A biotech pioneer takes on Big Pharma

Sunil Shaunak has a plan to cure the Third World and crack Big Pharma's monopoly in the process, writes Business 2.0.

John Heilemann, Business 2.0 Magazine columnist

(Business 2.0 Magazine) -- The power went out at Hammersmith Hospital just a few minutes after I started chatting with Sunil Shaunak, a professor who specializes in drug discovery for infectious diseases.

Since it was a bright, cool morning in London, the absence of lights and air-conditioning didn't strike me as problematic. Shaunak's graduate students looked alarmed, however, and it suddenly occurred to me why: The team had live cells growing in the refrigerators nearby. Yet Shaunak maintained the calm of a man accustomed to toiling in suboptimal conditions. "Remember," Shaunak said with a smile, "I'm an academic."

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Experimental drugmaking: Shaunak is reversing the industry's typical business model.
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In truth, it's impossible to forget that Shaunak isn't your ordinary entrepreneur. Far from singing the praises of high-tech capitalism, he rails against the disparities in the health care it delivers to the First and Third Worlds. He cheerfully admits to being naive about all things commercial. "I didn't know what an IPO was until five years ago," he says. "And I still can't read a spreadsheet."

Nevertheless, Shaunak is the co-founder of one of the most exciting startups I've ever encountered - a biotech outfit that not only holds the promise of saving millions of lives but could undermine the business model that sustains Big Pharma to the detriment of medical innovation.

At 49, Shaunak is, as he puts it, "a child of the British empire." Born in Kenya to Indian parents, he trained as a medic in England, Africa, and America, witnessing the devastation wrought by the AIDS pandemic. After earning his Ph.D. and joining the faculty at London's Imperial College, Shaunak saw signs of another epidemic on the horizon: hepatitis C.

He feared a replay of the AIDS scenario, where miracle drugs were introduced that were far too costly for patients in the developing world - those who need them the most. (Of the 170 million who have hepatitis C, 150 million live in poor countries.) So Shaunak got together with a colleague, Steve Brocchini, from the London School of Pharmacy. "We drank lots of beer and did lots of brainstorming," Shaunak recalls. "We said, 'There's a very expensive drug that cures hepatitis C. We're gonna create a new technology to make that drug cheaper.'"

That was six years ago. Since then Shaunak and Brocchini have done what they set out to do: modify the molecular structure of the best existing hepatitis C drug to make it more cost-effective and stable in hot climates. They have published three major scientific papers on this work and taken out patents. And they've done an outsourcing deal with an Indian company in Hyderabad called Shanta Biotechnics, which will handle clinical trials, production, and sales - for about $3 a shot. The current drug costs $200 a pop.

The vehicle for all of this is the startup I mentioned earlier: PolyTherics, a company spun out by Shaunak and Brocchini. Backed initially by grants from the British government and the Wellcome Trust, PolyTherics closed its second round of private funding in June. A professional CEO has been hired to pursue purely commercial opportunities, and Shaunak and Brocchini have left the board - though not the picture.

Instead the academics are tackling another Third World malady: visceral leishmaniasis, a fatal disease, transmitted by the sand fly, for which the current treatment costs roughly $800. Shaunak recently received $2.4 million in funding from the National Institutes of Health to create a visceral leishmaniasis treatment that costs only $70.

Shaunak argues that there's more than altruism behind the PolyTherics approach. "What you conventionally do, at the moment, is you make the medicine and test it in Europe and North America, where you have high profit margins, and as prices come down it eventually becomes available in poorer parts of the world," he says. "We've turned the model upside down and said, 'Let's make it available first to the masses and then optimize what we've learned for the rich.'"

The advantages of this model for PolyTherics are apparent. First, all the money for development and clinical testing is coming from the U.S. government and from Doctors Without Borders; PolyTherics just has to kick in a royalty-free license to Shaunak and Brocchini for the technology.

Second, the trials, again in India, will occur on an accelerated timetable because, as Shaunak says, "there's such an urgent need out there."

Finally, if the trials determine that the new technology is safe and effective, PolyTherics can turn around and apply it to lucrative First World drugs, such as advanced antibodies. "A very effective win-win," Shaunak says.

The drug companies, fiercely protective of their patents, are unlikely to see it that way. They haven't yet hassled Shaunak and Brocchini for their modifications of existing medicines, but that might change as soon as PolyTherics's new hepatitis C drug makes its way from poor countries to rich. (The British National Health Service is eager to get its hands on the cheaper alternative.) "Big Pharma is worried that we'll make an impact on their First World profits," Shaunak says. "They're worried that eventually there will be leakage - and, of course, there will be."

But Shaunak offers no apologies. He points out that the patent system, with its exorbitant costs and complexity, is designed to protect established drug companies - and that anyone who finds a way around it is summarily accused of patent-busting. He notes that the breakthrough work on treating countless diseases (including hepatitis C), later commercialized by the drug industry, was conducted by academics.

Many contend that Big Pharma exaggerates the expense of developing new drugs, concealing from the public the details of how the industry spends its money. That it sometimes purchases and then buries promising technologies that would undercut its existing franchises. That the industry's failure rate is, as Shaunak puts it, "phenomenal," and that the model on which it was built "doesn't work anymore. It just isn't delivering."

Shaunak's critique of the existing system is unexceptional. And it's equally clear that the best cure for what ails that system is greater competition. The result would be a more dynamic industry, in which firms such as PolyTherics could thrive alongside the Pfizers (Charts, Fortune 500) and Roches. Or, as Shaunak puts it, "Big Pharma makes Rolls-Royce medicines for a small part of the world. What we're saying is that we could make Coca-Cola medicines, where the profit on each item is quite modest but the penetration will be so large that it would end up being much more valuable."

Which is why, of course, a clash between Big Pharma and PolyTherics is probably inevitable. But Shaunak seems as unbothered by this as he was by the power failure. "If the pharmaceutical companies are so threatened by a couple of academics such that they want to try to throw us in jail, I'll be flattered," he says. "We can have this David and Goliath battle - that's just fine with me."

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.