Xiidra Prior to Shire: How SARcode Took on the Odds to Pursue a New Treatment for Dry Eye

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Shire scored a huge win this summer by securing FDA approval of Xiidra. Hear from three principals of SARcode Bioscience, the start-up that discovered the Dry Eye treatment – then known as lifitegrast.


Tom Salemi: Hey, everybody, this is Tom Salemi, and you are once again listening to the OIS Podcast. Sorry about the gap in Podcast last week. Could not be helped. I got leveled with a cold, and a few other things, plus it was Labor Day week, so we assumed you all had some fun things lined up to do. So I hope you had a great Labor Day weekend and continue to enjoy the summer wherever you are. It’s not quite fall yet. We’re back at work here, though, at the Podcast. And today we’re going to revisit one of the bigger stories of the summer. Of course that’s the FDA’s approval of Xiidra, Shire’s Xiidra. And it was a long time coming. It is Shire’s flagship project or product rather in ophthalmology. And it’s the first treatment in dry eye for over a decade. First new treatment. So this is big news, and it all started with a startup, as a lot of innovation does. We’re going back, back in time to talk about SARcode Bioscience, which was founded in 2006, and we are going to talk to one of the cofounders, Tom Gadek, who is a co-founder and CEO, and also speak with a few key players in the development of SARcode and lifitegrast as a potential treatment for dry eye. They had a lot of hurdles to overcome. We’re going to talk to the former Chief Medical Officer, Charles Semba, about those. And then finally, Quentin Oswald, who became CEO later on and led the company to its acquisition by Shire, will sort of fill us in on that part of the story. So these gentlemen were very generous with their time. We’re very grateful. And they have a wonderful story to tell. And before we ease into the SARcode story, I do want to remind all of you that OIS@AAO is coming up. It’s happening on October 13 in Chicago. Fantastic town. And you absolutely need to be there. So please go to OIS.net to register. And you should do so before September 13. The registration fee goes up a click after September 13, so you might want to get on there now. Go to OIS.net. Now let’s start this Podcast. We’ll hop right into this interview that I did with Tom Gadek, the former CEO and the cofounder of SARcode Bioscience.

Tom Salemi: Tom Gadek, welcome to the Podcast.

Tom Gadek: Well, thank you, Tom.

TS: So we’re exploring the history of SARcode, and you were one of the three cofounders at the very beginning. How did SARcode come together? And was dry eye really your initial focus? Because at the time, it wasn’t really as high profile a target as it is seems to be these days.

TG: And that’s a great question. So the answer is yes, that we thought dry eye was a very high profile target. We were in the realm of had worked for a number of years at Genentech, the three cofounders, and knew that we could make or get access to through licensing some very potent anti-inflammatory compounds. And then the challenge becomes what clinical settings do you want to take them forward to. Initially, thoughts were towards psoriasis, but after a while we started to fall back to a focus on local administration to avoid any systemic side effects, which is usually what kills drugs after they reach the market. And then we looked around and some data from some of the Restasis early trials showed that LFA, our target, and ICAM, its normal ligand, were both present in biopsy samples from dry eye patients in a study that was done by Allergan and the National Eye Institute. So we thought it was a great target.

TS: That sounds like a good fit. Now before I forget, who were the other two cofounders? I want to make sure they get their due.

TG: Yeah. So John Bernier, a chemist from Genentech and a colleague for a number of years, and then Chuck O’Neill, who was a toxicologist pharmacologist.

TS: And what was the process like, deciding to leave Genentech to start a company? Was it difficult because the Genentech culture, it’s a tight one? People always seem to enjoy working there,

TG: Yes, it is. Yes, it is. I mean it’s a great place to be. The place is a technological juggernaut that can do anything it wants to do. Politically sometimes it has some trouble deciding what it wants to do. But putting that aside, the decision to leave was an interesting one, but it’s also, besides being a great place to be, it’s a great place to be from. There’s –

TS: That’s a good line.

TG: – a population of people in the Bay Area that are former Genentech employees, and they were very encouraging to offer help and assistance and guidance and suggestions and ears to listen to what we were thinking about doing. I actually left Genentech in 2003, and then consulted for a number of biotech companies for about 3 years before I decided to put my own toe in the water.

TS: OK. So you had a taste of life on the outside. So what were some of the earliest challenges? Let’s talk about probably – well, everything is important, but money is maybe the most important. What was the fundraising process like? Did the investors you talk to see your vision and agree with it?

TG: So some investors gave us their time and effort, particularly Jeff Dueck at TPG listened to the story and helped hone it a little bit. But they ultimately never invested, which is surprising. And I think in hindsight, one of the challenges in raising money through venture is to figure out which venture firms will invest in an early asset, and which venture firms won’t. So we were preclinical at the time, very much so, preclinical. Took us a couple of years to get to the clinic. And so that’s one challenge. And we got over that challenge. Initially, John Burnier and I each put in about $150,000, and that’s a scary amount of money to do from your own checking account. The bills started – the bills over time – so that kept us going for maybe about 9 months. And the bills started to get bigger and bigger and bigger as we moved into kind of animal safety studies and stuff. I think not that it’s a conspiracy, but I think that a couple of venture firms watched us do this, and they were impressed by that. But then they were going to let us spend our own money until we ran out, which we did. And thankfully they then stepped up.

TS: Obviously that makes negotiations a little easier when the money is dry. But it certainly is great to have that outside support.

TG: Yeah.

TS: So who was the first firm to come in?

TG: Alta and Clarus came in for the series A. And it was junior partners at each of those firms that were really strong proponents. Emmett Cunningham at Clarus and Robert Alexander at Alta. And their interest was very helpful. I think Alta signed on the dotted line first, and then Clarus maybe a week later. It was an interesting process in that we started looking for funds seriously around the JP Morgan meeting in early 2006, so first week in January or so, 2006. Talked to probably 50 venture firms, seriously talked to about 10, and then eventually got 2 competing offers on a Friday afternoon in October within an hour of each other from a group of 4 individual venture firms, each of which came together to form a 2 person or a 2 company offer.

TS: That’s amazing.

TG: So it indicates that it’s not random, that there was some knowledge of what was going on –

TS: Yeah.

TG: – between the two different offers. And not exactly a conspiracy against us, but certainly there was a conspiracy.

TS: But that’s great to have two offers. It’s gotta confirm your beliefs to have 2 groups willing to put money behind it.

TG: Yeah.

TS: So how much did the company ultimately raise over its life?

TG: From venture around 75 million. It might have been 77. The first round was 25 million, and that was tranched, so as we spent money, more was put in as we reached success criteria. Not exactly milestones, but we were making progress in the program. More money would be released. Then we got some bridge financing that took us to about 35 while we were looking for a larger series B that took us to about 75.

TS: So SARcode had the venture capital support it needed, and now it needed to execute. And a lot of that responsibility fell onto our next guest, Charles Semba, who was the Chief Medical Officer of SARcode. Came over from Genentech and essentially was left with the challenge of devising a trial that would demonstrate that lifitegrast was effective in battling dry eye. Before we get into Charlie Semba’s conversation, I did want to take a moment again to remind you that OIS@AAO is coming up. I know we talked about that a little bit sooner. It’ll be a great event. The co-chairs, Emmett Cunningham, Bill Link and Gil Kleiman are coming up with an excellent agenda, as they always do, and as I noted, Chicago is just a great place to go to a conference. So no doubt it will be a must-attend event. We had a thousand people in Vegas last year, and we’re hoping to match that. And who knows, maybe we’ll top that coming up. But none of it would be possible without our sponsors, and we just want to take a moment in the OIS Podcast to thank some of our sponsors. We’ll take a break right here and then do it a little bit later, thank a few more. But we’re starting off with our elite sponsors. It’s Abbott Medical Optics, Aerie Pharmaceuticals, Alcon, Bayer and Santen. They’re all great partners and supporters of OIS, and we’re grateful for their support. Now let’s talk to Charles Semba about the very unique challenge he faced when he joined SARcode.

TS: So I’m here to talk about your success at SARcode, but you also have recently worked at ForSight 5, which of course was acquired, and now you’re at GreyBug, so it sounds like if I have some money to invest, that might be a good place to put it.

CS: Thank you.

TS: You’ve got the hot hand going on. But focusing on SARcode, you joined there from Genentech. You made sort of a completely different move to a completely different part of the eye. Take us back to that decision of leaving, what you’d been working on with Lucentis, and to join this very ambitious group of medicinal chemists who were trying to solve what seemed to be an almost unsolvable problem with dry eye.

CS: So yeah, back in 2006, 2007, I had just led the clinical development for Lucentis at Genentech. Very encouraged by just the paradigm shift for retina, and really looking for that next big challenge. I guess it’s kind of in the drinking water here in Silicon Valley to really try to tackle big, big problems and take a different view of things. And I was presented by some ex-Genentech colleagues with a very thorny issue of trying to develop novel therapies for dry eye disease, which again, as a vascular radiologist, not being an ophthalmologist, I didn’t know anything about it and was intrigued with the challenge at hand. And so the journey always starts with just trying to understand what had preceded us. Certainly, Restasis was very, very successful. But as I gleaned more into the history of dry eye pharmaceutical development, I realized there was a vast graveyard of many failed trials by many blue chip companies. And so again, I was intrigued. Is there something we could do differently that people didn’t think about the problem in previous trial designs or approaches or thinking? And could we contribute somehow to the success of a next generation product?

TS: Was it evident to you early on that there may have had an inside track on a solution? Or were you really taking a leap of faith that you’d develop a way? And maybe we can talk about what challenges you had when you joined and what solutions did you create.

CS: Well, as I told you, I’m not a board certified ophthalmologist. In that sense, you could argue that almost played into my favor because I didn’t have any preconceived conceptions. There was nothing – this field was just a blank slate. I didn’t have any pre-baked biases on how things should be. And so in a sense, that was liberating because I was able to ask very simple questions. You know, why are things done this way? Why do people think that this is always true? For example, certain tenets in the space. And it turns out, a lot of concepts have never been proven. And so we felt this was really ripe to undergo sophisticated, really well thought clinical trials to try to get signs and symptoms in treating the disease. So first observation is that – one of my observations was that the markers we have to use to diagnose the disease haven’t changed much in 100 years. We’re still using vital dyes that were described in the late 1800’s. We’re still using Schirmer tear tests, which was first described in 1903. And so I was really, really struck with the fact that our analog markers were still relatively primitive. And that was a real challenge.

TS: How does that jibe with your Silicon Valley makeup?

CS: Well, you know, we’re moving to a digital world, and it’s like trying to clock Usain Bolt doing the 100 meter dash using a sundial. So just this really rather I’ll call primitive analog technology to really try to detect very subtle biochemical changes in physiology that’s occurring on a thin sheet of water, if you will, on the surface of the eye. These instruments just aren’t optimal. But that said, we weren’t in a position to try to develop new technology, let’s say OCT or some corneal topography, etc. We had to just use existing technology and harness it to the best of our ability.

TS: And so you joined. What role did you have – let me start that question over. So take us the next step. What role did you have in developing the process you needed to get lifitegrast where it needed to go?

CS: Well, I think first and foremost because I mentioned one of the observations early on was that because the instrumentation is not highly sensitive, you have a problem with signal to noise. And so right off, it became very, very apparent to do the trials very, very successfully, every step has to be thought out very rigidly on how you’re going to minimize signal to noise. Because the variance in all of these markers are so enormous. You don’t – as a venture based company, you don’t have the luxury of unlimited resources and super huge number of trials. So we had to make sure the methodology was very, very tightly controlled, that our inclusion/exclusion criteria were tightly monitored. And so the first step was really to try to design an approach to be able to select the right patients. The second key observation is the fact that in my observation of many past clinical trials, it was really ignored on how the placebo group or the control group was going to be handled. For example, there are many trials I observed in which patients were allowed to take unlimited use of over the counter artificial tears. Well, that’s going to confound the signal because these instruments we’re using to try to detect a drug effect are so insensitive that the copious use of artificial tears are going to obscure any response that the drug may have. And so one immediate step we did was not to allow concomitant use of any confounding agent. They either got drug or they got the vehicle of the drug, but we did not allow any confounding other agents.

TS: So no drops or anything like that to alleviate symptoms?

CS: No drops. That’s correct. Now, were patients using drops on their own at home? There’s no way to tell.

TS: Yeah.

CS: Yeah.

TS: So that helps create the baseline that you needed to measure apples and apples and oranges and oranges and oranges.

CS: Yeah. And commonly, what startup companies do is focus on trying to determine whether you have a pharmacologic signal by focusing on an objective parameter, for example, reduction in staining or increasing of volume of tear production. That’s all well and good, but the other half of a successful product is the symptom. Arguably, that’s even more important that the objective sign because patients don’t complain of corneal staining. They don’t complain of reduction in Schirmer tear test. They complain of chronic or cyclical ocular discomfort. So this is almost like an ocular pain syndrome. And so the second huge observation was that the inventories or the tools we use, the psychometric tools are just all over the place. There’s no standardized, validated instrument one uses to capture symptoms. Here’s an example. Oftentimes, people will use tools in which there are several prompting terms like grittiness or burning sensation, and the patients have to rate those every day. Well, one observation we made is that on any given day, the patient may complain most of burning, and on the next day it may be grittiness. And so these parameters were not helpful in that sense. And so our observation in the literature and looking at symptomatic scores in dry eye, it was our observation that most patients complain of simply calling it eye discomfort. My eyes are uncomfortable. And so we decided to use a visual analog scale to essentially validate that as the symptom marker. And lo and behold, it was highly predictive.

TS: All right, so SARcode had a plan, thanks to Charlie Semba’s work. The next step was to take those trials and turn this concept, this startup into a company with a later stage drug that could do many things. Tom Gadek suggested perhaps the company could have gone public in 2014 or 15 if it had not agreed to be acquired by Shire. He’s not saying that with any tinge of regret, just a fact that the hot IPO market might have really seized on a company with an explosive dry eye drug. And certainly not out of the realm of possibility. But Quentin Oswald came on board, and he led the company further. We’ll talk to Quentin a bit about raising money at this time and also just the role or the process that led to the eventual conversations and deal with Shire. Before I do that, I do want to remind you that OIS is coming up on October 13. We already covered that. Go to OIS.net to register. I mentioned our elite sponsors earlier on. Right now I’d like thank our premier sponsors, Allergan and Shire for their support of OIS. Very grateful to have these leading ophthalmology companies as part of our story. So let’s get into this conversation with Quentin Oswald, the former CEO of SARcode.

TS: And what were some of the challenges in managing this company? You joined in 2010. What state was the company? Did it have its clinical trials underway at that point? Where was it?

QO: Yeah. We’d just – we’d begun a phase 2 program. And it’s typical evolution of a startup, Tom. Tom Gadek had done a hell of a job of bootstrapping this company from a gleam in his eye to a going concern, going through the preclinical and the early phase 1 work. And it was decided that somebody else needed to pick up the reins to take this forward to a commercial-ready product in terms of building a target profile, really trying to shape the future of what this drug should look like from a label perspective. So there was this natural transition between the founder and the next person, which happens frequently in startups.

TS: Sure. Of course. So in going out and raising money, how much did you ultimately raise for SARcode?

QO: We raised $55 million. And in fact, in 2011, we were the largest venture capital deal in the Bay Area.

TS: Congratulations.

QO: Yeah. And you know, it doesn’t talk to the fortitude of our investors because if you’re dealing with the background of significant failure in this space, we were able to convince them that, based on what I’ve said, the science and some of the early work we showed from a clinical perspective, this was a worthwhile investment. But even so, it took, I think, a large degree of risk for people to invest in us. But we were very fortunate to have a really good investor base.

TS: I was going to ask that. Again, dry eye now seems to be getting the spotlight, but back then, I’m not sure. And I know it wasn’t an enormously long time ago; it was only 5 or 6 years.

QO: Yeah.

TS: But did you have a hard time getting meetings with investors who maybe saw the challenges of this space? Or was the opportunity just so big?

QO: I think that the opportunity – I mean, given the frequency at which patients present, anybody who knew anything about ophthalmology recognized the size of the opportunity. But as I said, there was concern about whether we could crack the code that nobody else had seemed to be able to do. Bear in mind that Restasis was approved on retrospective rather than prospective data. So doing a prospective, controlled set of trials was seen as a challenge at that point in time. But yeah, it wasn’t simple. We did a lot of VC presentations. I became a veteran to go with my team over VC presentations. And that in itself was a great experience.

TS: And what was the endgame that you laid out for investors in those presentations? How did you see this story concluding, presuming that you had the positive clinical data, which you did get?

QO: Well, what was most important, what was the future value of this opportunity? And most startups tend to do back of the envelope type calculations as to what they believe this effort could be worth. We utilized the experienced we had at Genentech in valuing markets, and we did extensive validated market research with a reputable company to build a sales picture as to what this drug could look like over the life of the patent. And we showed that this had the potential to be a billion dollar plus opportunity in a space that was relatively uncompetitive if we were able to meet the label goals that we’d set for ourselves.

TS: And what was that group that you worked with?

QO: It was a market research company.

TS: OK. And did you talk to strategics at all during the fundraising?

QO: Yes, we did. We’re obviously in contact with all the usual suspects, Allergan, Alcon, Bausch and Lomb. We’ve had discussions with each of them. And Shire was late to the game. So yes, we’d spoke to the usual suspects in the ophthalmology space, but hadn’t moved outside of that, to answer your question.

TS: But how did – and that leads to my next question. When did Shire get into the game? And how did that deal ultimately come together?

QO: Well, what happened was that we’d gone through a process with JP Morgan, looking for an acquisition. And Fleming Ornskov ho had been a colleague of mine at Novartis prior to me joining Genentech – in fact, he was my boss when I ran the North American Ophthalmology business – called me and said, You know, I’m about to take up as CEO of Shire in a couple of months. Is this opportunity still on the table? And I said, Yes. And obviously, he had significant ophthalmology experience, but it was new way of experience within Shire in this area. So he in fact drove this pretty rapidly, and we did the deal rather fast, given the fact that they were late to the game.

TS: Fascinating. So were there other bidders as well, and Shire just came, swept in and –

QO: Yes, yes.

TS: – sort of – well, that’s a great position to be in. So going forward, what lessons did you walk away from with that experience? You’re now CEO of Notal Vision. How do the lessons from SARcode sort of inform your decisions today?

QO: Well, I think the big issue is, Tom, moving from a large business unit that I ran at Genentech to a startup. You know, one day I had significant turnover; the next day I was making my own coffee and doing my filing, right? And never had to worry about raising of capital. It had never been an issue, obviously, in a company like Genentech. So I think the issues were you have to be, I think, multi-skilled to be able to do these jobs. And you need to put together, and I think to me this was the key. Putting together a very experienced executive team. If you think about it, Tom, we were able to take lifitegrast from concept into initial phase 1 trials through phase 3 with 9 people. And we really followed the model of – and I think that one of the beauties of being in the Bay Area is all along the value chain we were able to bring on consultants who – and this is before eye in formulation, in supply chain management, etc. So but the core of the business is essentially development. We had an outstanding chief medical officer, Charles Semba, and extending regulatory affairs and manufacturing person in Mary Newman. And Todd Creech, who was our CFO really together with me formed the key team. And I think so it’s a combination of getting some humility in terms of starting from scratch, and certainly putting together a great group of people who all believe in the promise of the drug based on the science that it offers.

TS: Use of humility is an interesting term. Does that go beyond just making your own coffee and doing your own filing? Was there other things you had to learn in that department?

QO: Yeah. Well, I think any good leader aspires to this concept of servant leadership. And I think humility is important. But it’s also, I think, balanced by belief and conviction in terms of there’s a there there, is an opportunity. So I think one has to be – and as you know, drug development is a roller coaster. And your job, when things are low, is to figure out how we can bring the team back to some equilibrium and focus on the positivity that the future offers. So I think there’s a leadership challenge, especially with a small group of people who are committing their lives to this and are taking some risk.

TS: And of course, this summer, that risk paid off. The FDA approved now Xiidra, formerly lifitegrast, as the new treatment for dry eye sufferers, and giving Shire, rather, the flagship product it needed for its new ophthalmology business. And the news actually came a little more quickly than people had anticipated. We were looking for the news to come later in July, just based upon around the dates with the FDA. But it caught some folks by surprise. And I asked Charles Semba where he was when he heard the news.

TS: And how did you receive word of the approval?

CS: Well, I was actually camping in the back country in Arizona and completely off the grid. And when I got out of the wilderness several days later, my phone obviously was overflowing with congratulations. Because you know, I was really heartened by many colleagues because the people in this space appreciate historically how difficult it has been. And certainly the hope when Tom and I and others at SARcode started this journey was can we at least be innovators to present our best foot forward, at least provide a footprint for others to potentially follow. And clearly, lifitegrast is not a cure, and there’s certainly ample space for other, future innovations. But hopefully, we’ve provided some contribution in the field that hopefully will be helpful to other investigators.

TS: Well, there you have it, folks, one of the better stories of the summer, the approval of Xiidra started way, way back in 2006 with an innovative idea that turned into SARcode Bioscience. And very grateful for Tom Gadek and Charles Semba and Quinton Oswald for coming on the Podcast and sharing the story. This is why we do what we do. We’re trying to identify the tales that will change the way that eye diseases are treated. So it’s great to give attention to such an inspiring story. Thanks again, gentlemen, for making this an enjoyable Podcast to do, and I hope, to listen to. Thanks to all of our Podcast listeners for joining us again on the OIS Podcast. This is number 101, so here we go, onward to 200. And thanks again to our sponsors who I identified earlier in the Podcast for supporting us at OIS@AAO. Hope you will join us. Go to OIS.net to register. Do it quickly so you’ll take advantage of that bargain rate, and we will see you in Chicago.