Hawaii-Born Pill: The Next Wonder Drug?

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Cardax’s Compound

At the cellular level, chronic inflammation is the result of something called “oxidative stress,” the buildup of an excess of molecules called “reactive oxygen species.” These so-called “free radicals” are a normal product of the metabolism of cells. “Under healthy conditions, the body has ways to deal with free radicals,” says Cardax CEO David Watumull. “Some reactive oxygen species are even used by the immune system to attack and kill pathogens. But with chronic disease, an excess of free radicals begins to cause inflammation and, ultimately, cellular damage.”

This is what’s now thought to happen in athereosclerosis, a common form of cardiovascular disease. Oxidative stress causes inflammation of the cells lining the arteries, which induces the buildup of plaque. It’s plaque that causes heart attacks and strokes. Antioxidants like astaxanthin appear to provide a vehicle to remove free radicals from the cell, although the use of antioxidants to prevent disease is still controversial.

What makes Cardax’s compounds differ from other antioxidants is how efficiently they work. In highly magnified X-ray diffraction images of cell membranes, it’s possible to compare the antioxidant activity of Cardax’s compound with other antioxidants. In a 2007 paper in the journal Biochimica et Biophysica Acta, scientists reported that they found that, while other antioxidants damage the integrity of the membrane, or provide only a partial membrane spanning, CDX085 bridges the cell membrane completely, dramatically reducing the number of free radicals inside the cell. Just as important, CDX085 appears to be incorporated in the mitochondrial membrane, the most important site for free-radical production in the cell.

This might explain the unusual effectiveness of the Cardax compounds in animal studies. Although there are plenty of anti-inflammatory drugs available today, including some of the most profitable pharmaceuticals on the market, most of these compounds can be surprisingly toxic, especially when taken in high doses or for long periods of time, as is usual for chronic disease. That’s why the TV ads for pharmaceuticals, even blockbuster drugs like Lipitor or Viagra, can be so scary. On the other hand, in pre-clinical tests, the Cardax compounds appear to have had no side effects. In the industry lingo, they’ve shown “no known dose toxicity.” If that holds true in clinical trials on humans – and, given the long history of astaxanthin as a nutraceutical, there’s no reason to think it won’t – this new class of anti-inflammatory drugs could treat a wide range of diseases. That’s part of why Cardax looks so promising.

Then, of course, there’s the size of the potential market for Cardax compounds. CDX085 was patented as a treatment of cardiovascular disease – specifically, it reduces the level of triglycerides in the bloodstream, a precursor to heart disease – but CDX085’s sister compounds have been tweaked to treat osteoarthritis, diabetes, cognitive decline and other inflammatory diseases. These are all enormous markets. For example, in 2013, the pharmaceutical giant AbbVie (formerly Abbott Laboratories) sold more than $10 billion of Humira, a popular anti-inflammatory that originally targeted rheumatoid arthritis.

There’s also the nutraceutical market, which includes unregulated products like vitamins, enzymes and herbal remedies that are mostly sold over the counter. Nutraceuticals have some restrictions. Because they lack FDA approval, only limited claims can be made about their uses and efficacy. This makes them less lucrative than pharmaceuticals, which can make specific therapeutic claims. As Watumull points out, “If the FDA allows you to put ‘for pain associated with osteoarthritis,’ your market penetration will go way up.” Nutraceuticals don’t have that option. But that doesn’t mean nutraceuticals are small potatoes, especially if they have a history of safe usage.

“As a dietary supplement,” Watumull says, “we think the best comparison for Cardax is chondroitin/glucosamine, a nutraceutical commonly used to treat osteoarthritis. It’s marginally efficacious at best, but it still sells about $2 billion a year, because it’s safe. So, you have these enormous markets out there for safe anti-inflammatory drugs.”

As a pharmaceutical, he says, the numbers for the Cardax compounds are even more eye-opening. “We asked the members of our scientific advisory board, a panel of unpaid medical experts who serve as independent third-party advisors, ‘What percentage of your patients do you estimate would take this drug?’ We thought that something like 10 percent would be great; the smallest number anyone gave us was 90 percent. They told us, ‘You don’t understand how desperate we are for a safe, effective treatment.’ So, if you’re asking, ‘Who is the market for our compound?’ the answer is: Anybody who has an inflammatory problem.”

Venture Capital

The question is: If Cardax is such a good bet, why aren’t they already a big success? The answer, as always, is money. It’s expensive to be a biotech company. If you’re developing a new drug, those costs can stop a company in its track. For example, the natural next step for Cardax would be to subject its compounds to human clinical trials. But Phase-2 clinical trials, usually conducted on just a couple of hundred individuals, can cost as much as $20 million. Phase-3 trials, which can involve thousands of individuals, can bring those costs to more than $100 million. “Big Pharma,” the giant pharmaceutical companies that have dominated drug development for the last hundred years, will often buy or invest in companies with promising Phase-3 drugs. The Phase-2 part of drug development, though, has traditionally been funded by venture capital, and the VC world is in flux.

“They just aren’t funding life sciences anymore,” Watumull says. “They used to fund pre-clinical trial companies and take them through clinical trials, but they stopped doing that about five years ago to any meaningful extent.” In part, he says, it’s because of the risk. But it’s also because of changes in their own incentives as VC funds have grown.

“Back in the 1980s and 1990s,” Watumull says, “the largest funds raised like $200 million. If you’re a VC, you collect 2 percent of that as your annual fee. That’s just $4 million a year for expenses.” Divvied up among all the fund partners, that’s not a lot of profit for such a risky investment. Thus, to get the high rate of return that investors and the VCs themselves expected, they had to gamble on early-stage companies. That used to be the essence of the VC model: If you invested in 10 startups, five would fail, three would break even or make a modest profit, but one or two would be home runs and generate the 15X or 20X yields that made venture-capital investment viable. It was a numbers game.

“But, if you have $4 billion under management,” Watumull says, “that 2 percent management fee is now $80 million a year. That’s without doing anything. So now, VCs are less interested in investing in small, early-stage companies like Cardax. Why take the risk? Most of the companies they invest in today are Phase-3 deals.”

Watumull doesn’t think this is sustainable. The VC model depends on the high returns provided by those high-risk startups. If you remove the riskiest investments, you also remove most of the reward, and the returns on the less risky investments just don’t justify the risk. He explains it this way: “A 7 percent upside for a successful company, against a 100 percent downside for a company that fails – that doesn’t work. The amount of risk the VCs perceived was just wrong. If you wait until a company’s in Phase-3 trials to invest, you have to put up at least $100 million, so there’s no way you can make 10 times or 20 times on that Phase-3 company. But you can still lose 100 percent of your investment.”

Watumull says this miscalculation is reflected in the recent financial performance of the major venture-capital funds. “Their returns have been mediocre at best over the past five years. That means VCs also haven’t been able to raise as much money. Now, it’s all going to private equity capital.”

Nevertheless, Cardax tried to get VC funding. Like executives at most promising startups, Watumull and his team traveled around the country, making pitches to dozens of VC firms. Cardax even had some success, attracting interest from Ivor Royce, an icon in the VC world whose own life science companies, Hybritech (bought by Eli Lilly and Co.) and especially IDEC (merged with Biogen), more or less created the San Diego biotech community, one of the largest in the country. But the VC model had already begun its decline.

“He really wanted to do a deal with us,” Watumull says. “He even gave us a term sheet, but he was unable to raise money for another VC fund. Here’s a guy who’d made literally hundreds and hundreds of millions of dollars in biotech, but he was unable to do it. That was two years of our time that we spent going in the direction that he wanted to go, but it didn’t lead to anything. That was very discouraging.”

Cardax is far from alone in its VC woes. In fact, it’s become a kind of parlor game among biotech company executives to try to explain the flaws and failures of the VC model. And, although there are signs of improvement, VC money remains tight.

Watumull cites Bill Hambrecht, the billionaire founder of Hambrecht & Quist, the investment bank that underwrote the IPOs of Apple Computer, Genentech, Adobe and Amazon: “I was at a meeting in New York where he gave the keynote speech, and he said, ‘If you’re a biotech company today and you are not already VC funded, the probability of you getting VC funding now is probably almost zero.’ ” That means biotech companies like Cardax are going to have to come up with a new mechanism to bring their drugs to market.

Big Pharma

Historically, the exit strategy for most biotechs has been Big Pharma. A company like Cardax will come up with a good product, VCs will fund its early development, then a giant pharmaceutical company like Merck, Pfizer or GlaxoSmithKline will either buy the company outright or license its technology. Even when biotech companies go public, as more than 30 did last year, they tend to partner with one of the Big Pharma companies to market their product. So, Big Pharma has always been the ultimate cash cow for emerging biotechs.

But the view is different from Big Pharma’s perspective. The centerpiece of drug development for these big companies used to be their enormous research and development departments. Some of the larger companies employed tens of thousands of chemists, doctors and engineers in R&D, and for decades, these departments churned out incredibly successful drugs. Right up through the 1990s, Big Pharma was one of the most profitable industries in the country.

In the last decade or so, though, all that began to change. The R&D departments became increasingly bureaucratic and slow to develop new ideas; promising drugs that the companies invested hundreds of millions of dollars in failed in clinical trials; and, while the pipeline for new products became weaker and weaker, the patents on some of their most profitable drugs began to expire. Something had to change.

Many people, including Cardax’s David Watumull, blame Big Pharma’s woes on something called “targeted drug development.” Instead of developing drugs from promising compounds that already exist in nature – salicylic acid, astaxanthin, curare, etc. – targeted drug development looks at the molecular pathway of a disease or a medical condition, and uses sophisticated technology to invent artificial compounds that interfere with or enhance that pathway. For example, cholesterol is produced through the regular metabolic activity of certain cells in the liver. An enzyme called HMG-CoA reductase regulates the rate of cholesterol production by binding to specific receptors on the membranes of these liver cells. Lipitor, a popular statin used to reduce blood cholesterol, works by binding to that same cellular receptor, preventing the HMG-CoA enzyme from binding there and stimulating more cholesterol production.

In other words, instead of looking at the whole animal, targeted drug development focuses on the structures of single enzymes or proteins. The idea is to create small organic molecules that either stimulate or inhibit the function of the large biological molecules in some metabolic pathway. It’s all about understanding the architecture of these molecules.

Targeted drug development has been wildly successful in helping us understand how disease works at the cellular and molecular level. And, because it relies on sophisticated tools, like computer modeling and high-throughput screening techniques, this approach has also industrialized the drug-discovery process, making it faster and more efficient. But critics say targeted drug development has a fatal flaw: Because it’s focused so narrowly on a single gene or a single target on a specific protein, it fails to account for how a new drug will interact with the whole body or with other systems in the body. The result, Watumull says, is an inevitable rash of side effects. “For chronic diseases, like osteoarthritis, you need systemic answers, systemic solutions.”

That used to be a controversial opinion, but it’s increasingly common in the biotech world. “Scientifically, targeted drug discovery is very elegant,” says Deepak Bhatt. “And it makes sense in an intuitive way. But ultimately, it may not be highest yielding approach to drug development anymore.”

Like Watumull, Bhatt thinks we don’t know enough about how drugs work in the body. “We do have a fairly refined understanding of the role some receptors play in the development of certain diseases. What we don’t have is a refined view of what targeting that particular receptor will do to the whole system. The problem is, by antagonizing one system, there might be counter-balancing effects in another system or a couple of other systems.”

While Bhatt acknowledges that targeted drug design has produced important advances in the treatment and diagnosis of some diseases ­– notably for rare and genetic disorders – he basically agrees with Watumull: targeted drug design has hit a wall.

“The pattern of drug discovery that’s evolved over the past 10 to 15 years or so,” he says, “may no longer be that productive. There aren’t as many blockbuster discoveries as there once were. So, maybe the approach that Cardax is espousing is a good one. If compounds like astaxanthin already exist in nature, if they’re durable and there’s an evolutionary reason to conserve them, that could be an appealing way to screen for different drug therapies. Certainly, that type of compound might have real appeal to patients. Patients love the idea of natural treatments.”

Nevertheless, targeted development is still the dominant paradigm of drug discovery for Big Pharma. And that spills over into the VC world, where investors want to make sure the product they’re selling is attractive to the pharmaceutical companies that must ultimately buy it. “These guys do tend to all run after the same stuff,” said former Cardax chief medical officer Fred Pashkow, not long before he died. “VCs get enamored with the same kinds of sexy science that Big Pharma does – things like RNA interference, which affects genomic translation, or personalized medicine. They’ve poured a ton of money into the genomics thing that really didn’t turn into any new drugs. There’s been a lot of chasing after big science projects in the VC world. In my judgment, the VC model has not been working for years.”


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