A good biotech business…out of Poland?

Charles Goldfinger

If you think it’s hard to do a biotech start up, try doing it in Poland. You’ll face international condescension, local incredulity – and the mysteries of Polish law.

For the last 18 months, I have found myself on the frontiers of biotech investments. Not only I have been trying to set up a company in a pioneering area of cancer detection and prevention, but I have been doing this in a country which is not even on the map of biotech financiers, Poland. And to make things even harder, my project was not even in Warsaw but in an outlaying city, with a name impossible to pronounce by a non-Polish speaker, Szczecin, where I went to high school.

In July 2003, my schoolmates organised a reunion of international alumni in Szczecin. During that reunion I discovered that one of my closest friends from the old days, who had remained in Poland, had become a senior scientist in a genetic research unit, the International Hereditary Cancer Center (IHCC), at the local medical university. As I am always on the look-out for new interesting projects, I asked him about the unit. He introduced to his boss and IHCC founder, Jan Lubinski.

Initial contact was very good and we began to discuss possible joint business, which would consist in international marketing of the intellectual property developed by the IHCC. As a result of our discussions, we created a new company, Read-Gene SA, signed an exclusive IP agreement with the medical university and have begun serious discussions with potential international partners in Baltic countries, UK and North America.

We are also in the process of raising funds to enable the company to function. We may actually succeed and bring together to the table foreign investors as well as local business angels.

Altogether, this has been a fascinating, gratifying and instructive experience. What was fascinating was a mutual learning curve, where scientists learned about business and I learnt about their science. The experience was gratifying as the IHCC continued to make ground-breaking discoveries and its scientific achievements were validated by highly reputable international scientists.

On the instructive side, there were two eye openers. The first was how incipient the entire area of cancer detection still is. The second was the narrowness of thinking among risk capital institutions, both in Poland and abroad.

Limited knowledge

Despite the billions that have been spent on research into cancer, our knowledge about it is actually quite limited. Particularly striking is the lack of knowledge about the genetic determinants of some of the most common forms of cancer.

For example, carriers of the gene BRCA1 have a very high (about 80 per cent) risk of contracting either breast or ovarian cancer. The isolation of this gene in 1994 was hailed as major breakthrough and led to the first genetic cancer testing company, Myriad Genetics, which patented the gene. Yet BRCA1 accounts for less than 10 per cent of breast cancer cases, so a negative BRCA1 test result offers only a limited predictive capability of an actual risk of cancer.

Between 1994 and 2004, little progress was made in identifying additional genes that would make genetic testing for breast cancer more reliable. But in 2004 Professor Lubinski and his team identified a gene set that allows the identification of 70 per cent of potential cancer cases for the Polish population. The applicability of this set and the underlying scientific applicability to non-Polish populations is a key research priority for IHCC.

R&D efforts in cancer – and public attention – are biased towards later stages of the disease and treatment rather than towards prevention. A good example is Avastin, a blockbuster colon cancer drug developed by Genentech, the biotech giant controlled by Roche.

According to a study by the US National Cancer Institute, published in March 2005, Avastin, when combined with chemotherapy, extends the average life expectancy of colon cancer patients by two months, from ten (chemotherapy alone) to twelve months. Avastin does not cure colon cancer, just slows down its metastasis – at a cost of between €65,000 and €90,000 a year.

By the time colon cancer is diagnosed, it is often incurable. Early detection is crucial, but the traditional test method – colonoscopy, a detailed analysis of the entire colon–is intrusive and expensive. On the other hand, the genetics of colon cancer is among the are best documented. Yet the existing genetic tests offer an identification probability of only 15 per cent. Professor Lubinski has discovered genetic sets that increase the probability to about 50 per cent; yet this discovery is considerably less known than Avastin.

Within the vast army of cancer research professionals, specialists in detection and testing are few and widely dispersed. Not surprisingly, biotech investment professionals have not focused on cancer detection, and few public or private companies specialise in genetic cancer testing.

Delicate contacts

All this explains why my contacts with investment community would have been delicate even if the genetic cancer project had not been Poland-based. The IHCC location compounded the difficulty. I anticipated a rough ride.

Sure enough, established biotech investors I approached in France or in the UK showed no real interest. But what I did not anticipate was the degree of condescension.

When one potential business partner, a (very) senior academic official in a leading UK university, could not find an e-mail from Lubinski, he blamed it on “Central European habits” rather than on his own administration.

The same official explained to Lubinski in their second face-to-face meeting that he (Lubinski) could not possibly be the CEO of the new business and then proceeded to introduce a CEO candidate – who just happened to be passing in the corridor during the visit. Lubinski showed his lack of sophistication by turning down this generous proposal.

Among potential Polish investors from established financial institutions, condescension was further compounded by incredulity. People I met in Warsaw, many of whom I knew well, found it to hard to believe that there could be a real high-tech intellectual property opportunity in Szczecin, of all places.

Quite simply, I never managed to convince any of my Warsaw “friends” and relations to make the trip to Szczecin (500 kilometres from Warsaw, four hours by train and one hour by a scheduled airline) to visit the IHCC and to see first hand how it works. And despite the fact that the genetic tests developed by Lubinski were offered by a Warsaw-based clinic, they never took the trouble to visit the clinic and meet its principals.

Bridging the gap

In order to overcome the credulity gap, we convinced a potential foreign investor to fund a scientific due diligence visit by a well-respected UK genetic cancer expert. The visit (in Szczecin!) took place in December 2004 and resulted in a highly positive written report. The expert himself was interested enough to join the Scientific Advisory Board of the company we created.

And we focused our fund raising effort on high-net worth private investors in the UK, Belgium and France who would be interested enough in the project to visit the Szczecin site.

As result, we made considerable progress in developing a viable business plan and structuring the business. However, we were not out of the woods. We needed to overcome two serious obstacles: mutual misunderstanding and mistrust between scientists and financiers, and Polish law.

The scientists felt that they did all the substantive work and the only contribution, in addition to cash, that financiers could make was to sell their science – which, given the quality of the science, was no big deal. The financiers thought that the scientists knew nothing about business and that the hardest part of the project was to make a viable, cash generating business. Thus each side was unwilling to give the other a large shareholding.

Then came the problems with Polish law. Our initial thought was to create a company outside Poland, as the main goal of the business was to market the IHCC’s IP internationally. But we needed the support of the medical university, which held a large chunk of the IP. And the university’s legal adviser, whose opinion would be decisive, did not speak English.

Napoleonic code meets German formalism

So we had no alternative. We had to set up a Polish company, which would be the business partner of the university. Now, Polish commercial law is justly notorious and it is not for its simplicity. It is based on pre-World War II legal framework and combines the worst aspects of French Napoleonic code with German formalism. Thus, my power of attorney document, enabling Lubinski to sign Polish legal documents on my behalf had to be (a) validated by a local (French or UK) notary (b) translated into Polish by an approved translator and (c) certified by Polish consulate.

Yet, despite all these obstacles, we managed to create a company, Read-Gene SA (in September 2005), sign an exclusive IP agreement with the university (in December 2005), set up a prestigious Scientific Board (every person invited to join the Board accepted) and launch an initial fund-raising round.

The money is not in the bank yet (feel free to call me if you want our account number) but we feel, as investment bankers would say, reasonably confident to be able to close the round within the next few weeks. One reason for our confidence is that there is now a group of local angels in Szczecin, private entrepreneurs who made their money in traditional businesses such as car dealership, real estate and retail distribution and are willing to support Professor Lubinski and this team. Among foreign investors, a number of those we approached visited Szczecin and continue to express interest.

However, the most important confidence factor is that, while our business structuring efforts continue, IHCC is making impressive progress both in its research, with another batch of discoveries to be published internationally in reputable publications), and in actual test deployment in Poland (about 1,000 people a day are being tested at present). Discussions about licensing the test outside people are seriously engaged in two countries and may lead to pilot test launches within next 18 months.