the equity markets reverting to an emphasis on sustainable business models, most of the discovery companies are desperately trying to license in a pipeline of drugs to develop, in order to survive. Why? Because they didn’t discover enough themselves.

We shouldn’t make those mistakes. A company needs to be a developer, to have compounds that they are taking into preclinical studies and clinical studies.

Amrad is the other example people talk about in terms of failure. While Amrad rightly emphasised clinical development, it had and still has a big emphasis and high spend rate on drug discovery and infrastructure and none of that as far as I can see has resulted in a compound in clinical trials. All of Amrad’s compounds in clinical trials were licensed in from elsewhere, from the scientific community. That in itself is the right approach in my view. However some of the technical failures in clinical development at Amrad may be a consequence of a failure of applying good selection criteria. While it’s easy to criticise from afar, it seems to me at least from their company literature that several of their candidate drugs had no clearly identified advantages, even if they had proven efficacious in the trials.

Big spending in your own labs is a sign of too much discovery effort, which is better left to the scientists in universities. The most efficient use of investors’ funds is to find promising compounds, acquire the rights and develop them. There are many good opportunities out there, and there should be a scramble to take them up and apply them. Isn’t that what developing our science is all about?

Most of the 100,000 proteins in the body are probably not useful as therapies or drug targets, particularly the intracellular ones which are usually too non-specific. So you can’t assume that having access to scientists who discovered fifteen new proteins means you have got any good targets for drug discovery or any good proteins as therapies. Having been involved with the research side and the clinical side in the past I have learnt that the hardest thing to do is the first step - to discover a drug which does anything useful in vivo. The risk of failure to find a candidate drug that works in animals is the biggest risk of all.

What are some of the limitations of existing obesity drugs?
Xenical is the least effective drug on the market but the one that sells the best. It’s the most recent entrant. The main problem with all of the existing drugs is that they don’t work well enough.

Xenical works by stopping fats in the food from being absorbed from the gut, and its efficacy is to reduce body weight by between 2% and 4% compared with placebo. So if you weigh 100kg the drug is responsible for between 2 and 4 kilos being lost which is really not enough. We anticipate that our drug will work a lot better than that; we can’t say exactly how much but we know that growth hormone produces about 1/2 a kilo per week fat reduction so we would expect our drug to do the same. So 10-13 kilos over 6 months is possible. So efficacy is big difference, also side effect profile and safety. Xenical has no big safety issues but an unpleasant side effect profile – tummy troubles caused by the fat passing fat through the gut.

The second most popular drug is Meridia which is an appetite suppressant, like all the other drugs apart from Xenical. The problem with appetite suppressants is that they are non-specific and do things you don’t want them to do. They might have effects on the heart. They might effect sleep patterns. They might effect mood. In fact most of the things that make you want to eat less also make you feel different, usually not better. Depending on what biochemical switch the appetite suppressant is acting on, different adverse effects on the mood will be apparent. It could be panic attacks, it could be depression. It might be psychosis. All sorts of things could happen along with the reduction in appetite. So the appetite suppressants as a group have a problem in that they are attacking brain chemicals. And brain chemicals are always quite non-specific.

What we have is a drug that acts directly on fat metabolism. And it is a natural mechanism. It’s the one that growth hormone uses. So we believe it won’t have any adverse effects on mood and any digestive effects. Although efficacy is the one you really want to win at, even if our drug is only as effective as existing drugs, it should shine in relation to side-effect profile. We firmly believe AOD9604 is the best drug in development, but as with everything, time will tell.

Thanks very much Chris.