Life after Pfizer: A decade later, Michigan pharmaceutical companies have found paths to growth

Ten years later, the pharmaceutical industry in Michigan has more than rebounded from Pfizer Corp.'s shutdown of its Ann Arbor and Kalamazoo research operations.

Stephen Rapundalo, CEO of MichBio, says the industry has experienced more than an 11 percent job growth the last five years, spawning many startup companies, and is a stronger and a more diversified industry than before the giant global drugmaker left.

"Overall, the ecosystem has grown and the startups, some formed by purchasing (intellectual property) from Pfizer, have helped diversify the sector very nicely," said Rapundalo, whose MichBio represents 160 bioscience, pharmaceutical, medical device, information technology, universities, law firms, consultants and related support companies. "That was for the better, quite frankly, because reliance on a large company could be dangerous, especially when crisis happens, you are stuck scrambling how to keep an industry going."

Since Pfizer left, such pharma companies in Michigan as ONL Therapeutics, Lycera and Millendo Therapeutics have grown in multiple ways. They include doing it the old-fashioned way of developing an innovative drug, winning grants, gaining investors, developing products and later gaining U.S. Food and Drug Administration approval for sale.

An increasing number — Gemphire Therapeutics, Esperion Therapeutics, Essen BioScience and Diplomat Specialty Pharmacy — have also recently gone public, selling millions of dollars of shares in initial public offerings to jump-start research and development, often leading to human clinical trials.

During Pfizer's research heyday in Southeast Michigan, the global drug company bought every pharmaceutical company that had any promise in the state, said Mina Sooch, CEO of Livonia-based Gemphire.

"When they left in 2007, it was a big deal. They took all the research and development infrastructure with them and moved it to St. Louis and Groton," Conn., said Sooch, who has been in the pharma industry in Michigan since 2000 and is the former CEO of ProNAi Therapeutics Inc. "If you didn't want to move, you needed to find work or retire. Hundreds of scientists started up new companies, joined existing companies like Perrigo or Ash Stevens, or went to the University of Michigan."

Sara Kruse, a health care attorney with Jaffe Raitt Heuer & Weiss in Southfield, said there are a variety of ways companies can generate revenue to grow, regardless of how young or mature they are.

"Biotech companies have long development and life cycles before they go to market," said Kruse. "It takes a combination of private investors, grant funding, angel investors, then you move to the IPO route or maybe you get acquired early on and develop a strategic relationship with a larger pharmaceutical company," she said.

One good example is Lycera, which in 2015 signed an agreement with Celgene Corp. to acquire Lycera after it hits pre-specified clinical milestones for drugs in its pipeline. Lycera is developing small molecule autoimmune disease and cancer medicines.

Another good example is when Ash Stevens Inc. got a $53 million offer last August it couldn't refuse from India-based Piramal Enterprises Ltd. Founded in 1962 by two Wayne State University professors, Ash Stevens is planning another major expansion at its Riverview manufacturing plant.

Kruse said she often gets calls from inventors and scientists who have some kind of innovative product and need access to capital. "There always is this struggle, but I am seeing more companies having access to capital because you have more companies innovating," she said.

ONL raised more than $4 million from private investors and received other grants from Invest Michigan and the Novartis Institutes for BioMedical Research to develop drugs to treat retinal detachment and other eye problems, said CEO John Freshley.

"Novartis is interested because we are developing something interesting and novel, but not yet proven. They know how to commercialize it and run trials," Freshley said.

Some companies like Ash Stevens and Harvard Drug Group, which was acquired recently by Cardinal Health (NYSE: CAH), joined larger companies to access capital to grow into new markets and therapies.

Former CEO Stephen Munk of Ash Stevens said the sale to Piramal has gone smoothly. Munk, who resigned April 30 after 20 years with Ash Stevens, was replaced by Vince Ammoscato, vice president of operations.

Ash Stevens develops comprehensive small-molecule drug substances and has 14 FDA manufacturing approvals for active ingredient drugs, including oncology drugs Velcade, Vidaza, Clolar and Iclusig.

"Piramal is starting to invest (about $8 million) and are looking at the 6 acres I purchased to expand into high-potency materials. That is exciting to see. It will cost $40 (million) to $50 million to develop" the additional property, said Munk, a research chemist who wants to hook up with an early stage bioscience company in Southeast Michigan. "There is so much happening here."

Since last summer, Munk said, Piramal has added sales personnel and opened the door to more contracting opportunities for Ash Stevens.

"Sales are going slowly, but you need more bricks and mortar and you need more people," Munk said.

Over the last 15 years, Ash Stevens has tripled revenue to nearly $20 million, but Munk said the company struggled with garnering capital for growth. Banks were sometimes reluctant to loan money to help expand the business' footprint and revenue, he said.

But in 2013 Ash Stevens completed a 15-year, $45 million project that helped increase its production by at least 50 percent. The company added 18,000 square feet to its 30,000-square-foot manufacturing plant. It purchased a 2,250-gallon reactor bay with 500-gallon, 750-gallon and 1,000-gallon vessels for mixing compounds.

"We will grow much faster now thanks to Piramal," Munk said.

As Esperion, Gemphire, Diplomat and Essen have launched IPOs, giving them investment fuel for growth, Perrigo Co. LLC, founded in Allegan in 1892 and taken public in 1991, has since become a worldwide pharmaceutical company that is now based in Dublin. Rockwell Medical of Wixom, which is developing an iron-replacement drug therapy for dialysis patients, went public in 1998.

What I have seen as a consequence of the shutdown by Pfizer is that a lot of people didn't want to leave (Michigan) and they have started something here," said Rapundalo, who added that Pfizer still has animal research and injectible drug manufacturing in Kalamazoo and is spending more than $145 million to expand its plant there.

For example, Esperion bought its ETC-1002 cholesterol-lowering small molecule compound from Pfizer and is currently in phase 2 FDA clinical trials.

Rapid growth and a quick decision to go public is defined by the rise of Gemphire Therapeutics. From its founding in 2015 to last summer's initial public offering with capitalization of $30 million, Gemphire took little time to try and prove its lead asset gemcabene drug, which inhibits cholesterol formation, has commercial and clinical value.

"There are only a handful of IPOs in Michigan. We are fortunate to be one of them," said Sooch. "Our IPO has been fantastic. ... We had a couple of us two years ago. Now we have 16 employees."

Sooch said Gemphire was able to sell its IPO in two years because "we have a late stage drug (gemcabene) that we licensed from Pfizer in 2011 that is in stage 2 trials."

Gemcabene is an oral once-daily drug developed to treat the large unmet medical need of patients with high cardiovascular and pancreatitis risk who are unable to reach optimal LDL cholesterol or triglyceride levels with statins or other therapies.

But Sooch said young pharma companies usually start out with federal and state grants to hire staff and start research on their products.

"Unless you have a rich uncle," Sooch said, most pharma companies use a mix of grants and private investments from angel investors or venture capital funds to get going.

"There are lots of types of grant funding. You can get maybe $200,000 to $1 million, but then you need larger capital" to begin a clinical trial, she said.

"You can get one or two rounds of venture capital, then you go the IPO route because it is very expensive to fund phase 2 and 3 drug trials," she said. "You look to the public market. Biotech is well received if you have a really exciting drug. It is risk-reward for many companies."

But Sooch said there is a right time and a wrong time to do an IPO.

"It is all about timing. Are you prepared from accounting procedures, do you have executive management to build conviction on the street and with analysts? Do you have operational talent?" Sooch said.

Investors in Michigan participate in bioscience companies in a number of ways besides just providing funding. "They take a seat on the board of directors. They know many are startups and they participate in ways to turn companies into successes," she said.

When companies are acquired by larger firms or sell IPOs, Brosnan says investors cash out. "We call them exits, when they are sold to big companies or IPOs," she said. "On average it takes 10 years. They know they need to be patient."

In Southeast Michigan, venture capital investors helped to propel companies like Millendo Therapeutics and ONL Therapeutics, both of Ann Arbor.

ONL, which stands for "outer nuclear layer," was founded by three scientists in 2011: Dave Zacks, a clinical physician scientist at the University of Michigan Eye Center; Jeff Jamison, ONL's chief science officer; and the late Railli Kerppola, ONL's former CEO and bioscience researcher.

"They had an idea," said Freshley, who became ONL's CEO in 2013 after Kerppola passed away. "Why do patients have successful surgery for eye detachment still lose a lot of vision?"

Through research, ONL scientists found that cells activate a death cycle in the eye. "By blocking that death cycle you can protect vision," Freshley said.

ONL acquired an IP, a peptide that targets the protection of liver cells. "Dave (Zacks) thought it might work good in the eye." A patent was filed in 2013 and research continues.

Freshley said ONL received phase one grant funding from the National Institutes of Health to get the company going. Over the next two years, ONL raised about $1 million in angel investment, then it received a phase 2 grant for $1.5 million.

But ONL scientists discovered an improved peptide from the original one, ONL-1204, which hasn't been approved for a patent yet.

"The problem with the first peptide is that it doesn't go into water-based solutions very well. In order to deliver it, you need an injectable eye drug that goes into the water," Freshley said. "We feel we have something here."

In 2016, ONL raised another $1 million in angel investment and received another federal grant from the National Eye Institute, which is part of NIH, that Michigan Economic Development Corp. matched.

Freshley said a number of angel investors have bought into ONL's concept, including East Lansing-based Capital Community Angel Investors and Massachusetts Eye and Ear in Boston.

"We think we have a good idea that has a broad utility, targeting patients with retinal detachment. We think it can protect vision and improve surgical outcomes. There are other applications with age-related macular degeneration and glaucoma. Those (conditions) have millions of patients."

During the next 18 months, Freshley said ONL is expected to be ready to start human clinical trials. "At that time we will need additional capital," he said.