Tapping into a niche

12 May 2006

ImmuPharma has taken a different tack to other young biotechs, from its listing on the small company AIM exchange to the medical needs it's targeting. CEO Dimitri Dimitriou explains its thinking

Dimitri Dimitriou founded ImmuPharma 18 months ago after 20 years' experience in the biotech sector, latterly as director of worldwide business development at GlaxoSmithKline and Bristol-Myers Squibb. The company, which acquired two European companies and is listed on the small cap market AIM, focuses on unmet medical needs in the treatment of conditions such as Lupus and MRSA. The Lupus drug was recently judged by Datamonitor to be a similar market opportunity to the multiple sclerosis treatment Interferon.

Isn't the business model of a biotech start-up ill-suited to a listed company, with such a high risk at an early stage?

Well, with our experience in the pharma sector, we have a good understanding of what is likely to be successful and what isn't. We are not an academic spin-off. Biotech start-ups from universities often begin with a great idea - and the patents that go into the company tend to be exciting patents. But the difficulty is that if you've not worked in the industry before, you don't necessarily know what is going to be successful and more importantly, you really don't know what the pharma companies are going to be interested in. The last thing investors want to see is a company that spins off some IP without the ability to commercialise it in the future.

Small companies usually cannot market their own drugs. Drugs tend to be worldwide products, which is why they have extraordinarily high sales potential compared to other sectors. The regulatory requirements are such that, once you have approval in Europe, it's valid in all the EU countries, and the regulatory package would most probably be adequate for the US too, at least for the serious diseases. With US and European approvals, a company can also register the product in most world markets.

However, once a drug is approved, it also has to be promoted. In the pharma sector, the main way of promoting your products is through medical reps, so if you are developing a drug for a GP-like condition you need to approach all the GPs around the world. Only a handful of big pharma companies have that capacity. In addition, biotech companies struggle to come up with the funding to carry them through to phase three trials and product launch.

One of the things we kept in mind when setting up ImmuPharma was that the best model is to address truly unmet medical needs. Some areas are well catered for - for example, with heart disease there may not be a cure, but sufferers are already taking a range of drugs. One of the areas ImmuPharma is looking at is Lupus, for which there has been no treatment for the past 40 years. So you have to look at the numbers and measure how many treatments there are currently and how many are in development.

It's an interesting model for biotechs because it's feasible to target niche areas and needs that are completely unmet, plus the development and testing is going be faster and cheaper. With Lupus we think we can conduct phase three testing with about 500 patients, whereas with a cardiovascular treatment you might need to involve 5,000 patients.

So is your model going forward to market any successful drugs that emerge from the trials yourselves - or will you look to license them to one of the bigger pharma companies?

We are hoping to be in a position to market our drugs ourselves. For example, if we were to find a cure for Lupus, we would only need to target a few key centres that treat the disease. I estimate we could do that with 50 people in Europe, 50 in the US and less in Japan. Having said that, if a pharma company were to make us an attractive offer, we would not turn it down. The key thing is, we are not in a position where we will be held to ransom and forced to find a pharma partner for developing and marketing our products - which is the case with most biotech start-ups.

We have more control over our destiny compared to many other companies. ImmuPharma will need another funding round to take us all the way to phase three and launch but if a big pharma company came in, we would of course consider the proposal.

ImmuPharma was essentially born out of the acquisition of two companies in France and Switzerland. Why did you decide to set up in London?

Our history goes back to Dr Robert Zimmer, who was head of research and development at SkyePharma, one of the largest UK-listed small pharma companies. I got to know Dr Zimmer well after I did a deal with SkyePharma when I was at SmithKline Beecham. Robert and I left our companies close together and Dr Zimmer formed a company in Switzerland and generated some very interesting patents on peptides. Soon after, he formed a company in France and put together a key collaborative research deal with the Centre National de la Research Scientifique in Strasbourg, which is France's medical/scientific research institution. Our drug for Lupus is a product of many years research at the CNRS.

After a few years of working together, I saw the opportunity of creating a specialist pharma company and taking it public in London, on AIM. AIM is the only small company-friendly exchange in Europe. We put together ImmuPharma in London and acquired the French and Swiss companies, in which Dr Zimmer still had controlling stakes, thus creating a new pharma company, and successfully listed it.

We don't do any research in the UK, but London is very attractive for the management of the company and a great choice for the HQ of a public company.

You got your listing through a reverse takeover of a shell company on AIM. What was your rationale?

Through one of our contacts, we came across an investor that controlled a shell company on AIM that had no legacies. The company was called General Industries plc and had £1m in cash - it was a very clean business and was put together with no operations, but with the purpose of becoming a vehicle for M&A. When you are involved in M&A, the last thing you want after you've been in business for years, is for some outstanding liability to come back to haunt you. With this company we were able to do a reverse takeover without many worries, plus our board took over completely without any issues. We gained a placing on the stock exchange with some funds and our own directors in charge.

So what are the downsides of AIM?

AIM is not without its issues - one of the biggest is that AIM stocks tend not be very liquid. It's a function of a market for small companies that with the volume traded being low, shares can be very volatile. Over the last few years, AIM has performed so successfully, it's seen as the world's most successful market for smaller growing companies. Interestingly, very recently a number of US biotechs have chosen to list on AIM instead of their own home market. Unfortunately, many people haven't realised the advantages and still see AIM as LSE's poor relative - that's not true.

What have your learnt from your early experiences and your first few months on AIM - and what would you advise other companies going down this route?

To get a listing you have to have a strong management team. Technology is always of course vital, but when it comes to investing, people have to have faith in you because biotech is a risky business - but equally the rewards are high. A drug in phase one trials has a 25% chance of making it, in phase two it has a 35% chance, but by phase three it has a 65% chance. Whatever you do, until phase three, the chances are you are going to fail. The risk at an early stage for investors is great. So logically you want people who know what they are doing - and have done it before - running the company, which is what we have in ImmuPharma's case.

Learning how to grow an AIM company is an ongoing process. You need to look at what other companies have done - and understand which of your peers have succeeded, what has worked and what hasn't. You need to understand, try and satisfy all types of investors and run the company as dynamically as possible at the same time as living under the constraints of public company regulations.

Dimitri Dimitriou was talking to David Longworth of Webster Buchanan Research