Monday, December 18, 2006

Sole-investor model ultimately sank Therion

By Ryan McBride

Few life-sciences companies hungry for investors would shun a billionaire interested in providing an influx of capital to fund operations. In fact, most firms would be thrilled to have a "super angel" investor during the long, costly process of bringing a product to market.

For Cambridge's Therion Biologics Corp., which had relied on operating capital from a $50 million line of credit from billionaire Hans-Werner Hector before that credit line was cut off in June, that strategy didn't pay off. Instead, the company's reliance on a sole investor was a key reason behind it's Chapter 7 bankruptcy filing late last month, according to a former executive.

For life-sciences companies, the bankruptcy is a lesson in risk management: weighing the costs of a single-investor model and the lack of an adequate product mix in the pipeline, say experts.

Therion has closed its doors, laid off its remaining employees and is now liquidating its assets.

Hector held a seat on Therion's board of directors and had provided most of the company's funding since 2001, according to the company's former chief scientific officer, Dennis Panicali. Hector was a co-founder of global software market giant SAP AG and was listed among Forbes magazine's 2006 list of the world's wealthiest people, where his net worth was estimated at $1.8 billion. He reportedly had invested a total of more than $100 million in Therion in the past five years, the vast majority of funding the company received during that period.

He cut off the credit line after the company learned in June that both its Phase 3 clinical trial of a treatment for advanced pancreatic cancer and its Phase 2 trial of its therapy for advanced prostate cancer had ended in failure, according to Panicali, who had been in the role of chief scientific officer when he was laid off in August.

Hector's investment vehicle, Kranich Vermogens-und Beteiligungsverwaltungs GmbH, now holds a secure claim of $20.5 million in the bankruptcy proceedings. Only one other secured claim -- in the amount $34,595 from a former consultant -- was listed in bankruptcy records, meaning that Hector will be one of the first creditors to be paid as the company's assets are liquidated.

Meantime, 155 unsecured claims totaling $3.5 million were listed in the bankruptcy filing. Of those creditors, 11 have filed lawsuits against Therion, including employees such as Panicali, who has a lawsuit alleging a breach of his employment contract.

Having 'a backup'

Therion was unique in its increasing reliance on a single investor as the company matured, experts say, as most life-sciences companies raise money from more financing sources as funding rounds increase. Still, there can be advantages to being able to rely on an individual investor versus a pool of funding sources, an industry veteran said.

Cambridge-based pharmaceutical firm Microbia Inc. has had more investors participate in its latest venture capital rounds than in earlier rounds, said Terry McGuire, managing general partner of Polaris Venture Partners.

Polaris, of Waltham, was one of three institutional investors to fund Microbia's Series A round, he said, yet subsequent rounds -- such as a $75 million Series E round closed in February -- involved several more investment firms. (Microbia officials would not confirm an exact number.)

"It makes a lot of sense to find other investors as a backup in case your 'super angel' loses confidence in the company," said Jeffrey Quillen, a partner in the life-sciences practice at Boston law firm Foley Hoag LLP.

At the same time, relying on one investor can also be a strength for a startup, said Philip Gordon, managing partner of Gordon Law Group, whose practice focuses on working with technology executives in contract negotiations.

For example, it can make it easier when management is trying to raise investor funds.

Also, Gordon said, angel investors are less likely than venture capital firms to demand terms of an investment that give the firms more control of a company.

Filling the pipeline

Experts also said life-sciences companies need a mix of products in the pipeline to avoid such drastic effects from poor trial results.

Foley Hoag's Quillen used the example of Cambridge-based biotechnology company Biogen Idec Inc., which has a best-selling treatment for multiple sclerosis (MS) in Avonex, yet continues to develop more treatments for the neurological disease to maintain its position in the market. Biogen, for example, also markets Tysabri (which itself has faced market problems in the past) to treat MS and has four other treatments for MS in clinical trials.

However, Biogen is an established company with greater resources than Therion.

"A lot of (development-stage) companies face a situation where they are going to put all their resources into one product," Quillen said.