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Sprung from Medichem

Former employees of Chicago-area contract research firm strike out on their own

December 20, 2004 | A version of this story appeared in Volume 82, Issue 51

Flavin Ventures' building in Woodridge, Ill., is home to three companies backed by the venture-capital firm.
Flavin Ventures' building in Woodridge, Ill., is home to three companies backed by the venture-capital firm.

Medichem Life Sciences, one of the first companies formed to offer contract medicinal chemistry services to the pharmaceutical industry, was acquired by deCode Genetics in 2002. That was not, however, the end of the MediChem story.

Michael T. Flavin got the idea for MediChem in 1986 while working for Baxter International. Flavin had earned a Ph.D. in medicinal chemistry from the University of Illinois, Chicago (UIC), and had completed a postdoc at Harvard University. He says he enjoyed working for a large company but--brainstorming with his younger brother John--became intrigued by what could be done in a smaller, more creative environment.

"We had two ideas," Michael says. "Could we go to pharmaceutical companies and see if they might allow us to work with them on their drug discovery projects? And could we, using grants, support discovery of our own compounds?"

The time was right for testing these ideas. Biotechnology was beginning to take off, and the federal government, through agencies such as the National Institutes of Health, had just launched a grant initiative called the Small Business Innovation Research program. Moreover, lab space was available at the two-year-old Chicago Technology Park next to UIC.

Both ideas, it turned out, were viable, and MediChem took off. It drummed up enough chemistry business to grow, according to Michael, at a 50% annual rate for the next 12 years while continuing to win grants that allowed it to pursue its own drug discovery ideas.

MediChem spawned its first offspring in 1999 when the Flavin brothers--with the prodding of new investors--owned up to the fact that they were really running two companies in one. The spin-off of the drug discovery effort as a new firm, Advanced Life Sciences (ALS), was the beginning of a period of rapid change for MediChem.

AIDED BY FUNDS from the new investors, MediChem went on a deal-making spree the following year, buying the biocatalysis firm ThermoGen and the structural proteomics company Emerald Biostructures, and launching an initial public offering of stock. The next two years were something of a roller-coaster ride for MediChem, but the ride ended well, with the purchase by deCode in a stock swap worth $84 million. Although the former MediChem is today an integral part of deCode--and, indeed, continues to successfully offer contract chemistry and structural proteomic services--the purchase triggered a mini-exodus of entrepreneurial scientists looking for new opportunities. As Flavin says about the scientists' time at MediChem, "Being part of that growth experience was highly motivating to people."

One of the scientists was David Demirjian. A geneticist with a Ph.D. from the University of Chicago, Demirjian had founded ThermoGen in 1987. After selling his company to MediChem, he stayed on as vice president of technology strategy but eventually decided it was time to try something new. "What I love is putting technologies together and starting up businesses," he says.

Michael Flavin

Demirjian formed zuChem in 2001 to pursue a longtime interest in sugar chemistry, which the company conducts through a combination of biocatalysis and traditional synthetic chemistry. One of his first employees was Rajni Aneja, who is reprising the role of vice president for corporate development that she held at MediChem.

Today, zuChem is focused on using technology developed by Jon S. Thorson at the University of Wisconsin for putting sugars onto small molecules. Demirjian says the technology, called glycorandomization, is allowing zuChem to generate new drugs and improved versions of old ones that are inaccessible through traditional means.

John Flavin

Another MediChem alumnus, Jintao Zhang, started a new company, Shanghai Medicilon, just two months ago. Zhang had joined MediChem in 1998 and was director of combinatorial chemistry there and at deCode before deciding to strike out on his own--with the help of $4 million in cash from private investors.

His new business is focused on providing drug companies with chemistry and pharmaceutical services from labs in both the Chicago Technology Park and the Zhangjiang High-Tech Park in Shanghai. Zhang says the Shanghai lab already has 36 employees, including 27 scientists, while there are five people working in Chicago.

If they are not starting new companies, former MediChem people are joining other new Chicago-area firms. One is Lybradyn, a biotechnology company that is developing products through the integration of genetic engineering and fermentation.

Lybradyn was formed in late 2000 by Wendy Aikens, a microbiologist with 10 years of academic and industrial experience. According to John Aikens, Wendy's husband and a one-time MediChem executive, Lybradyn was in start-up mode until mid-2003 when deCode decided to shut down the former ThermoGen operation.

"Wendy saw an opportunity to pick up some talent," Aikens says, and brought on two MediChem employees with roots in ThermoGen: Larry Allen, a microbiologist and fermentation expert, and Robert Turner, a specialist in molecular engineering. The company also moved into the Chicago Technology Park around that time.

Since then, Lybradyn has set up in new quarters in Oak Brook, Ill., and is "growing quite nicely," Aikens says. Its sixth and latest employee is Aikens himself. He joined the company in July from Altus Pharmaceuticals and runs corporate and business development.

Like several other MediChem executives, the Flavin brothers also left soon after the sale to deCode. They had ALS to go to, but, more important, they also had a bankroll from the sale that they wanted to put to use.

One of their first acts was to form Flavin Ventures, an early-stage venture-capital and management firm with a mandate to invest in midwestern life sciences companies focused on drug discovery. In April 2003, Flavin Ventures acquired a new building in Woodridge, Ill., with enough space to house a laboratory/headquarters for ALS and for the start-up companies the Flavins wanted to back.

John Flavin, who is managing director of Flavin Ventures, explains that setting up laboratories and using them efficiently in the business of pharmaceutical science was a core competency of MediChem that can be applied to other areas. "At Flavin Ventures," he says, "we will use these skills to 'MediChemize' different aspects of drug discovery."

The Flavins' first venture, launched in November 2003, was Shamrock Structures, a provider of structural proteomics services that is headquartered in the Woodridge building. Then in March 2004, they formed Molecular Formulations, another Woodridge-based firm that offers formulation development and drug delivery expertise.


NOT SURPRISINGLY, Flavin Ventures companies are populated by people the brothers knew from MediChem, which had about 200 employees at its peak in 2001. According to John, 13 of ALS's 18 employees are from MediChem. Molecular Formulations' chief executive officer, Sharon W. Ayd, was previously chief operating officer of ALS. Steven Schiltz, Shamrock's CEO, is the former director of business development at MediChem.

Schiltz had joined MediChem in 1993 when it employed fewer than 30 people. He was brought on to manage business development, first on his own and later as head of a business development team. "I learned a lot about putting together systems for knowing customers and tracking relationships with them," he says.

After deCode bought MediChem, Schiltz stayed for about six months as head of business development for Europe, leaving after deCode opted to put someone on the ground there. Schiltz established a franchise business with his brother in their hometown of St. Charles, Ill., but he couldn't resist when the Flavins contacted him about heading Shamrock.

Glimpses of past firms can be seen at some of the post-MediChem companies. For example, Shamrock and deCode Biostructures--the former Emerald--both offer structural proteomics services, and both have agreements to use the Advanced Photon Source at nearby Argonne National Laboratories. Lybradyn, in its fermentation chemistry focus, bears a resemblance to ThermoGen, while Medicilon is continuing MediChem's tradition in contract chemistry research.

In Shamrock's case, Schiltz acknowledges an overlap, although he points out that it is by no means complete and that relations with its competitor are good. "We are going after some of the same business in the structural biology world," he says. "But X-ray crystallography for drug discovery is a growing, emerging market, and there is room for many players, service providers, and technologies."

On the other hand, MediChem wasn't in the drug formulation services business being pursued by Molecular Formulations. Flavin Ventures is scouting out other new pharmaceutical businesses such as those in clinical trials, where the brothers see an opportunity to open up what is now a big bottleneck in drug development. And they continue to spend time and money to make sure that ALS succeeds as a drug company.

While the Flavins' business universe expands, their geographic world continues to be their own backyard--the Chicago region. "There's a tremendous talent base here that's truly underappreciated," Michael says.

Investment in the region is not without challenges. Despite the success of MediChem and a few other drug- and biotechnology-related businesses, the Flavins still see a disconnect between a strong academic/government lab presence and a relatively low level of entrepreneurial activity. "There's a dead end at the university doorstep or at Argonne's fence," John says.

Instead of packing up and heading to the coasts, however, the Flavins are sticking around to help Midwesterners with ideas get past that dead end and, perhaps, create the next MediChem. As John says, "Our investment thesis is that there are entrepreneurs, scientists, and technologies that are waiting to blossom in the Chicago area."


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