New Faces in Pharmaceuticals

Aesgen and Mayo

Canada’s MDS


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Pharm Country

These articles by Barbara Fox were published in U.S. 1 Newspaper

on January 14, 1998. All rights reserved.

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New Faces in Pharmaceuticals

@INITIAL CAP+ = Take a look at this track record: Two firsts.


Ventures founded the world’s first human gene therapy company and

the first genomics company.

Even more impressive — at least to the general public — is

its connection to the cloning of Dolly the sheep, acknowledged to

be the most important discovery of the decade, perhaps of the century.

Before Dolly was born last year, few experts were paying attention

to how Scottish scientist Ian Wilmut was cloning farm animals. But

these venture capitalists were talking to Wilmut two years before

Dolly made him famous.

Healthcare Ventures (formerly Healthcare Investment Corporation) has

moved from Edison to Princeton and established a headquarters on the

second floor of 44 Nassau Street. Three of the partners (James H.

Cavanaugh, William W. Crouse, and Harold R. Werner) work here, and

two more partners (Mark Leschly and John W. Littlechild) are based

in Cambridge. "We are very excited about being here on Nassau

Street," says Cavanaugh.

This week Healthcare Ventures is closing on its fifth fund, for $156

million. That brings the total money it has raised to more than $534

million. The partners have formed, virtually from the ground up, 34

companies in the healthcare field. For half of these companies (the

mature ones) they have managed to arrange more than $1 billion dollars

in collaborations with pharmaceutical corporations. Here in Princeton

they have formed Delsys Pharmaceutical Corporation, a privately-held

developer of automated drug manufacturing and drug delivery systems

through electrostatic dry powder, a spinoff of the Sarnoff Corporation

(U.S. 1, April 2 and August 13, 1997).

The formation of Delsys is typical of how Healthcare Ventures works.

"We always pursue major themes in medicine," says Werner.

"We tend to look at major trends, fairly far out. We put


on our advisory board and have a network of 200 people in the United

States and around the world. We meet with them lots of times, and

we bring them in front of lots of interesting researchers."

When they think a research idea has reached a critical mass they begin

to build a company around a core of intellectual property. "We

bring some of the founding scientists out of academia, recruit


put lab skills in place, and move the technology toward the clinic

and toward partnerships," says Werner.

The next such scientific advisory board retreat, set for March 24

to March 29 at the Four Seasons in Palm Beach, California, is their

chance to get together with the Ian Wilmuts of the scientific world

to forecast the Next Big Discoveries. About 180 people are expected

to attend, including the nearly two dozen members of the advisory

board, chief scientists at each of the portfolio companies, and 100

scientists from the network. "They guide us in the changes in

science that are likely to impact the future practice of


says Cavanaugh. "We see if there is a commercial opportunity,

and if there is, we make plans to form a company to capitalize on

that opportunity."

Cavanaugh has done everything from teaching graduate school to working

at the White House to heading major pharmaceutical ventures. He


in industrial engineering at Fairleigh Dickinson (Class of 1959) and

has master’s and doctor’s degrees from the University of Iowa, where

he taught medical economics and healthcare administration. He was

a consultant to the Department of Health Education and Welfare during

the Johnson administration and then became an assistant secretary.

In 1971 he joined the White House staff and stayed through the Ford

administration. He eventually became president of SmithKline & French

Laboratories U.S. but when it merged with Beecham he left to join

Werner in the venture capital firm. Cavanaugh lives in Devon but has

a Princeton connection — he met his wife here in 1961 when he

was on a fellowship program at the Medical Center of Princeton.

Werner co-founded what is now Healthcare Ventures in 1984. A resident

of Princeton Borough, he was an engineering major at Princeton (Class

of 1970). He went to Harvard for his MBA, where he switched fields.

"Engineering was heavily influenced by government spending, and

I wanted to work on health rather than military projects," says

Werner. For six years in Belgium he did health consulting for Robert

First Inc. From 1980 to 1984 he worked with venture capital endeavors

at Johnson & Johnson Development Corporation.

Of the other Princeton-based partners, Crouse was most

recently worldwide president of Ortho Diagnostic Systems. A graduate

of Lehigh with an MBA from Pace, he has also been division director

of DuPont Pharmaceuticals, responsible for international operations

and worldwide commercial development, and he has worked for Revlon

Health Care Group and E.R. Squibb & Sons.

The Boston-based partners, Mark Leschly and John Littlechild, work

from a Kendall Square office in Cambridge. Leschly is one of four

sons of Jan Leschly, who moved to Princeton to be at E.R. Squibb and

ended up as president and chief operating officer. Mark Leschly


from Princeton High in 1986, earned his BA with high honors from


(Class of 1990), and has a Stanford MBA. After playing on the Danish

Davis Cup tennis team he worked with McKinsey & Company in New York,

Boston, San Francisco, and Scandinavia. As a partner in Healthcare

Ventures he serves on the board of various portfolio companies and

helps form companies, establish pharmaceutical partnerships, and


a network of relationships.

The efforts of Healthcare Ventures resemble those of many other VC

firms, but it is distinguished by its singular focus on "high

science" companies in the medical field. "Other firms do what

we do and very well," says Cavanaugh. He cites Princeton’s Domain,

Kleiner Perkins on the West Coast, and Venrock in New York. "But

they’re involved in a lot of things outside of health care. No one

else has the scale of what we do and does it exclusively."

Where does all this money come from? Investors include four state

public pension funds, four insurance companies, several foundations

and corporate pension plans, plus a dozen major pharmaceutical firms

in the United States and Europe, including SmithKline Beecham and

Bristol-Myers Squibb. Initial investments pave the way for later


for instance, Delsys has already announced agreements with both Glaxo

Wellcome and SmithKline (U.S. 1, September 17 and December 10, 1997).

Werner is the Healthcare Ventures partner who is working with this

Sarnoff spinoff, and he says it takes a hefty investment of time to

make it work. "You spend time understanding the technology and

developing relationships," says Werner. "For Delsys, we have

developed a good relationship with Sarnoff. They have a potent


asset but are coming from a different field and are learning how to

apply it. That makes for a great commonality of interest."

Why so much investor confidence in what these partners choose? Look

at the returns: An investment of $6.1 million in Human Genome Sciences

(the pioneering genomics firm based in Rockville, Maryland) has


$202 million in cash or freely tradable stock. An investment of $5.3

million in the gene therapy firm (Genetic Therapy, based in


Maryland) resulted, eight years later, in the sale of the company

to Sandoz (now Novartis), with a net profit to the venture capital

firm of $50 million. Numbers speak.

— Barbara Fox

Healthcare Ventures, 44 Nassau Street, Princeton

08542. Harold R. Werner, general partner. 609-430-3900; fax,


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Aesgen and Mayo

Add two more to Princeton’s list of hungry drug


with name brand connections — Aesgen and MDS Pharmaceutical


— both moving to 2,000 square foot spaces on the third floor at

2 Research Way. MDS, Canada’s largest health and life sciences


is expected to move its pharmaceutical services division in January.

With operations on four continents and market capitalization of $7

billion, MDS is sometimes thought of as Canada’s Johnson & Johnson,

and its pharmaceutical services division is the seventh largest


research organization in the world (see story below).

Aesgen is a pharmaceutical firm that moved in early November from

Wilmington, North Carolina. The magic name which Aesgen’s president,

Paul McGarty, can brandish is none other than the Mayo Clinic.

Aesgen is launching a three-tiered effort: to identify, develop, and

market pharmaceutical products generated largely by Mayo Clinic


In other words, it will develop generic and niche drugs and screen

new pharmaceutical products.

Though the Mayo Foundation for Education and Research (the Mayo


is a major investor, and Mayo’s representative, John H. Herrell, is

board chairman, McGarty insists that Aesgen maintains an "arm’s

length" relationship with the clinic.

Mayo’s medical venture division handles technology transfer by taking

some of the technologies to suitable entities such as Aesgen, says

McGarty: "We have a series of multisource projects in the line,

and rights to technologies that we have located in the Mayo Clinic.

Mayo is an investor in our company, and we have an arm’s length


with them."

"We utilize a medical advisory board — 10 top Mayo physicians

in various therapeutic categories — to select targets and programs

from a wide array of clinical leads developed by Mayo’s internal


says McGarty. "We are focusing on oncology and central nervous

system research."

Along with the Mayo investment, two other companies are co-founders:

a contract research and development organization (a CRO), and a


manufacturer. Applied Analytical Industries, a public company listed

on Nasdaq as AAII, remains in Wilmington, North Carolina


This CRO provides product development and support services to the

pharmaceutical and biotechnology industries. It also licenses its

own drug and drug technologies to global clients.

The other co-founder, Mova Pharmaceutical Corporation, opened an


of Mova Laboratories Inc. at 214 Carnegie Center last year. Based

in Caguas, Puerto Rico Mova manufactures generic over-the-counter

liquids and prescription products for companies such as Ciba Geigy

and Merck.

Last summer McGarty succeeded David R. Bethune as


of Aesgen and now faces the challenge of coordinating all the


held firm’s different entities and efforts. He grew up in New York

as the fourth of five boys, majored in chemical engineering at the

University of Rhode Island, Class of 1982, and has an MBA from Pace.

He has worked at American Cyanamid’s Lederle Laboratories (now


Home Products) and at Bristol-Myers Squibb, where he was director

of central nervous system franchise management. Last year he was


in the worldwide launch of the anti-anxiety drug BuSpar and the


Cerzone. He and his wife, Christine, live in Hopewell with their five

year old son, Steven.

McGarty’s father worked for the Shubert organization as a carpenter

— setting up shows and running them. "In the theater you


are an entrepreneur trying to find the next business opportunity,"

says McGarty, comparing his father’s work to his own. "Shows open

and close and theater companies come and go. Your relationships with

people, your knowledge of the industry, and how well you do what your

are responsible for doing — they guide you through that maze."

McGarty’s plan for Aesgen’s three-stage growth:

Near-term development of multisource products. Twelve

multisource products (generic products or branded products that have

been improved) are fully funded and nearly on the market. They will

compete with branded products worth more than $1.5 billion. Of


eight abbreviated new drug applications (for generics) filed so far,

three have been approved, and two approvals are expected within six

months. On the market now are two forms of acyclovire — capsules

and tablet equivalent to Zovirax, originally developed by Glaxo


Also recently approved are atodolac tablets, nonsteroidal


product equivalent to Lodine developed by American Home Products.

Moderate-term development of niche brand products. Over

the next three years Aesgen expects to take five products — whose

original patents have now expired — through clinical trials. These

"niche" products, identified through Mayo, will improve


therapies or establish new uses.

Long-term development of novel pharmaceutical products.

Focusing on "unmet needs" in oncology and diseases of the

central nervous system, Aesgen will invest in new technologies aligned

with the therapeutic strengths of Mayo, using animal models and


drug design tools.

Aesgen Inc., 2 Research Way, Box 7275, Princeton

085403. Paul McGarty, president. 609-419-1090; fax, 609-419-1092.


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Canada’s MDS

As Canada’s largest health and life sciences company,

Research Way’s newest tenant is sometimes compared to Johnson &


"MDS is similar to J&J in revenue streams, customer base, and

organization," says spokesperson Wilma Jacobs. MDS began 25 years

ago as a laboratory service company in the west end of Toronto and

is now so widespread that 45 percent of the revenues come from


markets. Headquartered in Etobicoke, Ontario, it targets $1 billion

revenues by 2000.

Pharmaceutical Services, with revenues of more than $100 million in

the last fiscal year, was recently added to the MDS roster. "We

saw a wealth of research that was dying on the vine or going off


says spokesperson Wilma Jacobs. "We believed we could


that research in North America and create the high tech jobs that

North America needs, sell products internationally and bring revenue

back to North America."

MDS Pharmaceutical Services provides contract research services to

help pharmaceutical companies lower their drug discovery and


costs and shorten the process to bring new drugs to market. It will

move into 2 Research Way, to be an eight-person head office for the

900-employee division.

Henry Pan, president of MDS Pharmaceutical Services, "is


internationally for his expertise and his successful track record

in accelerating drug research and development," says John Rogers,

MDS president and CEO.

Pan majored in genetics at Montreal’s McGill University, Class of

1969, and has a pharmacology PhD from the University of Hawaii and

an MD from the University of Hong Kong. He had worked at Bristol-Myers

Squibb in Princeton from 1985 to 1992. At DuPont Merck in Wilmington

he was most recently executive vice president of drug development.

"The world market for contract drug research and development is

growing at about 20 to 30 percent a year, and MDS is committed to

being a leader," says Pan.

MDS Pharmaceutical Services, 2 Research Way,


08540. URL:

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Today’s entrepreneurs, James Pachence believes,


with two factors — people who come from families of entrepreneurs

and people who had paper routes. He qualifies on both counts. He grew

up in coal mining country in Hazleton, Pennsylvania, where his father

and his brothers "had a number of different companies — dry

cleaning, tuxedo rental, dress manufacturing, whatever made money.

They were bright, ambitious people with very little education. I had

to work in the dry cleaning plant, and that gave me an incentive to

do well in school."

Now he heads Veritas Medical Technologies Inc., a Forrestal


firm engaged in research and development of pharmaceutical compounds

for sustained drug release. It has received two Small Business


Research contracts from the National Institutes of Health.

Both SBIR contracts involve sustained biopolymers developed at Rutgers

in the laboratory of Joachim Kohn. A paper on "Novel Therapies

for Pulmonary Hypertension" will be presented in February by David

Riley and George Poiani, both of Robert Wood Johnson Medical School.

The second is "New Materials for Prevention of Post-Surgical


The technology has been licensed from Rutgers.

"Many drugs have problems not getting to the site of action before

they exit from the body, or the toxicity is so high that they can’t

be used effectively," says Pachence. "The strategy we have

is to bring the drug as close as possible to the site of


For instance, to deliver a pharmaceutical to the lung, the ideal mode

for site-directed delivery would be a spray aerosol.

Pachence left the family business environment to earn his


degree (Class of 1974) and his PhD in biophysics, both from the


of Pennsylvania. There he also met his wife, who had left her studies

of oboe and piano at Peabody Conservatory in Baltimore to learn to

be a pathologist. They have a 14-year-old son at Hun and a 12-year-old

daughter in public schools.

After a stint as associate professor at Columbia Presbyterian,


worked with a small company, Helitrex, in Princeton, which later


American Biomaterials. Then he helped put together Medi-Matrix, which

then became Integra Life Sciences. He left that firm in 1994.

"The market is very large," says Pachence, "and the


areas we are focusing on have billion dollar competitors." Alkerme

in Boston, he says, is probably the major competition. "They have

some revenues based on corporate partner relationships and lots of

money in the bank. We are neophytes in comparison."

Eighteen months after its founding, there are five employees including

two at this address. "I am doing some lab work," says


"but my major job is to knock on doors to get the money. We are

dependent on private financing and grants and are not even looking

towards commercial funding." He has had some success with


from a group of New Jersey individuals. "Our goal is to bring

in enough data to attract a corporate partner." Which one?


standard cast of characters in the pharmaceutical industry — go

up and down Route 1."

The name may change. "We were trying to look for something pretty

open ended, but now the name will probably be something more


Veritas Medical Technologies Inc., 116 Village

Boulevard, Princeton 08540. James Pachence, president. 609-466-8712;

fax, 609-520-1702.

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