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Tuesday, July 25, 2006

The CEO of a Few Cargo Cult Airports

He was a smart young man. After receiving his PhD and MD from the University of Michigan he began teaching at Stanford. Not satisfied with the slow pace of life in academia he went into business. In 1984 he convinced a few venture capital groups to back him. He was now the founder of a biotech company. As the clinical-trial process ate up early funding, he returned for two more rounds of funding causing his hown financial interest in the company to dwindle. This loss of control grated on him. His backers, seeking more seasoned management, brought in a new CEO, who began spending heavily on a large building and dozens of new employees. By the time they were ready to go to market with their first drug, the company needed more money--and its backers were looking for a way out. The founder reluctantly agreed to sell the company. He left bitter, a year later, convinced that more patient investors could have reaped far higher returns in a year. But he also pocketed $7.5 million.

Cargo Cult Scientist note: No drug was brought to the market. The airplanes did not land. A company was sold, not a drug.

In 1991 he founded his next biotech company. The product was almost identical to the previous companies product. They spent years developing the company. During that time the drug was under development as well but it wasn't all that impressive. In spite of the products weak performance they filed an IND (Investigational New Drug application) with the FDA. In 1998 the FDA issued a warning letter to the CEO. The FDA found that the company was promoting their product as safe and effective for numerous applications. None is this had been approved by the FDA. The CEO and his company had 14 days to comply with the FDAs demand to cease promoting the drug. All managers within the company were to receive a copy of the warning letter.

Disappointed with the progress of work and the arrogance of the CEO, the board voted to replace him in 1999. In 2000 the company withdrew its NDA (New Drug Application) and ceased development.

The airplanes, once again, did not land.

In 2000 he began his latest adventure. This time the product was different. They would focus on generic products delivered nasally with a new technology that employed biological materials instead of the standard nasal formulations. However, there has been no INDs filed that employ the highly touted delivery technology. A major deal with a Merck was shut down to to lack of efficacy. Nonetheless they continue to pump money into the project. The decision was labeled as one of the top five stupidest things on Wallstreet that week. One investor on a blog commented, "I was never a big fan of (the Company) because I remember (the CEO) from a company he ran called (previous company). In my opinion he wasn't always truthful."

The latest disappointment was a letter by the FDA stating that the most advanced drug in their pipeline was not approvable. The good news for investors was that this drug did not employ the delivery system so highly touted. The rest of the pipeline, which may or may not use the delivery technology, was safe.

The highly touted biological drug delivery system simply does not exist. It was an idea or a hypothesis but it was not what they claimed it to be. Once again, investors have been duped. Only white lab coat wearing individuals know of the trouble. Every week they have to report on the progress of the "technology". But a hypothesis is not technology. Only a cargo cult would believe it is. The cargo cults beliefs are what prevent them from making progress in the field of aviation. The same goes for biotechnology.

The CEO of this story is another hypothesis. He is said to posess great skills in running a business. I suppose he is no different than many of the leaders running biotech companies. He's got the PhD and the MD as well. He's ran other companies. He has assembled a team and they run the daily operation. In the end, nothing happens. People lose their jobs. Investors lose their money. Is there another way? Is there another hypothesis that we could apply to making money and drugs at the same time? I can only think of one. Develop a highly effective drug and bend over backwards to prove that it doesn't work. If you fail, you win.

Give up the pedigreed CEOs. Search out useful drugs and everyones work will be easier.

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