Autoimmune diseases trick the body’s immune system into attacking its own healthy cells. These diseases, such as rheumatoid arthritis, type 1 diabetes, eczema, celiac disease and lupus, account for a combined $100 billion in annual U.S. healthcare costs. Current treatments for these autoimmune diseases are ineffective because they cannot target the compromised immune cells with enough specificity or effectiveness.

 

Two Dartmouth students are looking to tackle this monumental problem in healthcare. Meet Jayanth “Jay” Batchu ‘18 Th’19 and Brenda Miao ‘19. Valkyr, their startup, seeks to develop a “targeted therapeutic platform that selectively removes autoreactive immune cells – reducing side effects and potentially increasing treatment efficacy.” Valkyr’s secret weapon is a targeted cell therapy platform that leverages healthy immune cells and essentially reprograms them to target and kill a specific type of cell. This technique has already been developed and used for cancer treatment, but it has not yet entered the autoimmune space. The pair are currently working with faculty at the Dartmouth-Hitchcock Medical Center (DHMC) to specifically adapt the technique to treat rheumatoid arthritis.

 

Both Batchu and Miao have backgrounds in biomedical engineering. Miao previously conducted autoimmune disease research and Batchu has worked with cancer cell therapy. Last fall, they decided to combine their skillsets to address this unique health problem. Both also have interests in entrepreneurship. Batchu chose Dartmouth over Johns Hopkins because of the many entrepreneurial support and networking resources available through the Magnuson Center for Entrepreneurship and the Tuck School of Business. Batchu and Miao were both members of the new TuckLAB entrepreneurship program at the Tuck School this past winter where they put forth Valkyr as their venture idea in the program’s entrepreneurship challenge and ultimately won the final competition.

 

As a biotechnology startup, Valkyr is still in its very early stages: pre-revenue, pre-funding, and pre-clinical. The general lifecycle for startups in this space is typically much longer than the countless, fast paced startups in the software industry. Biotech startups pose unique challenges for entrepreneurs due to the high upfront costs needed for scientific research and the high risk of failure. Batchu believes that it is “like buying a lottery ticket.” One option for many startups in this space is to pursue partnerships with Contract Research Organizations (CROs) that provide the necessary funds in exchange for startup equity. Valkyr has already received funding from the DEN and Tuck School of Business but is currently looking to raise more capital through cultivating such partnerships. In the end, the ultimate goal for most startups in the biotech space is to be acquired by a larger pharmaceutical company with the resources to bring the treatment to market.

 

One business challenge Batchu is trying to address is Valkyr’s pricing strategy. From discussions with a Tuck professor, Batchu explains that the price of Valkyr’s product essentially varies from day to day based on the progress of the pre-clinical research. Figuring out this strategy is important for determining an accurate valuation of the company that can be presented to potential partners or investors. Batchu predicts that ultimately, the price of Valkyr’s product will be similar to existing cancer cell therapies.

 

Valkyr is still years away from clinical trials and Batchu and Miao will likely face many more challenges along the way. However, with the many resources available at the Dartmouth-Hitchcock Medical Center, Magnuson Center and Tuck School, the pair is hopeful that their work will eventually make it to the market and revolutionize the treatment of autoimmune diseases.

Pharmaceutical giants have flirted with biotechnology firms over the years, but only recently has there been serious talk of marriage. Since the 80’s and 90’s, these two kinds of drug producers have tried everything from joint licensing deals to extensive alliances. However, the two industries have maintained their independence. Both tacitly acknowledged inherent differences in their business models and cultures, and therefore avoided complete mergers.

That is, until their recent union. In 2007, an estimated $60 billion in biotech acquisitions by pharmaceutical companies occurred in the U.S. alone. The most talked- about example is Swiss pharmaceuticals company Roche and its $44 billion offer for California- based Genentech, the largest biotech firm in the world. Other major deals of late include Bristol-Myers Squibb’s bid for ImClone, AstraZeneca’s purchase of MedImmune, and Takeda’s acquisition of Millennium. The purchases are surprising given the recent recession and investment slump. So what spurred this sudden upsurge in mergers?

The most apparent driving force appears to be the pending wave of expirations on patents pharmaceutical companies have traditionally relied on. Starting with the Hatch-Waxman Act of 1984, the Food and Drug Administration (FDA) has granted exclusive marketing rights to brand name drugs for specified periods of time. Comparable generic drugs could typically enter the market after ten to fourteen years, causing prices to drop by about eighty percent. This government-granted monopoly has been both a blessing and a curse for the pharmaceutical industry: while they raked in billions from drug patents, easy profits have largely stifled any desire to innovate.

In buying up biotech innovators, pharmaceutical companies hope to fill their emptying pipelines with products less susceptible to imitation. Unlike most pills, biotechnology drugs often consist of complex proteins. Generics have difficulty replicating such products, giving pharmaceutical companies time to boost their sales while competition plays catch up. Furthermore, since biotech products are relatively new, FDA regulations pertaining to their patents are less clear. So even if generics successfully copy biotech drugs, regulatory barriers can make getting the drugs to the market arduous and expensive.

Still, it seems risky for pharmaceuticals to put high stakes on large biotech players when smaller firms are much cheaper to absorb. One possible explanation is heavier regulatory oversight on the part of the FDA. Recent safety scandals involving brands like Merck’s Vioxx and GlaxoSmithKline’s Avandia shook regulators, making them wary of sanctioning new inventions. Even if start-ups have good ideas, the FDA will likely regard them with suspicion and therefore complicate their profit prospects. Established biotech firms, on the other hand, have approved drug lines. Pharmaceutical businesses are hence willing to shell out more for partnerships with greater guarantees of return.

Some pharmaceutical companies also view the recession as an advantageous time to buy. Investors remain pessimistic about the industry’s lack of innovation and potential government price-controls on drugs. Acquisitions could therefore revitalize innovation and boost investor confidence. The weak dollar has also made U.S. firms prone to foreign takeovers, as the recent European courtship of Californian and Massachusetts biotech firms attests to.

Moreover, drug companies are working on a product that would treat colon cancer, which has been rumored to exceed original expectations. If on-going trials confirm this report, then the drug would be worth significantly more than its current valuation. Roche might therefore want to get its hands on Genentech before final test results come out. Big pharmaceuticals prove that while they struggle in coming up with actual merchandise, they recognize a sweet sale when they see one.

Despite the persistence of their pharmaceutical suitors, biotech firms remain uncertain about reciprocal affections. Ernst & Young’s 2011 report shows that biotech firms now face more competition for financing and have less means to push drug trials into later stages of development. Plus, in the wake of the credit crunch, venture capitalists that largely sponsored biotech firms are now actively searching for exit routes in the form of buyouts.

Financial hardships appear to have driven many reluctant biotech firms into the arms of pharmaceutical giants. Large biotech powers like Genentech and ImClone initially held out on offers before grudgingly caving in. Although playing hard to get could just be a bargaining strategy to fetch higher sale prices, cultural differences between the two industries are undeniable. Scientists are worried that extensive drug bureaucracies, themselves unable to innovate, will drag down their creative biotech industry. Many Genentech employees are uneasy about the acquisition, uncertain about how reorganizations in company structure will affect their ability to work.

However hesitant they may be, many biotech firms have accepted big pharmaceuticals’ proposal, signaling the birth of a new recombinant company. These acquisitions could potentially benefit both partners: a boost in innovation for pharmaceuticals and ample research funding for biotech. But thus far, it is hard to tell whether this whirlwind romance will end in bitter squabbling or matrimonial bliss.