Big Pharma, Short on Blockbusters, Outsources the Science

Yet pharmaceutical companies and their partners have struggled to reconcile different personalities, distinct ways of working and sometimes, competing goals.

“How do you stimulate innovation without killing it in the process?” says Elias Zerhouni, Sanofi’s research and development chief.

The collaboration began in Paris in 2011, when Dr. Zerhouni was just months into his new job, following stints at Johns Hopkins University’s medical school and 6½ years running the National Institutes of Health.

Sanofi’s top sellers like the sleep aid Ambien and the blood-thinner Plavix were losing patent protection. Yet since 2008, the company had launched just three new products whose sales could offset the losses.

Dr. Zerhouni, a physician and biomedical engineer who had started five companies while in academia, figured that if Sanofi was going to cure its innovation ills, it needed to collaborate with world-class scientists outside of Big Pharma.

So one afternoon in May, he sat down with Harvard University professor Gregory Verdine at the College de France in Paris. Dr. Verdine had made groundbreaking discoveries at the crossroads of biology and chemistry, and had formed seven companies that developed drugs for hepatitis C and lymphoma.

Dr. Zerhouni grew excited as he listened to Dr. Verdine, hunched over a computer in a small conference room, sketch out his idea for an eighth company. He proposed a Holy Grail of drug research: targeting proteins that are relatively flat and inside cells.

These proteins play pivotal roles in a lot of diseases, including many cancers. But their flat surfaces protect them from the current crop of biotech drugs, which typically work by locking onto deep pockets in the proteins, outside cells, to stop them from connecting to other important molecules.

They were considered “undruggable” because researchers had failed to find a way to link a drug to one of these flat proteins inside a cell.

Mother Nature had, though. A few bacteria, including one found in the soil of Easter Island, did in certain situations make molecules that could cross cell walls and connect with the flat proteins inside. These molecules were the basis for drugs to help patients recover from organ transplants.

Dr. Verdine was hoping to use the latest gene-mapping technology to scour databases of bacteria for other similar bacteria. Some, he figured, had to be able to hook to flat proteins and point the way to new drugs.

You “don’t need to tell me more,” Dr. Zerhouni recalled saying.

Dr. Verdine was ecstatic. After the economic downturn of 2008, funding for life sciences startups was scarce. He had an interested partner in Third Rock Ventures, a venture-capital firm based in Boston that had been paying for a small team to begin the research. But they needed the support of a company such as Sanofi to fully engage in the risky undertaking.

Such a collaboration between venture capital, Big Pharma and a top scientist with a novel idea was highly unorthodox, and negotiations took until Christmas.

Some things came easily. There was quick agreement on a name: Warp Drive Bio, a homage to Star Trek that reflected the shared goal of discovering new medicines rapidly—at warp speed.

Other issues were tougher. Dr. Zerhouni, who admired Dr. Verdine, nevertheless wanted the partnership to be led by someone other than its scientific founder. “I didn’t want to give money and let some crazy professor run with it,” Dr. Zerhouni recalls.

Dr. Verdine says there weren’t any plans at that time for him to run the company at its inception, and he was only on a one-year sabbatical from Harvard.

Alexis Borisy, a partner at Third Rock Ventures who served as Warp Drive’s first chief executive, says: “We were making it up as we went along. There was no model we could follow.”

The final terms for Warp Drive Bio were unveiled Jan. 10, 2012. Sanofi would give up to $87.5 million over five years to the partnership. By then, Warp Drive Bio was to have delivered three to five potential new drugs that Sanofi could test in humans. Sanofi would have exclusive rights to the drugs and an option to buy the rest of Warp Drive.

The company’s first hires scavenged for bacteria to test, drawing on collections kept by Sanofi, other drug companies and government laboratories. They also swiped their own samples from sidewalks, backyards, even during a wedding in California wine country.

Within a few months, in March, the scientists had their first hit. Researcher Keith Robison was poring over the genetic readouts while in a rehab-center bed recovering from a skiing accident, when he saw the telltale signs.

“This looks like the real deal,” Dr. Robison emailed Dr. Verdine later.

The bacteria had a cluster of genes, dubbed X1, that under the right conditions should make molecules able to connect with flat proteins. Dr. Verdine was right: Nature had made other microbes with the special properties.

Company researchers still had to uncover the molecules made by these special bacteria and then the proteins that were targeted by these molecules. The researchers also had to determine if any diseases were triggered by one of these proteins and therefore good candidates for drugs.Over the months, Warp Drive sequenced tens of thousands more bacteria. By summer 2013, the firm had found a dozen bacterial strains making molecules with the special properties it was looking for. But Warp Drive was far from discovering drug candidates.

That summer, the scientists had identified only the molecule made by X1 and its protein target. The biology was proving more complicated than originally hoped.

As it faced such scientific obstacles, Warp Drive was moving toward some significant changes. Mr. Borisy, Warp Drive’s first chief executive, returned to Third Rock to help it create new companies. Dr. Verdine took the helm that July.

Dr. Verdine was among several at the company who began thinking it should take a different tack: engineering in the lab molecules that could bind to targets that were already well understood, rather than waiting to find such molecules in nature and then working out the diseases they could treat.

Such a change in direction promised to give Warp Drive the technological platform for developing a range of drugs treating a variety of conditions. But it would require heavy investment and might delay the development of the handful of medicines that Sanofi was in a rush to put into its pipeline.

“Warp Drive wanted to go fishing, but Sanofi couldn’t wait to see what it found,” Dr. Zerhouni says.

The doubts reached a boiling point by October 2013, when Dr. Verdine pulled Dr. Zerhouni into a Massachusetts General Hospital coffee room. “I want your help to change Warp Drive,” Dr. Verdine says he told him.

Dr. Verdine told Dr. Zerhouni Warp Drive was having trouble recruiting and retaining staff under the cloud of a potential Sanofi takeover. For similar reasons, Dr. Verdine went on, Warp Drive was having trouble persuading other drug companies to partner.

He bemoaned the terms of the deal negotiated in 2011, when the public funding markets were in a downturn. The French company had the option to buy the portion of Warp Drive it didn’t own for more than $1 billion. Now the markets were recovering, and Dr. Verdine and staff were worried the deal undervalued Warp Drive.

And he described the timeline for discovering new drugs as too aggressive.

Dr. Zerhouni says he was surprised and troubled by the impact on Warp Drive’s scientific talent. Given the stakes for him inside Sanofi, he wanted to give the company every opportunity to flourish. “Let’s find a way,” he told Dr. Verdine.

The pair went up to a conference room, where they sketched out on a whiteboard what a restructured collaboration might look like, making Sanofi the primary partner of Warp Drive but giving it the runway to join with other companies and eventually go public. Dr. Zerhouni emphasized getting products was more important to Sanofi than any technology Warp Drive developed.

While they agreed on the basics, working out the details of what they wrote on that whiteboard would take another two years.

An initial obstacle, say people involved in the discussions: Dr. Verdine’s leadership of the company. Dr. Verdine wanted to be an involved father for his brainchild, especially at such a pivotal moment. He saw that the firm could build the machinery for making new drugs for myriad previously untreatable disease targets.

In particular, he was interested in a collection of genes called RAS, involved in cell growth and proliferation. When mutated, these RAS genes are major drivers of many cancers.

Dr. Verdine asked Harvard to extend his leave of absence from his academic post. “I’m trying to come up with a drug that will treat a third of all cancers. I think you would want me to do that,” he recalls telling the university.

Dr. Zerhouni appreciated his partner’s commitment. Yet he worried that Warp Drive needed to apply its findings toward the practical pursuit of specific drugs, rather than “revolutionizing the world.”

In July 2014, the Warp Drive board agreed on Dr. Verdine’s plan that the firm shouldn’t just wait to unravel Nature’s mysteries, but should also use its labs to proactively design molecules that could target flat proteins like those whose production is controlled by RAS.

Dr. Verdine eventually agreed to shift to become the company’s chief scientific officer. Warp Drive brought in biotech veteran Laurence Reid, a former executive at Alnylam Pharmaceuticals Inc. and Ensemble Therapeutics, as the venture’s new chief.

When the partners exchanged proposals in March 2015, a big sticking point emerged: rights to the drugs that Warp Drive discovered for Sanofi. The French company sought to retain all the rights to the promising medicines.

From his industry experience, Dr. Reid figured the startup couldn’t go forward as an independent company and succeed without some rights to the drugs it found. “Small companies throwing innovative assets over the wall and then stepping back and hoping pharma will develop them and send checks is a bit of a fool’s errand,” Dr. Reid says.

Dr. Reid says he was “shocked” the partners were so far apart, and wondered whether he had made a bad decision by taking the Warp Drive job.

Around Christmas 2015, the two sides negotiated a compromise. They would narrow their research partnership to some antibiotics and drugs targeting cancers caused by three different mutations of RAS. In addition, Warp Drive would be reorganized as a C corporation so it could raise money and be able to go public. It could pursue other drugs outside the collaboration and had an option to split a RAS drug’s U.S. rights, while getting royalties for international sales.

Today, Warp Drive has 57 employees. Last month, the startup delivered a few dozen bacteria-fighting compounds to Sanofi, which hopes to turn them into antibiotics to treat drug-resistant infections.

Dr. Robison, the researcher who found that first promising bacteria, is optimistic. He says he enjoys working at a lean startup nimble enough to follow the science wherever it leads, not slowed by a big company’s bureaucracy. At the same time, he appreciates Sanofi’s investment and input and now, agreement to let the startup’s researchers build a stand-alone company.

As in any relationship, Dr. Robison expects new issues to arise that will require further compromise. “It’s kind of like when a couple renews their vows,” he says.