Mind the gap

A collaboration between Codexis and Pfizer could mark a turning point for the entire pharma sector says ceo Alan Shaw

There is a tide in the affairs of men which, taken at the flood, leads on to fortune. So said Brutus in Shakespeare's Julius Caesar. And what is true for Roman generals can be equally valid for companies in today's pharmaceutical sector.

A groundbreaking agreement with Pfizer marks a turning of the tide in the fortunes of Codexis, the US-based company that develops innovative, bio-based solutions for process development and manufacturing. The multi-year, non-exclusive collaboration will focus on process r&d for pharmaceutical life cycle management of some of Pfizer's small molecule human therapeutic products.

transforming event

'The Pfizer agreement is a transforming event for us, but more importantly it is a transforming event for the industry,' claims Dr Alan Shaw, president and ceo of Codexis. 'The world number one is not only saying this is the best in class technology, but they know it works.'

The roots of this deal go back almost three years, when the two companies worked together to improve the manufacturing process for Pfizer's Dectomax (doramectin). Pfizer had been using a wild type enzyme to manufacture it in its plant in Japan. Unfortunately, the process produced almost twice as much by-product as pure product and the company had to use very elaborate and expensive ion exchange columns at the end of the process to separate out the two. Furthermore, the molecule Pfizer didn't require was covered by another company's patent and was therefore unusable.

Codexis applied its MolecularBreeding platform based on proprietary DNA shuffling technology and the results were spectacular, Shaw recalls. In just one round of shuffling a 26-fold improvement in purity was achieved, allowing the downstream processing equipment to be mothballed.

But even though Pfizer achieved significant savings in the cost of goods, the real value of the technology goes way beyond that, he says. This is only one of six areas of potential benefit:

• Enhanced product quality - reduction of by-products and impurities; higher ee; and potential for improved product specification

• Enabling Intellectual Property - robust, novel and proprietary bioprocesses; and extended product life cycle through novel IP

• Optimal process development - efficient small molecule synthesis; increased barriers to entry through novel IP; optimal process developed before launch; and faster process development timelines

• Green chemistry - ambient temperature, atmospheric pressure, neutral conditions; and avoidance of hazardous reagents

• Release/avoidance of capital - increased return on net assets and capital employed; increased capacity utilisation and plant efficiency; avoiding need for new capital; standardisation of manufacturing unit operations

• Reduced cost of goods - improved process economics; use of lower cost raw materials; reduced number of manufacturing steps; and increased overall yield and productivity

'It is important for us to get involved early in the development process because the true benefits can then be realised,' Shaw points out. 'If we had worked with Pfizer on doramectin when it was in clinical development they could have benefited from all six value drivers. Unfortunately, they had already built the plant.'

milestone payments

It is for this reason that the agreement with Pfizer will concentrate on Phases I, II and III. Codexis will be working on three Pfizer products a year over an initial three to four year collaboration. Pfizer then has the option of a non-exclusive license to take the technology in-house. Aside from the purchase of an equity stake in Codexis worth $40m, the deal also includes an upfront payment and milestone payments that could run into hundreds of millions of dollars, depending on how many products are eventually commercialised using the technology.

Furthermore, as the agreement is not exclusive, Codexis is free to sign similar deals - but without the equity stake - with other pharma companies.

'This is a lot of money for us and it will open up a lot of possibilities,' Shaw declares. 'The validation of the technology by Pfizer has also increased the value of the company in terms of the share price. So we have equity leverage as well as cash.

With this massive capital injection Codexis is planning to expand its laboratory capacity and to increase head count. 'This deal takes 9-12 people completely out: they become effectively full-time Pfizer people,' Shaw points out. 'So we are planning to increase our head count by 10-15 people a year.'

European foothold

He is also looking to gain a foothold for the company in Europe because that is where half the customer base is located. This, he says, will be through acquisition because organic growth takes too long. Geographically, he has no preference: 'I would be driven more by finding the right company, wherever that might be.

It would need to be a company that is strategically complementary to what we do, i.e. one that is already servicing the pharmaceutical industry.'

Besides the doramectin project with Pfizer, Codexis also has a successful collaboration with DSM on an anti-biotic intermediate, which is being manufactured in the Netherlands in a new plant specifically built to incorporate this technology. The company is also currently working with Sandoz, Novartis and Lilly.

Most recently, the company has entered into an agreement with Swiss company Lonza to use the technology to improve the manufacturing process for a key chiral component used in one of the world's major human therapeutic products.

According to Shaw, Lonza was not previously making the intermediate because it had no competitive advantage - a situation that will now be redressed using the MolecularBreeding platform. 'By working with us Lonza was given a new product and a new customer and has turned something that was not viable into something competitive,' he points out. 'That is what this technology has done for Lonza and what it could do for everybody we work with.'

One of the major benefits of the DNAShuffling technology is that it can be used to extend the life of the drug at both ends of the cycle: by reducing the process development phase and reducing time to market, and by increasing IP and raising economic barriers to generic competition.

strong IP

'The inclusion of the technology makes products more patentable than they would otherwise be. Every time we create a 'super enzyme', it has never existed before - by its very nature the gene sequence is unique, which means you can patent it,' Shaw explains.

It is easy to see how this deal will transform the fortunes of Codexis, but what about Shaw's claim that it will also be a transforming event for the entire pharmaceutical industry?

This technology, he contends, will help the pharma market to address its biggest issue - that of the gap in the pipeline between blockbusters coming off patent and new drugs coming onto the market. 'No one really knew until the last couple of years how damaging that gap was, but it has had a devastating knock-on effect on the fine chemical industry and has driven some of the lesser players out of the market entirely,' he points out.

Buying in products from the biotech companies is one way of addressing that problem, but those products still have to go through clinical trials, so anything that can be done to speed the time to market is of benefit.

In the meantime, the best way to keep earnings level is to screw more coin out of existing products by extending patent life and managing the franchise better.

'You can't avoid the gap,' he concludes, 'but you can manage it.'