What went wrong at Protemix?

Why the company couldn’t wait to ensure it got the feedback it needed is a good question, says Baker. “Time is money … and hindsight is a wonderful thing.” He denies there was a lack of experience in the New Zealand and Australian clinical trial teams, saying it was Protemix’s management that lacked experience because it didn’t keep money in reserve in case the trial didn’t meet its end points.

Protemix shareholder Grant Corleison says having enough money wasn’t the problem, but where and how it was spent. The Wellington-based property developer fronts a group of disgruntled shareholders and is leading the charge to find out why there wasn’t even $5 million left in the pot to repeat the crucial phase IIb trial.

Protemix had three capital raisings, according to figures supplied by the company: series A, which raised $24.5 million in two tranches from 2003 to 2004; series B, which raised just under $4.85 million in equity and $9.7 million in convertible notes during the trial, and a new series A, post-trial, which raised $14.5 million, giving a total of $53.5 million.

Birnie, exasperated, hits back at suggestions too much money was spent on corporate overheads and not enough on the science. Part of the problem is New Zealanders’ lack of understanding about the costs of running a biotech company, he says. At its height, Protemix employed about 30 people, plus 40 postgraduate students, working on a pipeline of drug candidates. It needed infrastructure to manage and enable that. It needed an office in San Diego to attract US investors and it needed to review its patents annually, requiring millions in legal fees.

“It’s a very expensive process,” says Birnie. “Though Kiwis struggle with the various layers of senior management you need in a business like this, other biotechs would have thought we were under-resourced.”

When asked about the money raised post-trial, Birnie says that some of the funding was raised to cover debt, advanced by some of the company’s larger shareholders, and had already been spent.
Despite the divisions between the financial and science sides of the company, everyone agrees the trial failed, but the drug didn’t.

Ellingson says this isn’t uncommon in new biotechs. “These things happen. People cut corners. But when you have a product that works, and I believe this does, it’s a matter of taking the egos off the table and saying ‘lets start this sucker over again’.”

But instead of getting its act together, repeating the Laszarin trial and focusing on the company’s next compound, PX811013 — an active form of the hormone adiponectin, shown to reverse liver damage, which is another common diabetes complication — Protemix appeared to implode, collapsing under the disappointment of the trial results, the weight of shareholder recriminations and a complete lack of capital. The US$25 million of capital promised, on the basis of the trial being successful didn’t eventuate, nor did supporters like Swiss-based global pharmaceutical giant Novartis.

“The world almost stops when you fail a trial,” says Birnie. Some are critical Birnie lost the Novartis Venture Fund's interest, but Ellingson says there was nothing Birnie could have done to keep Novartis on side after the trial failed.

“The unfortunate thing is a mistake was made and in this financial environment, in biotechnology in particular, it’s very hard to recover from that,” says David Pool, a former Birnie Capital director, seconded to set up Protemix’s San Diego office in 2005.

Some blame infighting between Cooper and Birnie as another reason for investors’ lack of interest.
Cherrington says Cooper’s resignation from the board in late 2006 hurt the company. “First of all his scientific input is tremendous, secondly his contacts were not available to us, and thirdly it just created the impression that something was wrong.”

But Cooper and Birnie deny falling out. Birnie is also quick to praise Cooper and his work, though compliments aren’t as forthcoming in the other direction.

Cooper says he resigned from the board on legal advice. “The company increasingly failed to take advice from its expert advisers, well at least the ones I trusted.” Cooper’s lawyer, Chapman Tripp partner Stephen Lowe, says Cooper had serious concerns about the governance of the company and about being kept in the loop on decisions.

Whatever the reasons for Protemix’s apparent failure, Ellingson says he finds it baffling the New Zealand government didn’t step in to help the company, when other investors couldn’t or wouldn’t. A small investment of $5 million to $10 million could have put Protemix, New Zealand biotech and the University of Auckland’s work in this area back on the map, he says. Birnie says the government did agree in principle to provide further funding after the trial’s failure, but that never materialised.

But there are promising signs for Protemix’s future and Cooper’s work. Mark Yeager, a well known, California-based cardiologist, is seeking funding from the US government to repeat the trials in the US. And Birnie says he’s still “working his tail off” to recapitalise the business.

A possible deal with Mark Dunajtschick, a shareholder and colleague of Grant Corleison, collapsed earlier this year after he became concerned about liabilities should the drug have unforseen side effects, and the “open-ended” costs of the phase III trials. He is happy, however, to put money into a new consortium, he says.

At the time of going to press, Birnie says another Kiwi shareholder was interested in Protemix, together with Jubilant Organosys, a large contract research company in India, which is also willing to repeat the trials should a co-investor be found.

The University of Auckland is still an avid backer of Cooper’s diabetes drug work, as is the government: Cooper netted $1.66 million in June this year from the Health Research Council to further his work with Adiponectin.

Failure can bring out the worst in people, says Peter Lee, chief executive of UniServices, the University of Auckland’s commercialisation arm and another Protemix shareholder. If there are any lessons to be learnt, it’s that good science alone is not enough for success.