Merck Serono Funds Start-Ups In Switzerland

In a bid to reduce the impact of hundreds of job cuts caused by the closure of its Geneva, Switzerland, headquarters, Merck Serono created a $40 million fund to encourage staffers from the center to create their own biotech start-ups.

The response has been enthusiastic, with 75 initial business proposals and many researchers considering starting a company for the first time. Experienced managers have come to the fore. Three start-ups have emerged so far, and several more are in the pipeline. Starting a company can be rewarding, but people are learning that even with backing from Merck Serono the process can be arduous.

Serono was Europe’s largest stand-alone biotech firm in 2006 when the Darmstadt, Germany-based drug and chemical company Merck acquired it for $13.3 billion and renamed it Merck Serono. The company remained largely independent, but the closure of the Geneva headquarters signals it is now being drawn closer to the heart of the Merck organization.

For the likes of François Conquet, Merck Serono’s former director of early-stage licensing, the parent company’s shift in strategy has created a great opportunity. With assistance from the start-up fund, Conquet has founded Prexton Therapeutics to develop therapies for diseases including Parkinson’s. Three other former Merck Serono colleagues have joined Conquet in the new firm.

It’s not the first time Conquet has left the security of a big pharma company for the excitement of a start-up. In 2002 he quit as head of GlaxoSmithKline’s department of experimental pathology in Lausanne, Switzerland, to found Geneva’s Addex Pharmaceuticals, where he stayed until 2005. He then became acting chief executive officer for a venture capital firm before joining Merck Serono in 2006.

Merck Serono is seeking to back start-ups featuring individuals like Conquet—folks who have both strong scientific and business track records. Creating a start-up is not for the fainthearted, says Philippe Lopes-Fernandes, head of global licensing and business development for Merck Serono. “It’s a risky business, and very early on we see the candidates that are going to make it,” says Lopes-Fernandes, who also manages the firm’s partnering activities.

Lopes-Fernandes and his team were keen not to discourage any proposed start-ups, “but we had to be sure people knew what they were getting into. We didn’t want to send them away with the money, only for them to fail six months later,” he says.

The Swiss start-up program follows schemes by other large pharma companies to invest in incubator organizations or venture capital funds after announcing R&D layoffs. Recently, for example, AstraZeneca, Pfizer, and the Quebec provincial government agreed to invest $100 million over five years to create a research institute in Montreal that would assist biotech start-ups (C&EN, Dec. 3, page 8).

Merck Serono says the motive behind its $40 million fund is not to make money but to create jobs. “When faced with the site closure we asked what we could do,” François Naef, the firm’s chairman, tells C&EN.

Most of the employees at the site are scientists or marketing and information technology specialists. Of the 1,250 who will be directly affected by the closure, Merck Serono has found positions for 295 at its other sites. The researchers among them will be transferred to Darmstadt, Boston, and Beijing. Meanwhile, 80 staffers have taken early retirement, and 170 have found jobs elsewhere. Most people will have left well before the Geneva site closes in June 2013.

Additionally, the drug firm has approached other potential employers, Naef says. For example, the pharmaceutical services company Quintiles has outlined plans to provide at least 100 jobs to Merck Serono staffers in the field of biopharma services.

So far only 16 former Merck Serono staffers have found employment in biotech start-ups assisted by the start-up program.

After the introduction of the program in the summer, staffers initially came up with 75 new business ideas. Lopes-Fernandes and his team quickly whittled the number down to fewer than 20. “There were a few extravagant ideas that were quickly discarded. Much of the focus at this stage involved exploring what it would take to make the ideas work. Most teams chose to stop after that stage,” Lopes-Fernandes says.

A large number of the staffers began by expressing interest in starting up a firm, but they soon discovered that it requires a huge commitment.

Merck Serono chose not to present its Geneva staffers with lists of assets, such as equipment or drug candidates, around which they could base a start-up. “People need to own the idea and bring it forward,” Lopes-Fernandes says. The recipe for success “is always a combination of business plan and personality. We found passionate people,” he says.

One group of individuals that Lopes-Fernandes’ team identified as having what it takes to make a successful business recently launched a drug development firm called Asceneuron.

The new company has a team of eight former Geneva staffers with chemistry and biology skills who until recently formed the backbone of Merck Serono’s Alzheimer’s research group. It has secured $6.5 million from Merck Serono as well as three sets of central nervous system (CNS) drug candidates. Additionally, Merck Serono has “contributed substantially” to setting up the firm, says Asceneuron Executive Chairman Frank Armstrong. In return for its investment, Merck Serono has a majority stake in the company.

With three drug development programs, the start-up will need to raise new capital to take candidates into Phase I and II clinical trials. “Once we have the data to show how the compounds perform we will see where we are going,” says Armstrong, a former senior manager at Merck Serono who earlier worked in management at Zeneca and Bayer.

“All three programs feature distinct drug targets. We have identified small molecules that already have excellent CNS drug properties, and all have high blood-brain barrier penetration,” Armstrong says. “We would expect to be in Phase I in less than two years or so for our lead compound.”

Asceneuron is establishing itself at the science park of the École Polytechnique Fédérale de Lausanne, where starting in 2013 it will have offices and two labs.

Conquet’s start-up firm, Prexton Therapeutics, is the only other drug development company to have made it through Merck Serono’s selection process so far and is the first to begin developing its candidates. The spin-off, which was announced in August, is developing therapies for neurodegenerative diseases. Merck Serono provided drug candidates and has agreed to invest $2.6 million in the venture in exchange for majority ownership.

Including Conquet, Prexton has four staffers, all scientists. The firm has four small-molecule drug candidates that resulted from a program Merck Serono initiated two years ago. The more advanced compounds are in the middle of preclinical development and need to be refined, Conquet says. He hopes to have one compound at the clinical phase a year from now.

The company will seek to outsource its chemistry activities to contract research organizations. Unlike Asceneuron, it has decided to work with a science incubator company to lighten its managerial and scientific load. Prexton has chosen Eclosion, a Geneva-based firm that provides laboratories, office space, and scientific and management support from its site in Geneva. “This has meant that we have had no obstacles during our early stages,” Conquet says.

Like Asceneuron, Prexton already has one eye on securing additional funds, likely $5 million to $10 million. “In 10 months we will need to do another cash round. We have started contacting prospective venture capital companies we know,” Conquet says.

Start-ups such as Prexton have the “spirit of flexibility and a reactive team but with the background of a large company,” according to Conquet. “We know what a large company could expect, what assays and experiments are required. The dark side is the risk. We are working without a net,” he says.

The third start-up, Quartz Bio, is the first services company to come out of Merck Serono. CEO Jérôme Wojcik believes that the new firm offers unique expertise in the computational analysis of biomarker data derived from clinical trials. Its team of four scientists has worked on more than 50 clinical studies from Phase I to Phase IV across a range of therapeutic areas. They are targeting the niche between academia and clinical trials.

“I was looking at outsourcing this work while at Merck Serono, but I didn’t find any suitable partners,” Wojcik explains. The best computational analysis firm that he and his colleagues could identify was in India. The contractor’s numbers were accurate, but the data weren’t easily recognizable by clinicians and had to be redone, Wojcik says. Quartz Bio intends to provide information that is tailored for clinicians.

Wojcik firmly believes the time is right to launch such a company. Big pharma companies are outsourcing more in the field of data management, and they want to glean new information from their growing data sets as well as use computational analysis to ensure that quality control is in place, he says. One of Quartz Bio’s key roles will be to assist drug companies in developing personalized medicines, he says.

Quartz Bio launched in early November and has set up offices with Bluebox, a Geneva-based organization that assists start-ups. Merck Serono did not provide the start-up with funding but has agreed to an initial service contract. “We have a good number of orders to March or April 2013,” Wojcik says.

In a typical project Quartz Bio will receive data points from a Phase II trial with a primary end point that was not met. The firm will then analyze biomarker data to find a subpopulation of patients who might respond well to the drug. This stratification of data could enable the shift to more personalized medicines, Wojcik says. “I believe there are a lot of gold nuggets out there.” Biotechs generate enormous amounts of data, he says; the bottleneck is the analysis of those data.

Working for a start-up is different from working for Merck Serono. “Sure, there is more stress, but there is more fun,” Wojcik says. “We have our key performance targets such as revenue and growth, but the real measure of success will be if we can implement our personalized-medicine approach.”

Quartz Bio and the other two start-ups may have succeeded in securing the support of Merck Serono but they still have to convert their early potential into long-term success. Lopes-Fernandes is optimistic about their chances. Following Merck Serono’s rigorous selection procedure, he gives each of them an 80% chance of surviving their first few years.