Follow Your Instincts

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By Amber Lepage-Monette

When it comes to making key business decisions, MethylGene Inc. (Montreal, QC) has had more than a few “light bulb” moments over the last 10 years. It’s knowing when to follow through on those bright ideas that has served the company so well.
In 1996, Donald Corcoran was vice-president of business development with Hybridon (now Cambridge, Mass.-based Idera Pharmaceuticals Inc.) when he made contact with several Canadian venture capitalists who were interested in work Hybridon was doing in partnership with McGill University (Montreal, QC).
A proposal was made: the VCs were willing to create a company around DNA methyltransferase if Hybridon would license out the technology.
“It was a $250,000 Canadian academic collaboration that pretty much had gone as far as it was going to go,” Corcoran says. “So you either had to keep this low on the priority list within (Hybridon), or do something with it. So we thought it was a great idea, and the Canadian venture capital was willing to support it.”
And with that proposal, MethylGene was born, with Corcoran as president and CEO.
In the beginning, it was just him, a bank account and some intellectual property. Ten years down the road, MethylGene has grown to more than 100 employees, many of whom are medicinal chemists.
Specifically hiring chemists was a fortuitous strategy on MethylGene’s part, and established diversification as a major part of its business plan.
“The other thing we saw in Canada was, there were a lot of good biology companies, but a lot of them did not (focus on) chemistry. And it’s good to have good biology, you need that, but ultimately to make the drugs you still need the chemistry.”
With its move into chemistry, MethylGene took advantage of its geographic location.
“We realized that in Canada, specifically in Montreal, there were many well-trained medicinal chemists,” he says. “We really tapped into that network.”
The move also set the company up to diversify its area of expertise, and broaden its horizons.
“(We) slowly convinced the venture capitalists that had originally invested in this company based on DNA methyltransferase and antisense, that we’re not spending any chemistry dollars trying to make better antisense, so we should diversify into small molecule enzyme inhibitors,” Corcoran says. “And they agreed.”

Dealmaker
Over the years, MethylGene has also tailored its strategic business plan to focus on striking deals.
The company’s first deal was with MGI Pharma Inc. (Bloomington, MN), which yielded $3.5 million US upfront, and $6.8 million in equity.
In August 2000, MethylGene entered the license, research and development agreement for MG98, part of its DNA methyltransferase program used to treat kidney cancer.
“That allowed us to . . . offload a significant amount of our clinical trial dollars with MG98 with MGI Pharma,” Corcoran says of the deal. “It also allowed us to continue pursuing that diversification strategy on the small molecule side of the business.”
The company began working on a beta lactamase inhibitor, an HDAC inhibitor (which is now part of one of their lead programs, MGCD0103) and kinase inhibitors. Those areas of research — which came about thanks to the MGI Pharma deal — allowed for future deals with more big players.
“(The deal) allowed us to continue pursuing that diversification strategy on the small molecule side of the business, and begin pursuing things like the beta lactamase inhibitor, HDAC inhibitors and kinase inhibitors,” Corcoran says. “And what you’re seeing now are those deals came after that based on that diversification.”
Merck Frosst Canada Ltd. (Kirkland, QC) signed a deal with MethylGene in June 2003 to license their beta lactamase program, the advancement of which is now Merck’s responsibility.
Corcoran says MethylGene then pursued a deal with Taiho Pharmaceutical Co. Ltd. (Tokyo, Japan) for MGCD0103 worth $3.8 million US upfront, and may total $16.2 million US through further commercialization.
But one of MethylGene’s biggest deals so far is its most recent.
Signed this past January with Pharmion Corp. (Boulder, CO) for the HDAC inhibitors, the R&D and commercialization deal is worth $25 million US upfront, and could reach $278 million through milestone payments.
While Corcoran says these deals in and of themselves have helped push the company forward, they also show a great deal of foresight in how they were arranged.
“Our strategy not only was to do deals, but on our oncology products, to try to maintain significant North American rights,” he says.
“With Taiho, we gave them four countries — essentially Japan, Korea, Taiwan and China — we kept the rest of the world . . . but they were funding the Phase I trials in North America, so we didn’t have to spend dollars there.
“With MGI, we kept an option to keep 50 per cent of the profit and co-promote at commercialization. And with Pharmion . . . we’ve kept 50 per cent co-promotion and profit sharing rights in North America, or accept the royalty, but it’s at our discretion.”
This strategy has left the door open for MethylGene to pursue its own sales force, which Corcoran says the company is considering.
“We’ll see when we get there what the company looks like financially,” he says. “You usually can cover North America with 100 to 125 sales reps. If we’re only having to do 50 per cent of that, but we have two products, then that’s something we can certainly seriously look at.”

Good Timing
Fortune smiled upon MethylGene once again as the company approached its IPO.
The year 2000 was a big period for Canadian biotechs, with a large number of companies filing IPOs. MethylGene itself was preparing to file in the fall, and had worked at getting its prospectus ready.
However, when compared to some of the other companies, MethylGene just wasn’t at the same place, Corcoran says.
“(In) 2000, a number of Canadian biotech companies, at least four or five, went public. And I think we were certainly viewed as a company that could potentially go public at that point in time,” Corcoran says.
“But these other companies were a little bit more mature, so they got out the window earlier,” he says, citing GlycoDesign Inc. (Toronto, ON), ConjuChem Inc. (Montreal, QC), CryoCath Technologies Inc. (Montreal, QC) and Neurochem Inc. (Laval, QC) as prime examples.
MethylGene took a hard look at the market they were about to enter, and started to rethink the strategy.
“We saw that the markets were softening significantly, and my venture capitalists . . . suggested that we not (file),” Corcoran says.
The company had announced a private placement earlier in the year, and decided to split it in half.
“We had an $18.6-million private placement, but we tranched it,” Corcoran explains. “We took $9.3 million down in July or August, and that was to strengthen the balance sheet in preparation for a potential IPO filing, but also . . . the company had a call on an additional $9.3 million if we did not end up filing.”
In the end, Corcoran says the decision not to file was the right one for MethylGene at the time.
“I think it was the right call, because ultimately we were able to do the Merck and the Taiho deals prior to our IPO,” he says.
The experience served as a sort of practice run for MethylGene, which ended up filing in the spring of 2004.
“It was good practice in the sense that we had gone through creating a prospectus, we had gone through the due diligence required with the investment banks, we were already building our road show slides, so the only thing we had not done was actually go out on the road show,” Corcoran says.
With a decade of success behind it, MethylGene can now look confidently to the future.
MGCD0103 is currently in a combination trial with Vidaza™, a demethylating agent, and two additional trials — a combination Phase I/II and monotherapy Phase II — are expected to begin later this year.
Meanwhile, MG98 is scheduled for several Phase I/II combination trials in the second half of 2006.
The company is also working away at its multi-target kinase program. Corcoran says MethylGene’s chemists are working with C-MET inhibitors, an area that’s gotten quite hot recently.
Looking to the latest areas of research and making some good decisions aren’t the only elements to succeeding in this business, however.
“Our industry takes perseverance, that’s for sure,” Corcoran says. “I think the payoffs are great if you’re successful, so that’s why we all persevere. And ultimately, bringing a drug to market that might make a difference in people’s lives.”