WASHINGTON _ When fledgling TriGenix Inc. closed its doorsearly last month, it looked like yet another corporate casualty of theDavid Blech debacle. Propped up throughout 1994 by bi-monthlychecks from the increasingly shaky D. Blech & Co., TriGenixexpired six short weeks after the investment firm shut down in lateOctober.
Yet by some accounts, TriGenix, of Lexington, Mass., representedmore than a characteristically rickety Blech start-up scheme. It wasfounded to capitalize on the industry trend toward "virtual"companies and it was led by marketing executives who had held toppositions at two of the industry's most successful companies:Genentech Inc. and Genzyme Corp.
Financial ruin at D. Blech & Co., the sole source of TriGenix'sfunds, and a clinical trial disaster at Celtrix Pharmaceuticals Inc., oneof TriGenix's two core clients, converged to kill the company beforeits business plan was proven either prophetic or preposterous. Butquestions linger. Was this bad luck, a bad idea or just an idea aheadof its time?
Envisioned as a contract sales, marketing and reimbursementservices operation, TriGenix was built on the concept thatbiotechnology companies will actually adopt the business model _long heralded at financial conferences _ of a "virtual" organization.Just as these virtual companies would be (and are) hiring contractresearch organizations (CRO) to run their clinical trials, so too wouldthey hire companies like TriGenix to sell their products.
A Viable Idea
"This industry is just begging for the virtual concept," insists BillPursley, who left his job as vice president of sales and marketing atGenzyme to serve as TriGenix's CEO during its one-year life span."Just six to seven years ago, companies were considered crazy ifthey didn't run their own clinical trials. Now, we have 138 CROsservicing this industry. I still believe the idea of contract sales andmarketing is extraordinarily viable."
Pursley and two other Genzyme marketing executives foundedTriGenix in November 1993 with a $6 million promissory note fromD. Blech & Co. in their hands. "It's the dream of many experiencedexecutives in this industry to start their own company," explainedDonald Yarson, former director of U.S. marketing at Genzyme and,more recently, president of TriGenix. "We believed there was acompelling need for the services TriGenix offered to the industry."
The Genzyme exodus also included J. David Owens, who left hisposition as director of new market development to become anexecutive vice president at TriGenix. All three of the Genzymedefectors had also held marketing positions at Genentech earlier intheir careers.
Shortly before leaving Genzyme, Pursley, Yarson and Owensmaster-minded the market launch plan for Cerezyme, therecombinant version of Genzyme's Gaucher's disease drug,Ceredase. According to one Genzyme employee who asked not to benamed, the abrupt departure of the marketing troika was"unprofessional." Genzyme was left scrambling to replace them witha critical product launch looming. "There were some hard feelings,"said the employee.
Yarson countered that the Cerezyme marketing plan was completewhen the TriGenix crew departed, a full six months before productlaunch. Cerezyme was approved by the FDA on May 24, 1994 andlaunched on the U.S. market several weeks later. "We left them in awonderful position," he said. "Marketing a recombinant form of adrug for the same indication that it's been used in for years is notcomplex. You could do it with your eyes closed."
A Hard Sell
Life at TriGenix was more financially precarious than at Genzyme.In the apparently typical Blech fashion, money was meted out to thefirm in small chunks once or twice a month to meet payroll.TriGenix accelerated to a burn rate of between $150,000 to $175,000per month in its final days. But in 10 busy months of deal-making,the company signed up two clients, Celtrix Pharmaceuticals, of SantaClara, Calif., and Quadra Logic Technologies Inc., of Vancouver,Canada.
"It was a hard sell in some ways," said Yarson. "We went tocompanies at the most exciting time in their product's developmentcycle _ the brink of commercialization _ and said, "we'd like tosell this product for you." For at least these two companies, the offerwas apparently appealing. "It's too risky to vertically integrate asmall company around a first product that has a sales potential of,say, $30 or $40 million," he added.
The plan was that TriGenix would market Celtrix's BetaKine, atreatment for macular holes, under an "open-label" treatmentprotocol for investigational new drugs (IND). The program allowscompanies to recover the costs of drugs while awaiting finalregulatory approval and is used only in diseases where no othertreatment is available. TriGenix also landed the job of marketingPhotofrin, Quadra Logic's photodynamic therapy for esophagealcancer. Neither product has yet received FDA approval and Celtrixmay not even file a product license application for BetaKine.
According to Pursley, the TriGenix alternative was more attractive tocompanies than licensing away the "identity, label and 90 percent ofthe revenues" of their products. Where a typical licensing deal mightgive a small company a royalty stream between 5 and 15 percent ofprofits, TriGenix could promise to hand over between 50 to 85percent, depending upon how marketing costs were shared in eachdeal. "The idea was that we'd take the risk of the initial capitaloutlay to launch the drug and, once revenues started flowing in, asmall company could begin to build its own infrastructure," saidPursley.
After D. Blech & Co. checks started bouncing in September,TriGenix faced an immediate cash crisis. Pursley and Yarson hit thestreets looking for investors. They wrangled David Blech intoaccepting a reduced stake in the business _ from 50 percent to about15 percent _ in order to be free to cut deals with new investors. Asof September, Blech had loaned TriGenix $1.5 million of the $6million note.
Josephthal, Lyon & Ross, the Wall Street firm that took over D.Blech & Co.'s banking business, committed to arranging a privateplacement for TriGenix worth between $3 to $5 million by February1995. According to Pursley and Yarson, a placement of that sizemight have seen the company through to profitability withoutanother round of financing.
But TriGenix needed short-term cash totaling about $500,000 to waitit out until February. Josephthal offered a $250,000 bridge loan andCeltrix offered to provide another $250,000. "We were rolling at thatpoint [the last week of October]," said Yarson. "We had no actualmoney but we were rolling."
Disaster: BetaKine Was A Failure
On Halloween, disaster struck. Celtrix CEO Dale Stringfellowannounced that the pivotal Phase III trial of BetaKine was a failure:the drug showed no clear efficacy. Without one of its key clients andfuture financial backers, TriGenix folded. TriGenix's 10 employeeshad worked without pay after Blech checks started bouncing in mid-September, hoping that a financial solution could be found.
Pursley said that despite the disappointment of TriGenix, he stillbelieves that virtual companies are the business model of the future."Large pharmaceutical companies have called us and asked us forinformation on the contract sales and marketing concept," saidPursley. "They are studying whether or not they could perform asimilar function [similar to what TriGenix proposed to perform] forbiotech companies without signing licensing deals. Twelve hoursafter D. Blech & Co. shut its doors, we were down on Wall Streetand had commitments for funding. That demonstrates the power andviability of this idea." n
-- Lisa Piercey Washington Editor
(c) 1997 American Health Consultants. All rights reserved.